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Steve Laut, president of Canadian Natural Resources, smiles before addressing the company's annual meeting in Calgary, Thursday, May 5, 2011.Jeff McIntosh/THE CANADIAN PRESS

New refinery capacity and pipeline projects coming on line will help demand and prices for Canadian bitumen in the next two years but Canadian Natural Resources Ltd. president Steve Laut says the proposed Keystone XL pipeline will eventually be essential for growth in the oil sands industry.

"Long-term, we do need Keystone to be able to grow the volumes in Canada," Mr. Laut said in an interview following the release of his company's first-quarter results on Friday.

Mr. Laut's emphasis on the importance of Keystone stands in contrast to what others in the industry, as well as the U.S. State Department, have said regarding the project. TransCanada Corp. chief executive Russ Girling has said Keystone, his company's proposed pipeline project, is the safest and most efficient way of transporting Canadian oil, but it's just one way of getting from A to B. Last month he said that even if opponents manage to halt the $5.4-billion project in its tracks "there's billions of dollars of investment and billions of dollars of opportunity, and the world needs this source of oil."

The U.S. State Department said in a March draft report that the proposed pipeline – which will add 830,000 barrels a day of transport capacity between Alberta and refineries on the Gulf Coast – will not, on its own, have a major impact on development in the oil sands and, therefore, on global emissions of greenhouse gases. The State Department concluded that oil sands producers will eventually find new routes to markets, including the growing use of rail cars to transport crude.

The State Department conclusion collides with a key concern of the project's vocal critics, who say the approval of the pipeline would increase development in the oil sands and climate changing emissions.

On Friday, CNRL said the discount paid for Canadian heavy oil affected their results in the first quarter, but that spread is expected to narrow in the months ahead. The differential widened during the winter months, in part due to pipeline congestion in the U.S.

Referring to the short to medium term, Mr. Laut – who heads Canada's largest primary heavy oil producer – said there will be some volatility when it comes to heavy oil prices, but overall he is "bullish" on heavy oil pricing in 2013, as well as the mid-to-long term as infrastructure constraints to get to the Gulf Coast are removed. He said demand will increase through expansions by both the BP refinery in Whiting, Ind. and Marathon Petroleum Corp.'s expansion in Detroit.

Enbridge's Flanagan South expansion, he noted, is also slated to come on stream in 2014 and will increase demand for Canadian heavy oil.

While there's some uncertainty around the Keystone XL project, Mr. Laut said he believes the controversial pipeline will eventually be approved. Getting oil shipped to both Canada's West and East Coasts for export is also key to getting around bottlenecks in North America's pipeline system and getting the best price for Canadian crude, he said.

"We are taking a discount, and that's hurting the revenues for all governments in Canada," he said.

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