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Smaller is better Oil sands decision-makers say projects are shrinking as operators move to innovative, cost-cutting bitumen extraction technologies GARY PARK For Petroleum News
The age of multibillion-dollar projects in the Alberta oil sands has likely come to an end, even if oil prices claw back some of their lost ground, say top executives of production companies.
Although some production growth from the expansion of existing large-scale operations will be completed, the giant developments are on hold, leaders of Suncor Energy, Cenovus Energy and MEG Energy told an investment symposium in Toronto.
Alister Cowan, Suncor’s chief financial officer, said the oil sands sector will likely confine itself to “smaller, more modular-type projects” once the C$13 billion, 160,000 barrels per day Fort Hills joint venture by Suncor and Teck Resources is completed.
Ivor Ruste, chief financial officer of Cenovus, and Eric Toews, chief financial officer of MEG, said their companies are turning from the use of steam to solvents to extract bitumen from their leases, while Cowan said his company is experimenting with radio waves to potentially eliminate the use of steam and the related greenhouse gas emissions.
Ruste said Cenovus currently requires West Texas Intermediate oil prices of US$45-US$50 a barrel to break even, putting the oil sands in the same league as U.S. shale plays.
He said Cenovus is certain that a continued focus on innovation and cost cutting will allow the development of the huge oil sands resource and make Canada “a relevant contributor in the global economy.
“The oil sands are quite competitive and the top-quartile assets we’re in will remain competitive on a global basis,” Ruste said.
Others also in retreat The retreat from the world of megaprojects has extended to Brion Energy, the wholly owned Canadian unit of PetroChina, one of the world’s super-majors which had once talked about joining the oil sands elite.
Having invested C$13 billion in Canada to stake its presence in the oil sands, shale gas and LNG sectors, PetroChina has finished construction on MacKay River, one of two projects it acquired through a C$5 billion joint venture with Athabasca Oil.
Although the company has not disclosed final costs on MacKay River, the price tag is estimated at C$2.2 billion, about C$1 billion more than the original estimate.
Bob Shepherd, executive vice-president of Brion, told the Financial Post at the Toronto symposium that the oil sands do not “enjoy a particular strategic advantage. They have to compete with other opportunities we have.”
He said Brion has lessons to learn before it presses the accelerator on oil sands development and makes any further commitments.
The company will extend its learning process when it produces first oil at MacKay River late this year, then ramps up to 35,000 bpd, adding to the 20,000 barrels of oil equivalent it currently produces from other Canadian operations.
MacKay River has the resources to peak at 150,000 bpd, while Dover, the second project, could support 250,000 bpd, but its development is now at least seven years away.
Pipeline issues biggest surprise Shepherd said PetroChina’s biggest surprise in Canada has been the inability of industry and government to proceed with pipelines to the British Columbia coast, giving producers access to the best price for their oil in Asia.
He said leadership from government in approving pipelines to the Pacific and Atlantic coasts is vital.
A panel representing government and industry officials from British Columbia, Saskatchewan, Quebec and New Brunswick presented a united front at the same symposium on the importance of pipeline infrastructure to gain market access for Canada’s crude.
Ian Whitcomb, president of privately owned Irving Oil, which seldom appears on a public platform, said TransCanada’s proposed Energy East pipeline “means a lot to Canada,” noting that Irving’s 300,000 bpd refinery in New Brunswick currently buys only 22 percent of its feedstock from Canadian producers, with about 33 percent coming from Saudi Arabia and 30 percent from the United States.
“We have to stop dollars from leaving Canada,” he said. “For Canada to compete globally, we need to get low cost crude to tidewater.”
Making country better The role of government in ensuring that projects like Energy East proceed is “how we make our country better,” said Saskatchewan Energy and Resources Minister Bill Boyd. “It isn’t just about Alberta and Saskatchewan. It’s about the direction our country wants to go.”
Eric Tetrault, president of the Quebec Manufacturers and Exporters, emphasized that TransCanada’s biggest challenge in his province is to make a convincing case for the security and safety of the pipeline.
“We have to win that battle in order to get the Quebec government on our side,” he said.
However, he conceded Quebec business has fallen short of promoting the economic benefits of Energy East, although it is about to step forward
“Business gets it now and it’s going to press our government to support” the pipeline he said.
Patricia Mohr, former vice president of economic and commodity markets at Scotiabank, said the economic gains for Quebec from Energy East “come in the form of improving the economic viability and sustainability” of the Suncor and Valero Energy refineries in Quebec.
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