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New clouds build over oil sands Labor, pipeline shortages plus currency value could displace Kyoto Gary Park Petroleum News Calgary correspondent
The one constant in Alberta’s oil sands seems to be that nothing stays the same for long.
As fast as proponents came to terms with cost implications of the Kyoto climate change treaty — which itself is hanging by a slender thread as Russia wavers on its commitment and threatens to collapse the protocol — and projects resumed their forward momentum, the sector has been sideswiped by warnings of a labor crunch, a shortage of pipelines and a stronger Canadian dollar that could scare away investors.
The Petroleum Human Resources Council of Canada said about 8,600 skilled oil sands workers will be needed in the next decade, or the sector will face a fresh round of overruns that have added billions of dollars to project costs in recent years.
Another new study by Dallas-based consultant Muse, Stancil & Co. for the Canadian Association of Petroleum Producers warns that new pipelines will be needed as early as 2006 or 2007 to deliver rising oil sands production to the United States.
And just to complicate matters, a 20 percent rise in the value of the Canadian dollar against its U.S. counterpart this year could — with oil prices in U.S. dollars — hurt cash flow for oil sands producers.
A draft document prepared for the human resources council said that “without collaborative efforts, the result will be significant upward pressure on (oil sands) labor costs.” It pinpointed the greatest needs as: Heavy equipment operators, process operators, heavy duty mechanics and power engineers. Shortages already exist among workers in the drilling, seismic and service sectors.
The report said that in the mature producing region in southern Alberta, which employs 120,040 workers, the job needs will not be great, while labor will be even less important in Canada’s North and on the East Coast, with the Mackenzie Gas Project needing only 50 people to operate the pipeline and 200 more to work in the producing fields.
A spokeswoman for the council said the key growth area for the petroleum industry will primarily be the oil sands, where the most significant shortages will occur.
The study for the Canadian Association of Petroleum Producers gave the highest pipeline priority to a 670-mile pipeline from Edmonton to Prince Rupert on the British Columbia coast, with a 4.5 million barrel crude terminal and deepwater dock for tankers bound for California or Asia.
It estimates that pipeline would cost about US$1 billion for a 30-inch diameter line compared with US$1.4 billion for an Alberta-Chicago link, with an extension to Cushing, Okla., or US$1.5 billion for a pipeline to California.
But the Chicago system would be more attractive if Midwest refineries increased their ability to process heavy crude.
“The relative benefits for a western-bound export pipeline arise from a combination of introducing greater market diversity, an expanded overall market size and less Canadian-on-Canadian crude competition for market share in the U.S. Midwest,” Muse, Stancil said.
The consultant forecasts that Western Canadian crude exports could reach 2.5 million bpd by 2010, with conventional light and medium crude accounting for a mere 500,000 bpd and the rest coming from heavy crude sources. Heavy crude could go to Gulf Coast Muse, Stancil said that by 2008, the U.S. Gulf Coast, the world’s largest and most complex refining center, could be a “very prospective” outlet for heavy crude, based on an analysis that found Canadian crude would have been “attractively priced” to Gulf Coast refiners over the past three years, although some of that shine would have come off during the past summer.
Both Enbridge, which is exploring a Gateway concept to Prince Rupert, and Terasen Pipelines, which is studying a twinning of its Trans Mountain system, are in the running for a pipeline to the B.C. coast.
But David MacInnis, president of the Canadian Energy Pipeline Association, said the oil sands projects could collide with gas lines out of the Mackenzie Delta and North Slope, further fueling labor and materials costs.
He said it is likely that only one oil and one gas project could proceed simultaneously and even then there would be a scramble for materials and workers.
However, MacInnis believes that regardless of the competition, two pipelines could proceed at the same time.
On the Kyoto front, Russia is needed to ratify the pact on a global basis. To date, countries contributing 44 percent of worldwide greenhouse gas emissions have signed on, but Russia, with 17 percent, has a final veto, which it has indicated it might exercise.
Otherwise, the Canadian government — while still supporting the treaty — is making slow progress towards an implementation plan as it tries to figure out how petroleum industry emissions will be calculated and reported.
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