|
Teamwork vital for Canadian oil sands Deloitte Canada report calls for collaboration on full range of challenges facing industry, from rising costs to regulatory changes Gary Park For Petroleum News
Canada’s oil sands sector has been urged by financial services firm Deloitte Canada to consider “unprecedented forms of collaboration” to tackle lobbying pressure from environmentalists, rising costs of production and uncertainty about regulatory changes in Canada and the United States.
“The negative perception of the oil sands has the potential to become a significant hurdle that could limit the sector’s foreign investment opportunities and interfere with its future development prospects,” said Chris Lee, Deloitte’s energy and resources industry leader.
But, in offering an encouraging note, he said there are increasing examples of one-time rival companies “joining forces to advance the industry’s image and long-term business viability” by working together to improve infrastructure, green technology and public education about environmental improvements.
The report said the fact that 75 percent of the world’s petroleum is under the control of national governments and there is an anticipated slowdown in deepwater exploration after BP’s Gulf of Mexico blowout points to a possible reduction in international supply, setting the stage for an early explosion of new development and business opportunities.
Approach has been individualized Deloitte noted that oil sands companies have traditionally handled adverse trends in the cost of materials and labor (which soared more than 100 percent in 2003-05) by taking an individualized approach to problem solving.
It said that when oil prices climbed above $100 per barrel, the competitive spirit in the industry pushed costs to record levels, straining resource availability and infrastructure.
Now, as the market recovers, there are signs that competition is again heating up, the report said.
“If oil sands can cooperate to reduce costs, coordinate logistics and streamline project management, the entire industry stands to benefit,” Lee said, encouraging companies to push collaboration beyond traditional partnerships, joint ventures, alliances and associations.
He suggested there is pressure on the sector to collaborate in the face of growing pressure from environmental groups and the threat of restrictions on bitumen exports to the United States.
Economic viability tops list The report identified what it rated as the 10 most pressing trends:
• Finding economic viability: Recent research shows bitumen-producing projects are profitable at oil prices of $50-$70 per barrel and many industry watchers believe those prices will continue to rise as oil demand increases across industrializing nations and output from Mexico, the Middle East and China declines. But Deloitte said oil sands companies can’t hinge their business cases on an anticipated long-term rise in the price of oil when they have to contend with a determined environmental backlash and stricture regulatory enforcement. If they want to attract capital they must be able to demonstrate a solid rate of return and an improving environmental record.
*The cost conundrum: Small gains in productivity could yield labor savings of millions of dollars and accelerate project completion, while streamlining workforce logistics and building new relationships with major service providers could help control costs in a sector expected to consumer 50 million hours of labor over five years.
Green issues • From black to green: Although the industry has made significant strides in lowering carbon dioxide emissions, the lack of legislative clarity around emissions reductions remains an issue. To foster technological innovation, Canada’s federal and provincial governments should consider tax incentives and other programs to encourage more aggressive scientific research and development.
*Earth, air and water: Many companies are implementing technologies to reduce land disturbance, but the methods they are using require large amounts of steam, which in turn requires large amounts of fuel and emits more greenhouse gases.
• The people equation: With an industry on the verge of recovery, an estimated 6 million hours of work from unskilled labor will be required in 2011 to complete current projects, along with a pressing need for services in the Fort McMurray area. But the industry could work more closely to coordinate air and ground transportation and develop housing and infrastructure.
• Going global: Proponents of oil sands investment by national oil companies should be looking for ways to structure deals to maximize shareholder value. That could include support for minority investments and joint venture, rather than controlling-interest acquisitions. The Canadian government could play a role by helping North American companies and NOCs better understand its foreign investment policies.
Location of facilities • Where to upgrade: Companies must seriously consider where to locate their upgrading facilities, faced with a possible backlash by U.S. states against the transportation of bitumen or synthetic crude across their territories, a Canadian government warning that it might oppose bitumen upgrading in countries that lack a solid environmental track record and the heavy oil-light oil price differential that is too small to make grassroots upgraders economically viable.
• One customer is not enough: Deloitte said U.S. imports of oil sands production are forecast to average 1.07 million barrels per day by the end of 2010 and 1.3 million bpd by 2012, a pace that would see the oil sands account for 47 percent of U.S. crude imports by 2030. But, despite the appetite of U.S. consumers for Canadian crude, reliance on the U.S. market has begun to take a toll. To minimize the possible impact of U.S. regulatory changes, government agencies should seek common ground to facilitate access to the British Columbia coast, opening the door to market expansion in China and other Asian countries.
• Sharing technology success: The industry should act as an incubator for the development of clean technology.
• Autonomy may be the greatest threat: With the industry under exceptional public scrutiny, the need for collaboration has become even more pronounced, including sharing best practices on environmental performance, technology developments and taking an integrated view of the issues companies face.
| 