Skip to comments.Ewart: Oilsands at a 'turning point' as outlook differs sharply from (recent) past
Posted on 12/17/2015 6:49:36 AM PST by thackney
The oilsands became a pillar of global oil supply growth during the first 15 years of this century but the oil price collapse has reaffirmed that a long-standing challenge -- perennial cost escalation -- continues to threaten future developments.
Factor in a new cap on greenhouse gas emissions, long-term pipeline constraints as well as higher taxes and a report released Wednesday by U.S. energy consultants IHS concluding the vast oilsands resource in northern Alberta that's made Canada one of the world's major crude oil producers is at "a turning point."
"The industry is shifting to a new period in which success will be measured by efficient operation of existing facilities. Growth will be driven by incremental expansions," the IHS report concluded. "The current lower price environment is abetting this transition as new projects are delayed and producers increasingly focus on best practices and operational excellence."
This "new period" follows what was essentially the dictionary definition of an oil boom in Alberta from 200o to 2014. The oil price collapse of 2014-2015 (and potentially 2016) brought an end to a period of spectacular -- ultimately unsustainable -- growth in what is considered the modern era for a resource IHS acknowledges will never be considered "easy oil."
It certainly looked easy for a while.
Oilsands production surged from 600,000 barrels a day in 2000 to 2.2 million barrels a day in 2014 as capital spending by the industry in that 15-year period totalled an economy-altering $200 billion compared with just $30 billion in overall investments during the pioneering era of the oilsands from 1958 to 2000.
The population in the regional municipality of Wood Buffalo more than doubled to 116,000 people from 2000 to 2012.
The unprecedented industrial boom in a remote northern area coincided with the proliferation of in situ projects -- steam-assisted gravity drainage and cyclic steam stimulation -- that began in 2001 to develop deeper bitumen deposits than earlier open-pit mine developments. The exponential growth came at a high cost.
Capital and operating costs have been a perennial challenge since oilsands production began in the 1960s and the IHS study found capital cost for in situ projects rose 70 per cent from 2000 to 2014 while mining projects rose 80 per cent. Essentially, it meant a project that cost $2.5 billion in 2000 would cost $4.25 billion in 2014.
The scenario IHS paints is hardly news to the oilsands industry.
Cost overruns plagued the industry -- Imperial Oil's Kearl project, for example, went from $7.9 billion in 2009 to $12.9-billion in 2013 -- and project delays had become routine even before oil started its free fall 18 months ago. Canadian Natural Resources president Steve Laut told the Fort McMurray Chamber of Commerce in February runaway costs loomed as a "death spiral" for industry.
Even at current prices, IHS forecasts another 700,000 barrels a day of production from oilsands will come on stream from projects already in development by 2020 to bring the total to more than 3 million barrels a day. IHS said the cost to build new oilsands facilities will fall by six per cent in 2015 as austerity measures take hold.
The Canadian Association of Petroleum Producers has forecast capital investment in oilsands projects would fall by almost one-third this year from 2014 to $23 billion.
In July, U.K. energy consultants Wood Mackenzie calculated approximately US $200 billion in new projects had been put on hold with the dramatic plunge in oil prices and estimated that almost one-third of the more than 45 major projects companies delayed in 2o15 were in the oilsands.
"The oilsands of tomorrow will be different from the past," IHS said. "A much lower oil price environment poses a fresh challenge."
IHS predicts new developments will typically be "smaller-scale brownfield in situ expansion projects" to better manage labour and materials costs as well as modular fabrication of components that are assembled at site and more collaboration on project management with suppliers and service providers.
Producers note their transformation to a lower-cost mindset is already underway.
"Heavy oil has been our bread-and-butter business for nearly eight decades, but let me tell you our heavy oil business today is not your father's heavy oil business of yesteryear," Husky Energy chief executive Asim Ghosh said in announcing a scaled back 2016 budget this month and cited cost-saving advances like modular construction.
More innovation will be required to lower the costs and environmental impacts of future developments.
The oilsands currently generates about 70 million tonnes of greenhouse gases annually and the Alberta government just capped emissions at 100 megatonnes a year. Barring technological advances that reduce emissions per barrel, it equates to another 1 million barrels a day in total from the 166 billion barrels of proven reserves.
The bottom line is the industry needs to be more sustainable on a number of fronts.
Self ping to read later.
Would it not be cheaper to build a refinery at the site rather than transport the oil thousands of miles away to be refined?.......................
And instead of transporting oil, you have to transport a multitude of different products, including those not compatible with pipeline transport?
Yes. But the majority of the petrochemical industry, harbors for transport of petroleum coke and multitudes of refined product pipelines don’t already exist in Alberta.
Sounds like a ‘shovel ready’ jobs project!...................
Spend dozens of billions of dollars to duplicate infrastructure already built?
To accomplish what? Moving more jobs out of the US?
That’s what government does best!...................
What are you trying to accomplish?
Me? Nothing, just pointing out that if the government of Canada, now led by a liberal, gets involved, that they will see this as an opportunity to spend more money to acheive a result that will be a null to negative outcome......................
The new liberal leader wanting to grow their petroleum industry?
I doubt that.
Depends on how many votes are dependent upon the industry as a whole for Canada........................
There is a lot of talk up here about building some refineries. We should anyways, we shouldn’t put all our eggs in one basket.
Alberta has shed over 100k jobs this year alone, with that many coming again.
I feel bad for any one truck pony trades or no trades just drillers or drivers or other such jobs. They are bearing the brunt of it.
It doesn’t help that a commie government here is running off all the investors.
Take Canadian oil off the world market, exclude all foreign oil by tariff just like they do withother products, build refineries on site, and sell to Canadians at a price not driven by the Arab Islamic hate cartel.Only surplus should be exported after a large amount is stored in strategic reserve.
But the PM Poofter of Canada is unlikely to do very much to help. He is too busy fawning over Syrian refugees to bother with ordinary Canadians, making sure the refugees have federal payments greater than combined OAS and CPP monthly payments for most Candians who have lived here ther whole lives.(Their mosques need to be supported.)
How many days of imports stored would be enough? Or of just OPEC imports? I don't think we are in danger of an embargo from Canada.
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