Three-way race shapes up in oil sands

United States, China, France expected to take major stakes in Athabasca region; Japan interested in more non-Middle East oil

Gary Park

For Petroleum News

The United States, China and France are all saddling up for the Great Alberta Oil Sands Derby, with Japan emerging as an outsider.

As global interest builds in the potential of the resource, companies from the three countries are expected to take major stakes in the Athabasca region over the next 12 months.

France’s Total, which has already set a goal of producing 500,000 barrels per day from the oil sands, anticipates spending billions over the next few years on both upstream and upgrading ventures.

Now a survey of industry executives and investment bankers by research firm Mergermarket for the law firm of Blake, Cassels & Graydon points to the U.S. and China battling to see which of the two will become the most active foreign investor.

Craig Spurn, head of oil and gas practice in the law firm, said “enormous” interest from Chinese investors could see China grow rapidly from its current small-player role.

To date, Sinopec and China National Offshore Oil Corp., or CNOOC, have minority stakes in start-up projects and PetroChina is a contender as the anchor shipper on Enbridge’s planned Gateway pipeline.

But the survey points to a major surge in interest from Chinese producers following the rejection of CNOOC’s attempted takeover of Unocal.

Spurn said so long as oil and gas prices stay robust there is every reason to expect greater merger and acquisition activity in the oil sands sector.

Total eyes upgrader

In addition to the ambitious production target set by the world’s fourth-largest integrated oil company, he has disclosed that the company — which has considerable experience in Venezuela’s heavy oil fields — is now eying a 200,000 bpd upgrader in the oil sands to convert raw bitumen into refinery-ready crude.

Guiziou said Total will not be content to confine itself to production alone, telling a Calgary conference that a downstream strategy is necessary to protect bitumen producers from price swings between heavy and light crudes.

He said Total could invest US$9 billion in its Joslyn project, including US$5 billion for an upgrader to handle the project’s 200,000 bpd output, indicating that a decision on upgrader location will be made in the next 12 to 18 months.

Guiziou said Asia is emerging as a possible market for oil sands production, although the U.S. will remain the primary outlet.

So far, Total has made no moves to secure capacity on any of the proposed pipelines to the British Columbia coast for tanker delivery to Asia, he said.

Although its major Canadian focus is on the oil sands, Total is also open to taking on prospects in the Arctic and East Coast, but has yet to identify the right opportunity, Guiziou disclosed.

“If geology looks good on any given prospect, we would be interested,” he said, listing the Mackenzie Delta as a contender.

But he conceded that Total has yet to develop the expertise required to embark on the frontier plays.

Japanese companies could be buyers

A delegation of government and industry officials was in Alberta in mid-January meeting with production and pipeline firms.

The delegation included representatives from Japan’s natural resources ministry and officials from Cosmo Oil, Idemitsu Kosan, Nippon Oil, Japan Energy Corp., Mitsubishi and Mitsui.

In fact, Japan has had a low-key presence in the oil sands for three decades, with Japan Canada Oil Sands operating a 10,000 bpd project in northeastern Alberta, but has been reluctant to take on a larger role because of its well-established reliance on Middle East oil, which contributes 85 percent of its imported oil.

But the Japanese government has shown signs of wanting to diversify its supply sources, bringing the oil sands into focus.

The Gateway pipeline could open that door, with 100,000 bpd or more up for grabs in Japanese and South Korean markets if China and California take their expected 75 percent share.