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Pipeline threat to oil sands Wood Mackenzie says projects, expansions not allocated capital vulnerable to pipeline, refining squeeze, but new project list grows Gary Park For Petroleum News
BP, after years of adopting a wary stance on the sidelines, has plunged into Alberta oil sands partnerships, teaming up with Devon Canada in its latest venture.
India’s state-owned Oil and Natural Gas Corp. is reported to be exploring an entry into the sector through a deal with ConocoPhillips.
Both developments would normally point to business-as-usual in the bitumen sector.
But they are overshadowed by another gloomy report by Wood Mackenzie, which said that oil sands projects and expansions that have not been allocated capital are in danger of being delayed or cancelled because of insufficient pipeline and refining capacity.
It said the risk is greatest for pure oil sands plays that do not have upgraders or downstream joint ventures.
Unsanctioned ‘most vulnerable’ The global research firm said unsanctioned projects are the “most vulnerable,” listing several major ventures — Horizon (Canadian Natural Resources), Kai Kos Dehseh (Norway’s Statoil and Thailand’s PTT Exploration and Production), Narrows Lake (Cenovus Energy), Fort Hills (Suncor Energy, France’s Total and Teck Resources) and Joslyn (Suncor and Total), noting that the Syncrude Canada consortium’s Stage 4 investment has already been postponed.
The report said that while projects that have already spent a significant amount of capital are expected to continue, their economic success hinges on progress of one or several pipelines, or the cost of rail shipments.
However, the firm noted that oil sands output is increasingly faced with competition for pipeline capacity from light oil production from tight rock, such as the Bakken formation.
Wood Mackenzie said that regardless of what else happens, new pipeline infrastructure will be needed by 2019, otherwise Canadian crude potentially faces “deep protracted discounts if pipeline projects stumble and new export routes are not secured.”
The report projected that more than 1 million barrels per day of capacity it set to come onstream by 2015 and bitumen output is expected to double to 3.5 million bpd by 2018.
Wood Mackenzie forecasts that oil sands capital spending will grow to US$25 billion this year from US$15 million in 2009, while 16 projects are due on stream in the next four years, posing challenges from cost inflation, environmental opposition and labor constraints.
Devon files for new project In the midst of that atmosphere, Devon Canada, as operator of a 50-50 joint venture with BP, has filed a regulatory application for a 109,000 bpd thermal-recovery project, with first oil targeted for late 2016.
The Pike project, carrying a price tag of C$3.8 billion will use steam-assisted gravity drainage, SAGD, technology, including an initial 60 SAGD well pairs to be drilled from six well pads along with the construction of a single central processing facility.
The application submitted to the Alberta Energy Resources Conservation Board also outlines plans for related infrastructure to facilitate crude bitumen recovery on the site and export off the site by pipeline.
Pending regulatory and corporate approvals, work on well drilling and associated infrastructure is expected to begin in late 2013 or early 2014.
First steam is scheduled for late 2016 for the initial central processing facility phase, with subsequent first-steam dates of late-2017 and mid-2018 for the second and third phases.
Based on current resources, the production life of Pike is estimated at 25 to 30 years.
The application projects 27,000 person-years of employment during the life of the project, with a full-time workforce estimated at 500 employees and 200 contractors.
Devon’s first-quarter Canadian production of 191,400 bpd included 46,000 bpd from its Jackfish 1 and Jackfish 2 oil sands projects, while Jackfish 3 is about one-third complete and due for commissioning in late 2014.
Earlier in July, Devon filed for approval of its Walleye project, a 9,000 bpd SAGD project slated to start producing in 2016.
BP also in Sunrise BP is also a 50-50 partner with operator Husky Energy in the C$2.5 billion, 60,000 bpd first phase the Sunrise SAGD project which is on track to start production by late 2014. Two more phases are due to come on stream by 2020, raising total output to 200,000 bpd.
Meanwhile, India’s Economic Times reports that ONGC may be close to investing US$5 billion in the oil sands, with its focus on six ConocoPhillips properties that produce a combined 12,000 bpd that could be ramped up to 500,000 bpd.
ConocoPhillips has been on the prowl this year for joint-venture partners to advance exploration at some of its Alberta leases.
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