Canada’s oilsands happen to be battered badly by low oil prices, adverse government policies and transportation constraints, but production is continuing and growth looks unstoppable ’till the end from the decade, based on two new reports.
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The message to oilsands supporters, opponents and competitors: Get accustomed to it.
An analysis by RBC Capital Markets says oilsands production is on course to develop with a further 760,000 barrels a day in the next 4 years, from 2.4 million barrels each day right now to peak at 3.A million barrels each day in 2020 – a surprising trajectory given today’s depressed oil prices.
The flood of recent oil is coming from a number of megaprojects already built or under development: three mining projects (Kearl, Fort Hills and Horizon), and five in-situ projects (Foster Creek, Christina Lake, Kirby, Surmont and Sunrise).
As impressive because the growth is, RBC says it’s still 235,000 barrels a day short of previous expectations because of deferrals and cancellations in the last year.
The oilsands’ long-time horizon, which was once their great attribute, might be a hindrance inside a more volatile future
Oilsands growth means Canada’s overall oil production will climb to 4.6 million barrels each day by 2020. That’s 40 per cent less than previously expected, but still an amazing leap in the 2 million barrels a day produced in 2000, confirming Canada among the world’s oil producing powerhouses.
One from the interesting facets of the oilsands growth trend is it is fueled usually by Canadian operators Suncor Energy Inc., Canadian Natural Resources Ltd. and Cenovus Energy Inc., while international companies that had previously rushed to the deposits for example Statoil ASA and PetroChina are sitting on the sidelines.
The picture gets foggy after 2020, when oilsands production could plateau. No growth plans happen to be announced beyond this decade, as oil prices and policies remain uncertain, particularly Alberta’s plans to cap oilsands greenhouse gas emissions at 100 megatonnes a year. Information on the controversial plan remain a mysterious three months after its announcement by Alberta’s NDP government.
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In contrast to U.S. tight oil, which may be throttled down or up within months, oilsands projects are not well-suited to quick course corrections because they require long-lead times – four to five years from design to production for in-situ operations, and a minimum of seven to eight years for mining operations, based on the report by RBC oil analysts, including co-head of worldwide energy research Greg Pardy.
Long lead times also mean the oilsands sector may be unable to take advantage of potentially favourable market conditions post 2020, when oil prices might have recovered, inducing the industry peaking well below its potential, previously pegged at around six million barrels a day.
Another report, by Peters & Co., re-enforces that oilsands operations that use steam-assisted gravity drainage (SAGD) technology are unlikely to seal being produced and can instead ride the low oil price cycle.
The SAGD industry is in the infancy and has no operational experience with widespread steaming and production shut-ins for extended periods, the Calgary-based dealer said.
One of the finest risks is reservoir damage from an influx water, Peters said within the report.
“Shutting in SAGD wells on the widespread basis remains a serious concern for operators, with substantial risks to the reservoir, well-bores, surface facilities and overall performance of the project,” the dealership said.
Peters concludes that oil prices would need to decline below US$20 a barrel for operators to check out shutting being produced. Operating costs for the better projects are in the $15 to $20 a barrel, split between variable costs like power and gas, and fixed costs like maintenance and staff.
The bottom line is that the oilsands have limited flexibility to respond to today’s new realities apart from by cutting costs, which is already happening across the board, and that their long-time horizon, which used to be their great attribute, could be a hindrance inside a more volatile future.
ccattaneo@nationalpost.com
Twitter.com/cattaneooutwest
