The impact of rapid production growth from North American tight oil plays, notably the North Dakota Bakken, has left a wide array of industry players reeling, none more than Suncor Energy, the largest Canadian-based oil producer.
The oil sands giant makes no secret of the fact that the ability of producers in the United States to deliver more light sweet crude has exceeded expectations, causing companies to reflect on the value of upgrading lower grades of crude, such as oil sands bitumen.
Suncor Chief Executive Officer Steve Williams told analysts in early November that investment decisions on the company’s next two oil sands mines and a massive upgrader have been inhibited by uncertain economics, influenced by plays such as the Bakken.
For Suncor and its primary partner, France’s Total, about C$40 billion of capital spending is stalled, affecting the 160,000 barrels per day Fort Hills mine, the 100,000 bpd Joslyn mine and the 200,000 bpd Voyageur upgrader.
Williams said Suncor’s plan to spend a modest C$3.3 billion in 2013 on growth projects “demonstrates our commitment to be absolutely diligent in pursuing those projects expected to provide profitable, long-term growth for shareholders.”
March decision on upgrader
However, despite throttling back on upstream plans, Suncor did set the end of March 2013 for a sanctioning decision on the Voyageur upgrader, with Total as a 49 percent partner.
Williams said a review of the upgrader has been accelerated, although spending will be restrained until a decision is made.
He said in November that the economics of Voyageur, designed to convert oil sands bitumen into synthetic crude and carrying a price tag last estimated at C$23 billion, are under more pressure than when the project was initially conceived because the squeeze on upgrader margins not as healthy as they were “a few years ago.”
“I’m not questioning the need to grow the oil sands industry,” he told the Toronto Board of Trade. “It could possibly grow faster. What I’m questioning is the need to upgrade.”
By turning oil sands crude into a lighter grade “we would actually be upgrading into a product that won’t pay for itself in the future,” he said.
The question facing Voyageur is whether the cost of the facility is justified by the difference between the price of crude going in and the upgraded oil coming out.
“It is not a question for today. It is about our view of the future,” Williams said. “We do think those margins are going to be five, 10 or 15 years out.”
