In just the past month, three of Canada’s largest oil producers have embarked on plans that could cost C$25 billion and extract incremental output of 532,000 barrels per day from the Alberta oil sands.
The same three companies — Suncor Energy, Canadian Natural Resources and Petro-Canada — were part of a delegation assembled by FirstEnergy Capital that held sessions in the United Kingdom earlier in March talking about the promise and the challenges of tapping the vast bitumen deposits.
Meanwhile, the United States is fast awakening to what newspapers such as the New York Times, Chicago Tribune and Washington Times have recently started characterizing as one of the safest most secure sources of oil for North America.
In a March 13 article, the Tribune said a “swelling tide of petroleum is set to pour out of Canada in coming years, freed from primordial sands for a journey to refineries” in the U.S. Midwest. It predicted that the United States is “likely the primary buyer” of a three-fold increase in oil sands production to 3 million bpd over the next decade.
Canada destined to be in top five
FirstEnergy analyst Ken Rowan said the United Kingdom sessions were seen as a breakthrough for a Canadian industry that is an “emerging world power in energy,” destined for a spot among the world’s top five producing nations.
That’s the betting among the Canadian producers as they plunge headlong into a tidal wave of investment, buoyed by the fact that shares of companies such as Suncor are valued 50 percent higher than the global giants, ExxonMobil and BP.
Since mid-February, Canadian Natural has launched its C$10.8 billion Horizon project that is expected to produce 232,000 bpd of light synthetic oil by 2012; Petro-Canada has rejoined major oil sands ventures and could spend C$3 billion developing a 100,000 bpd project by 2010; and Suncor has filed regulatory applications for its most ambitious undertaking yet — a 200,000 bpd scheme that, with various related facilities, carries a preliminary price tag of close to C$11 billion.
The mixture of confidence and daring among these participants is reflected in Petro-Canada’s estimate that long-term oil prices will average US$31.50 a barrel in assessing the profitability of the Fort Hills project it joined on March 1. Suncor is counting on a US$28 per barrel threshold.
Although Petro-Canada has made a “very aggressive assumption,” said Victor Lauerman, global energy analyst at the Canadian Energy Research Institute, he believes that other companies will “soon move up” to join Petro-Canada.
But Petro-Canada Chief Executive Officer Ron Brenneman is confident that integrating oil sands mining with upgrading raw bitumen into refinery-ready feedstock “offers decades of substantial production with solid returns.”
Suncor said March 14 that, based on $28-oil, it is projecting a 15 percent return on capital from the Voyageur expansion that will start with its third upgrader, carrying a preliminary cost of C$5.9 billion, although the commercial pioneer of oil sands production was careful to note that the estimate is “subject to a high level of uncertainty” — a reminder of overruns in the sector totaling billions of dollars as the costs of labor and materials soared.
Suncor applies to produce synthetic gas
The bundle of applications filed with Alberta regulators also includes C$350 million to sustain production of raw bitumen and C$600 million for a plant to produce synthetic gas to lower Suncor’s reliance on conventional natural gas to fuel its extraction and processing operations.
The company said it plans to develop a petroleum coke gasifier, converting about 20 percent of coke (a byproduct of oil sands production) from the new upgrader into synthetic gas to supply hydrogen and fuel.
In addition, Suncor said it expects to file applications starting late this year to spend C$4 billion for incremental oil sands production to feed the new upgrader, which is scheduled to be phased in from 2010 to 2012, lifting Suncor output to 550,000 bpd.
Suncor also said it is exploring options for new pipeline capacity from Fort McMurray, the oil sands “capital” in northeastern Alberta, to the Edmonton refinery hub.
From there, it will consider whether to support competing plans by Enbridge and Terasen to build new pipelines to the British Columbia coast to open up markets in California or Asia, although the United States and Canada remain “key markets for us,” said a Suncor spokesman.
