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Vol. 10, No. 6 Week of February 06, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Chasing oil sands markets

Suncor views California as best new outlet; Enbridge hopes Asia will book 80 percent of Gateway; consultant says new outlets and petrochemicals, vital

Gary Park

Petroleum News Calgary Correspondent

Suncor Energy, Canada’s second largest oil sands producer, shows no interest in scrambling aboard the Enbridge bandwagon for Asia, preferring to open links to California.

Suncor Chief Executive Officer Rick George said his company believes the United States will remain the “largest and best” market for Canadian crude “well into the next decade.” He told analysts Jan. 27 that Suncor sees no problem selling Suncor oil to the United States, given the prospect of growing demand in California as shipments from Alaska start to decline.

Meanwhile, Enbridge Chief Executive Officer Patrick Daniel remains bullish that Asian companies may take as much as 80 percent of the 400,000 barrels per day proposed for his company’s planned C$2.5 billion Gateway oil sands pipeline from Alberta to a deepwater port at Kitimat or Prince Rupert in British Columbia.

“More and more it’s looking like much of the (Gateway) commitment, potentially as much as 80 percent of it, could come from Asian refiners,” he said Jan. 26.

Daniel has previously indicated that 20-25 percent of Gateway’s volumes could be shipped to California.

He said in a conference call that commits to take close to 90 percent of Gateway’s volumes will be needed for the project to go ahead.

Enbridge has said it hopes to have deals signed this quarter with “one or two” Asian buyers to meet its goal of firm contracts later this year to make regulatory filings and get the pipeline built and operating by late 2009. Two state-owned Chinese firms, Sinopec and PetroChina, are seen as frontrunners, although discussions are still taking place with prospective customers in Japan and Korea.

Daniel reiterated that third parties could take up to 49 percent ownership in the pipeline, but Enbridge wants to “maintain a majority ownership position.”

Alberta favored for refinery

On another matter, George said project economics favor the Fort McMurray area of northern Alberta over the United States as the site for a refinery to process bitumen from Suncor’s next expansion phase.

The company expects its current expansion will see production grow by more than 100,000 bpd to 350,000 bpd by 2008.

Plans then call for a third plant to boost combined volumes to 500,000-550,000 bpd within five to seven years.

Sites for a refinery closer to U.S. fuel markets, including Suncor’s refinery in Denver, were examined, but Fort McMurray is seen as the best location for a new upgrader to convert raw bitumen into refinery-ready crude, partly because it avoids the extra cost of shipping the molasses-like bitumen over a long distance, George said.

Regardless of whether Asia or California emerge on top, the effort to open up new markets is vital to lower the risks associated with embarking on new oil sands projects, a Calgary conference was told in mid-January.

Gareth Crandall, vice president of Purvin & Gertz, said outlets for Canada’s rising oil sands volumes need a combination of investment in upgrading, downstream refining improvements and an array of new byproducts such as petrochemicals from bitumen feedstock.

Without those breakthroughs there will be a scaling back of business in the oil sands sector, which has the challenge of competing with conventional crude that is more easily absorbed by existing markets, he said.

The solution is to build on existing markets with a combination of bitumen blends, synthetic crude and refined products, as well as opening markets in California, the U.S. Gulf Coast and China, Crandall said.

Consistent with Suncor’s decision on the siting of its new upgrader, he said a new study by Purvin & Gertz will demonstrate the cost effectiveness of upgrading raw bitumen and synthetic crude in Canada rather than converting existing U.S. refineries.

He said expanding into petrochemicals is an “untapped” opportunity that “has merit.”

Apart from anything else, he suggested the oil sands industry in Canada would benefit from domestic upgrading rather than simply leaving Canada as a supplier of raw material.

Mike Ekelund, an assistant deputy minister with the Alberta Department of Energy, said the province backs the idea of a bitumen-based petrochemical industry.

In addition, he said the byproducts from oil sands could see Alberta produce 40 percent of the world’s titanium and 30 percent of its zircon within five years.



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Imperial thinks big in Alberta oil sands

Gary Park

Already dependent on Alberta’s bitumen deposits for close to 85 percent of its crude production, Imperial Oil is planning for a staged development of its Kearl Lake leases that could eventually generate up to 300,000 barrels per day.

Chief Executive Officer Tim Hearn said Jan. 28 that the company strongly leans towards a phased development to keep a check on the cost of a project that could run to C$8 billion.

He said the timing of Kearl Lake will depend on construction of other oil sands projects to avoid too much pressure on the labor force, which has been a major contributor to budget overruns by other oil sands developers.

Hearn also expects that Kearl Lake will need an upgrader, possibly at the site or near Edmonton, to convert the raw bitumen into refinery ready crude.

In December, he said Imperial is exploring a full range of upgrading options, including the use of parent company ExxonMobil’s U.S. refineries, to gain a competitive advantage.

Hearn also said regulatory applications would be filed in 2005.