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Oil sands a ‘sound’ bet Drive Canada to new crude oil production high in ’03 and are poised to grow even more because of expected 50% rise in global demand by 2020 Gary Park Petroleum News Calgary Correspondent
Canadian crude oil production grew by 5.5 percent in 2003, bolstering an investment dealer’s view that the Alberta oil sands are the place to invest.
Statistics Canada, a federal government agency, reported Feb. 23 that the year-over-year oil output climbed to 2.49 million barrels per day from 2.36 million bpd in 2002.
Propelling the increase was a 6.1 percent rise in Alberta’s crude bitumen volumes to 600 million barrels, or 1.64 million bpd, and a 16.4 percent jump in offshore Newfoundland production to 121.4 million barrels, or 332,595 bpd.
The balance came from British Columbia, Saskatchewan, Manitoba and the Northwest Territories.
“With continued strong demand from the U.S., Canadian crude oil exports grew 5.5 percent over 2002,” with exports accounting for 62.1 percent of Canada’s total crude oil and equivalent production.
But natural gas experienced a sharp setback because of problems finding new reserves, despite robust commodity prices that averaged US$5.49 per million British thermal units, more than double the long-term norm.
Output dropped 3.8 percent to 16.04 billion cubic feet per day, the first drop since 1986, and exports to the United States nose dived 5.6 percent to 9.83 billion cubic feet per day, StatsCan reported.
Canada also posted a 3.1 percent increase in oil imports to Eastern Canadian refineries, with Norway, the United Kingdom and Algeria accounting for 64 percent. December oil up, gas down StatsCan said December production of crude oil and equivalent averaged 2.62 million bpd, up 7.3 percent from a year earlier, while marketable gas production decreased 2.2 percent.
The oil sands trend prompted a report from investment dealer Raymond James entitled “Invest in the Oil Sands — High Oil Prices are Here to Stay!”
The Calgary-based authors, John Mawdsley, Jenny Mikhareva and Craig Espey, predicted that prices will hover around US$30 per barrel this year and $32 next year, making the Alberta oil sands a “very sound investment” as the days of huge oilfields and cheap production start to wind down around the globe.
The study said about 60 percent of the world’s 93 oil-producing countries have already hit their peak production, notably the United States, where output has dropped to 5.8 million bpd from 9.6 million bpd in 1970.
“It is important to note that the list of countries that are on an irreversible decline will only grow over time; the likelihood of discovering large new pools in established basins is very low,” the authors said.
But the study forecasts global demand for crude will grow by 50 percent to 112 million bpd by 2020, or an average 950,000 bpd every year. No exploration gamble with oil sands For that reason, Raymond James rates the oil sands as an excellent investment opportunity because there is no exploration gamble, there is a long reserve life and the Alberta government’s royalty regime is attractive.
Calgary-based Peters & Co. echoed the Raymond James oil price forecast by raising its target for 2004 to $30 from $27. If the prediction is accurate it will be just the third year on record that the $30 threshold has been surpassed.
But not everyone is clambering on the oil sands bandwagon.
Credit Suisse First Boston issued a recent report entitled “Oil Sands — Not Saudi Arabia,” cautioning investors against a high oil sands exposure.
It described those ready to pour billions of dollars into the oil sands over the next decade as suffering from “capital amnesia” for ignoring the recent history of capital cost overruns and production hiccups.
Credit Suisse said it does not believe that 2004 will be the year when “oil sands are finally revealed to be the solution to North America’s growing hydrocarbon deficit.”
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