Kyoto clouds lighten over oil sands

Gary Park

Petroleum News Calgary correspondent

Comforting words from Prime Minister Jean Chretien that Canada will restrict the impact of the Kyoto Protocol have raised hopes for another C$11.5 billion worth of oil sands projects in northern Alberta.

Canadian Natural Resources said Aug. 6 that the federal assurances have helped clear the way for its C$8.5 billion Horizon project to proceed, while a spokesman for Nexen said Aug. 7 his company’s “operating cost advantage” means Kyoto is less of a concern to the C$3 billion Long Lake joint venture with OPTI Canada.

“We do not as a management team see Kyoto as having any detrimental effect on Horizon from this point forward,” said Canadian Natural chief operating officer Steve Laut in announcing that Horizon will proceed to the next phase, although capital costs remain a major risk.

However, he indicated that the entire Horizon venture is now planned for the Fort McMurray region — a change of heart from the dark days of Kyoto when Canadian Natural suggested it might build its upgrader in the United States to sidestep the worst impact of the climate change treaty.

The independent is confident it can finance construction from cash flow, but it’s ready to seek an equity partner if the budget starts to move beyond its grasp.

Regulatory hearings will start in mid-September for Horizon, which is scheduled to come on stream in 2008 at 110,000 barrels per day of light sweet synthetic crude and build to 232,000 bpd by 2012, tapping a reserve estimated at 6 billion barrels.

Now that they have Alberta government and Energy and Utilities Board approvals, the Long Lake partners are embarking on the final stages of engineering and nailing down cost estimates.

Barring the unexpected, construction should start in 2004 and the 70,000 bpd project will come into production in 2006, using steam-assisted gravity drainage technology that reduces the need for natural gas and thus the operating costs.

SAGD “takes out the biggest expense ...and (is) very cost effective,” said Sid Dykstra, chief executive officer of OPTI, the Canadian unit of Israel’s Ormat Industries.

He said Long Lake has absorbed the cost-overrun lessons that have battered recent oil sands projects and is increasingly certain that the “track record for SAGD projects is very good.”