Oil sands could shed C$241 billion

The trickle is turning into a tsunami for Canada’s oil patch.

Just as Alberta Premier Ed Stelmach was pledging a helping hand for the industry’s most vulnerable, junior companies, the Canadian Energy Research Institute issued a report estimating that lost investment in the oil sands could range over the next 11 years from C$97 billion in normal circumstances to C$241 billion in an era of unconstrained growth.

CERI, funded by industry and governments, said it still expects spending in the Alberta oil sands will total C$218 billion between now and 2020, but the rate of development will be much slower than it forecast only three months ago and will need WTI prices above $70 per barrel to resume growth and expansion.

The think-tank study, entitled “The Eye of the Beholder: Oil Sands Calamity or Golden Opportunity?” said CERI’s prediction last year that production would reach 3.4 million barrels per day by 2015 has been revised to 1.9 million-2.4 million bpd if WTI prices remain below $60 per barrel and the lack of liquidity persists in credit markets.

Some projects in peril

A return to growth will be confined to expansions of existing operations, or those with enough financing in place before last year’s credit collapse, it said.

“What is clear is that, over the next few years, oil sands production growth will be almost at a standstill and new capital investment will collapse to levels not seen since before the turn of the century,” CERI said.

“The Alberta oil rush is likely to be characterized as the Alberta oil slumber for the next few years as development stagnates,” it said.

“We believe that the era of grand announcements for oil sands projects is over and a more measured pace of development will take hold,” CERI said, adding a note of optimism that growth will occur at a slower pace and “with more manageable costs.”

It said the timeout will give oil sands developers a chance to refocus on their next moves, securing high-quality labor being laid off in other sectors and obtaining components and products “at costs that have not been seen in almost a decade and to prepare for the eventual return of higher oil prices and economic activity (while competitors) scramble to catch up.”

For now, CERI said operating projects should be able to withstand crude prices under $50 per barrel for the short-term, but “higher prices are essential to allow operators to generate a rate of return that can be reinvested into the Canadian economy.”

—Gary Park