|
Oil sands sector refuses to swoon
Gary Park For Petroleum News
The International Energy Agency has cooled its forecast for oil demand over the rest of 2014 and through 2015 - an outlook that seems counterintuitive amid rising tensions in Iraq, Libya and Ukraine.
But political convulsions no longer carry the fear of supply disruptions as production outside OPEC countries keeps gathering pace, especially in the U.S. Bakken and Eagle Ford plays and Canada’s oil sands, while economies start to wobble in Europe and China.
The IEA, in warning that global demand was slowing at a “remarkable” pace, has trimmed its forecast for this year and next without spreading alarm through the high-priced oil sands sector, where transportation constraints and public opposition to growing production are a greater source of worry.
The agency reduced demand growth by 56,000-900,000 bpd for 2014 and 100,000-1.2 million bpd in 2015.
“While festering conflicts in Iraq and Libya show no sign of abating, their effect on global oil market balances and prices remains muted amid weakening oil demand growth and plentiful supply,’ the IEA said.
“U.S. production continues to surge and OPEC output remains above the group’s official 30 million bpd supply target.”
Differing price views Not even producers in the high-priced oil sands sector seemed fazed by U.S. Department of Energy predictions that U.S. imports will account for 21 percent of total consumption, the lowest level in 45 years.
Ivor Ruste, chief financial officer at Cenovus Energy, told the Financial Post that his company remains “generally bullish” on the price outlook, with its sights set on Brent returning to US$110 per barrel.
In addition, producers draw hope from a narrowing differential between Canadian and U.S. crudes they believe will extend into the low-price season in December-February.
However, not everybody is sanguine, notably Patricia Mohr, a commodity market specialist at Scotiabank, who said West Texas Intermediate prices could average just US$95 through the second half of 2015 and into 2016.
But investment bank Peters & Co. estimated about 30 oil sands projects with combined output of 1.4 million bpd are either under construction or sanctioned in the oil sands, prompting it to target record capital spending of C$30 billion in 2014 at a time when the firm calculates the breakeven price for thermal-recovery projects is US$75.
Jeff Martin, managing director of research at Peters, said that compares favorably with US$70-$80 a barrel needed to sustain production from U.S. shale basins.
Lid on Canadian exports Even so, analysts note this is no time for Canadian producers to grow smug given that California cut its Canadian crude-by-rail imports by 86 percent in July, turning to domestic supplies of shale oil.
That has kept the lid on overall Canadian exports to the U.S., which have gone 18 months without topping the record 3.75 million bpd set in February 2013.
The U.S. Department of Energy has given no reason for hope by estimating U.S. oil imports will account for only 21 percent of total consumption, the lowest level since 1968.
The best Mohr and Douglas Proll, executive vice president at Canadian Natural Resources, could offer an energy outlook conference in Toronto earlier in September was optimism that more pipelines will be built out of Western Canada, ending the current regulatory logjam and political friction, while rail shipments will keep growing.
| 