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Canada’s energy Eldorado could solve U.S. energy deficit, despite soaring costs Talk of up to 10 million barrels per day tempered by capacity to build the projects, worries about greenhouse gas emissions; but 2 million barrels seen as realistic Gary Park PNA Canadian Correspondent
It takes a lot of staying power,” ruefully remarked Neil Carmata, Shell Canada Ltd.’s senior vice president of oil sands.
He knows of what he speaks, having faced the wrath of employers and shareholders over a C$1.4 billion increase in the budgeted cost of Shell Canada’s C$5.2 billion Athabasca project in northern Alberta.
“You ain’t lived until you have had to tell some guys in The Hague (Royal Dutch/Shell’s headquarters in the Netherlands) that you are 33 percent over budget,” Carmata recalled at a recent conference.
The third of Alberta’s big-scale oil sands ventures, Athabasca is due to come on stream at 150,000 barrels per day later this year.
The same Shell-led partnership, that includes Chevron Resources Canada Ltd. and Western Oil Sands Inc. with 20 percent stakes each, also has visions of growing to 540,000 barrels per day over the next decade.
But that goal is not yet firm. “We need to get this (Athabasca) thing under our belt,” said Carmata. Profit not an issue What he is not worried about is whether there will be a demand for oil from about two dozen bitumen and heavy oil ventures that are on the table, carrying a total price tag of C$86 billion in direct and related costs to develop a reserve base of about 3 trillion barrels.
Shell Canada president Tim Faithfull conceded before the Calgary-based company’s annual meeting in April that “shareholders are very disappointed” with the Athabasca overruns.
“They also recognize the underlying robustness of this project and the value it adds to the overall portfolio of Shell Canada, so we continue to see support from them that’s very strong,” he said.
Wilf Gobert, an analyst with Peters & Co. in Calgary, said the reason is simple: “The projects are so damn profitable.”
The Fort McMurray region represents the greatest concentration of economic development anywhere in the world, inspiring talk among some industry observers that production could eventually hit 10 million barrels per day, five times Canada’s current oil output and close to double U.S. domestic production.
But Carmata said projections of even 5 million barrels per day must be tempered by two realities: The limits to just how much capacity there is to build the mega-projects and how far Canada will go in restricting greenhouse gas emissions in a sector generally identified as one of the worst environmental culprits because the high sulfur content in the raw oil sands.
He said a more reasonable target is 2 million barrels per day within a decade. U.S. interested in oil sands Awakening U.S. interest in the oil sands was reflected in comments by senior U.S. energy officials at recent conferences in Calgary.
Vicky Bailey, assistant U.S. energy secretary, said it is wise for the United States to “look at more stable domestic and hemispheric sources of supply,” at a time when the country is relying on exports for almost half its consumption.
Thomas Huffacker, first secretary for energy affairs with the U.S. Embassy in Ottawa, even more pointedly commented that the Alberta oil sands can play a key role in “our energy future.”
What the rush to tap into the oil sands riches has done is promote even greater innovation in the region as companies chase a competitive edge, lower costs and greater certainty. Technological advances for new projects Nexen Inc. (formerly Canadian Occidental Petroleum Ltd.) and Canadian Natural Resources Ltd. (better known by its stock symbol CNQ) are both leading new projects and are both counting on technological advances to give them an edge.
Nexen, in partnership with OPTI Canada Inc., is set to spend C$2.3 billion on the Long Lake project by 2004 or 2005 to produce 70,000 barrels per day from 3.7 billion barrels of recoverable bitumen.
CNQ is putting the final touches on plans for its Horizon operation to exploit 6 billion barrels over 50 years, starting with a first phase that will cost C$4.9 billion and start producing at 100,000 barrels per day in 2007, possibly growing to 300,000 barrels per day within a decade.
Gary Nieuwenburg, Nexen’s vice-president of business development and corporate planning, said Long Lake hopes to combined steam-assisted gravity drainage (SAGD) to force deep bitumen deposits to the surface with “full-field” facilities to upgrade the bitumen and limit the use of natural gas in the processing.
“Historically, natural gas has controlled the possibility of bitumen production,” he said.
What Nexen is aiming for is to make Long Lake nearly energy self-sufficient, producing a clean synthetic fuel gas along with high-quality 37 API light sweet synthetic crude.
The “breakthrough” field upgrading technology will help the partnership take 8 to 10 API bitumen, convert it into a light sweet synthetic product and trade at about a $1 a barrel premium to West Texas Intermediate “at costs that are comparable to conventional light oil production,” said Nieuwenburg. CNQ plans mobile crushing unit CNQ senior vice president Steve Laut told an April oil sands conference sponsored by FirstEnergy Capital Corp. that Horizon is also being designed to achieve a high quality product at 34 API with less reliance on natural gas.
The company believes it can cut costs by C$100 million a year with a mobile crushing unit instead of the conventional mining methods, with shovels and trucks, used by Suncor Energy Inc. and Syncrude Canada Ltd. in their pioneering ventures.
The Canadian Oil Sands Trust Inc., a 22 percent partner in the Syncrude consortium, is also promoting Syncrude’s high-grade sweet blend that is expected to show even more improvements over the next five years.
The netback for the blend is already about 70 percent higher than conventional crude, at about C$13.50 a barrel compared to C$7.90, said trust president Marcel Coutu.
As Syncrude introduces its phased expansions on the way to 500,000 barrels per day by 2015, new technologies and processes will yield a higher quality, lower sulfur content product, even as early as 2005, he said.
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