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It’s big and it’s ‘real’ Canadian study points to 5.3 million barrels per day from oil sands by 2043 Gary Park For Petroleum News
The Canadian Energy Research Institute figures that a “realistic” target for oil sands production by 2043 is 5.3 million barrels per day, almost a five-fold increase over the next 34 years, hitting 1.7 million bpd in 2015 and 4.5 million bpd by 2030.
That forecast lags far behind earlier CERI targets, which counted on 5 million bpd by 2015 if all announced projects were completed.
But, if its updated scenario is accurate, CERI estimates the Alberta government could collect C$852 billion in royalties; capital outlays would total C$309 billion and the industry might face a bill for greenhouse gas compliance of C$130 billion.
CERI, in its latest projections and supply costs analysis, looked at four scenarios and considered three — energy security, realistic and protracted slowdown — to be plausible, before deciding to focus on the “realistic” model.
That, CERI said, assumes developed nations will emerge from the recession entering the second quarter of 2010, resulting in a slow and steady growth in demand for crude oil and coinciding with the emergence of the BRIC nations (Brazil, Russia, India and China), triggering a “slow and steady climb” in oil prices to almost US$200 per barrel of West Texas Intermediate by 2043.
Environment an issue But CERI cautioned that growth will be tempered by an ongoing push toward environmental protection through modest GHG emissions compliance costs, shaped by a North American pact that harmonizes those costs.
The study said easing capital and operating costs give oil sands companies a golden opportunity to be first out of the gate with new projects and reap the rewards of the current pricing environment.
Based on CERI’s oil price forecasts rates of return for projects could range from 11 percent to 23 percent, reflecting WTI equivalent prices for steam-assisted projects of US$134 per barrel, integrated mining and upgrading of US$119 and standalone mining of US$130.
Although capital costs and the return on investment take up a substantial portion of the total supply cost, the Alberta government’s per-barrel take is 16 percent to 23 percent. The study said natural gas requirements for the oil sands sector will increase three to four times current levels, assuming no changes in technology and energy efficiency.
Energy exchange possible It said that in such a case, Canada and the United States would be engaged in an energy exchange — Canadian oil for US natural gas — that would further enhance the bilateral trade relationship.
But the prospects for technology switching and efficiency improvements are “substantial and will likely put downward pressure on the industry’s natural gas requirements,” CERI said.
The study said that although technological innovation (in addition to carbon capture and storage) is expected to reduce emissions from natural gas consumption by the oil sands sector, emissions resulting from the production of marketable bitumen and synthetic crude (without taking into account emissions associated with electricity purchases or the benefits of cogeneration) could reach almost 140 million metric tons a year from less than 40 million metric tons today.
Spending expected to grow For the immediate future, the Canadian Association of Petroleum Producers said in late October it expects oil sands spending, which tumbled about C$8 billion this year to C$3.9 billion, will make a C$2 billion recovery in 2010. CERI takes a much bolder line, predicting C$8 billion in 2010, largely driven by planning and construction on Imperial Oil’s C$8 billion Kearl mine.
CERI research director David McColl said it’s likely more projects will start moving ahead over the next six to eight months, prompted by a 15 percent drop in capital costs over the past year, combined with a 13 percent decrease in operating costs, which he suggested underlies Imperial’s decision to move on Kearl and Suncor Energy’s takeover of Petro-Canada that could see an early revival of the Fort Hills project.
McColl said deciding now to bring a mining project on stream could see a return on investment over the next 35 years of about 18 percent, compared with current expectations of 10 percent.
He said projects that start production in 2013 should enjoy the benefits of oil at C$100 per barrel and even those that start construction in 2013 should still be “profitable operations,” despite missing the current round of low construction costs.
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