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Forget XL — oil sands will grow
Gary Park For Petroleum News
Whether or not Keystone XL is stalled or scrapped, capital spending in the Alberta oil sands will continue unabated, peaking in 2016 at C$29.7 billion if the TransCanada project goes ahead, said a report by RBC Dominion Securities analyst Mark Friesen.
Even if XL faces delays and removes C$8.1 billion from investment in the 2014-17 period, C$7.8 billion of that deferral will be transferred into the 2018-20 period, he said.
The analysis estimates that if XL remains on hold, 300,000 barrels per day of an expected 1.6 million bpd of increased output will be affected in the 2015-17 timeframe, but expects crude-by-rail could largely offset that setback and might have the positive result of easing short-term inflationary pressures in the oil sands region of northern Alberta.
In fact, investment bank Canaccord Genuity said in a September study that other pipeline and new rail terminal proposals mean XL is “no longer a necessity.”
Investment bank Peters & Co. expects Canadian companies to spend US$1 billion on rail terminals in Western Canada over the next two years and up to C$5 billion on new rail tanker cars.
Capital biggest issue The RBC report said the biggest issue facing oil sands growth — even greater than the risks posed by pipeline capacity and technology development — is the availability of capital for projects, especially for smaller operators.
It said about C$26 billion has been earmarked by oil sands producers, more than half of it budgeted for thermal recovery projects, noting that the 10 largest spenders will account for 84 percent of the capital outlay and control more than 90 percent of the approved capacity additions.
RBC forecasts that cost inflation in the thermal sector will average 3 to 4 percent a year over the next seven years, a change from the runaway inflation in recent years that resulted in budget overruns of up to 40 percent.
Pressures on skilled labor will come from two current megaprojects — the North West Redwater Partnership’s 150,000 bpd refinery near Edmonton (which is expected to need a peak workforce of 8,000) and a 109,000 bpd expansion of ConocoPhillips’ Surmont operation (peaking at 3,000 workers).
The report pegs the long-term supply costs of greenfield in-situ projects at US$76.38 per barrel of West Texas Intermediate, assuming a heavy oil price differential of 18 percent and 12 percent after-tax return.
However, RBC said higher quality bitumen resources and existing investments in infrastructure could help industry leaders such as Cenovus Energy, MEG Energy and Suncor Energy build thermal recovery projects at lower oil prices.
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