Al­berta oil­sands pro­duc­tion out­look bright de­spite gloomy head­lines

The Intelligencer (Belleville) - - NATIONAL - DAN HEAL­ING

CAL­GARY — The sell-off of Al­berta oil­sands as­sets by an­other big in­ter­na­tional player — along with big re­serve write­downs, the in­tro­duc­tion of a car­bon tax and a stum­bling crude price — all sug­gest a gloomy out­look for pro­duc­tion from the world’s third-largest proven oil re­serves.

But Canada’s oil­sands out­put is still ex­pected to set new records in 2017 and climb even fur­ther in the com­ing years.

Part of this year’s boost would come from the Fort Hills project, ex­pected to achieve first oil late this year and ris­ing to 194,000 bar­rels per day through 2018. It is the last gi­ant Cana­dian oil­sands mine in ad­vanced devel­op­ment by a ma­jor en­ergy com­pany.

Ad­di­tional pro­duc­tion is com­ing from smaller ther­mal projects that use steam to re­cover heavy bi­tu­men crude through wells, with about a dozen un­der con­struc­tion or build­ing to­ward full ca­pac­ity.

“It’s hard to imag­ine a sce­nario where oil­sands pro­duc­tion would go down,” says oil­sands an­a­lyst Michael Dunn of GMP FirstEn­ergy.

In its bud­get an­nounced Thurs­day, the Al­berta gov­ern­ment fore­casts oil­sands out­put will rise from 2.5 mil­lion bpd in the 2016-17 fis­cal year to 3.3 mil­lion bpd in 2019-20.

Dunn says oil­sands com­pa­nies have dra­mat­i­cally cut op­er­at­ing costs per bar­rel over the last two years while oil prices have been low, and al­though it seems coun­ter­in­tu­itive, one of the best ways to do that is by pro­duc­ing more bar­rels.

That’s why Cana­dian Nat­u­ral Re­sources (TSX:CNQ) is buy­ing most of Royal Dutch Shell’s oil­sands as­sets while con­tin­u­ing to grow pro­duc­tion at its Hori­zon oil­sands min­ing project, Dunn said.

One thing no one wor­ries about is avail­abil­ity of re­source. The Al­berta oil­sands con­tain an es­ti­mated 1.8 tril­lion bar­rels of oil, about 168 bil­lion bar­rels of which are con­sid­ered re­cov­er­able us­ing to­day’s tech­nol­ogy.

At the end of last year, there were five oil­sands min­ing op­er­a­tions and about 20 com­mer­cial ther­mal projects pro­duc­ing in Al­berta.

More than 70 other greenfield or ex­pan­sion oil­sands projects, both min­ing and drilling op­er­a­tions, are wait­ing in the wings af­ter win­ning reg­u­la­tory ap­proval but not yet re­ceiv­ing in­vest­ment de­ci­sions from their pro­po­nents.

With pro­duc­tion ris­ing, pipe­line ca­pac­ity is ex­pected to tighten over the next few years. That means more bar­rels will be placed in rail­cars un­til En­bridge Line 3 and Trans Moun­tain ex­pan­sion, re­cently ap­proved by the fed­eral gov­ern­ment, are built.

A po­ten­tial limit to growth, how­ever, is the en­vi­ron­men­tal im­pact of oil­sands devel­op­ment.

The Al­berta gov­ern­ment has set a 100-mega­tonne an­nual limit on emis­sions from the oil­sands and the sec­tor al­ready emits about 70 per cent of that. New taxes on emis­sions are ex­pected to in­crease over time.

In an up­com­ing study, how­ever, the Cana­dian En­ergy Re­search In­sti­tute says new tech­nolo­gies — in­clud­ing the use of sol­vents to pro­duce bi­tu­men through wells with lit­tle or no wa­ter and lower en­ergy use — could al­low over­all oil­sands pro­duc­tion to con­tinue grow­ing.

Growth in the oil­sands isn’t in­evitable, how­ever, said Char­lie Kron­ick, a Lon­don-based Green­peace cam­paigner.

He said the oil in­dus­try as­sumes that it will al­ways see higher prices, new pipe­lines, ris­ing de­mand and favourable reg­u­la­tion.

“Ac­tu­ally, those things have all changed sig­nif­i­cantly from 2008,” he said. “A lot of those things are not just cycli­cal changes but have be­come struc­tural.”

It’s hard to imag­ine a sce­nario where oil­sands pro­duc­tion would go down.” Michael Dunn, GMP FirstEn­ergy oil­sands an­a­lyst

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