Canada’s oil sands determined to bear up against plung­ing prices

The China Post - - BUSINESS - BY CLI­MENT SABOURIN

Fall­ing oil prices have slowed the phe­nom­e­nal ex­pan­sion of Canada’s oil sands ex­trac­tion trade but the in­dus­try re­mains op­ti­mistic it is only a tem­po­rary set­back.

The price of oil fell US$60 from June 2014 to Jan­uary 2015, re­sult­ing in a mas­sive bud­get deficit for the Canadian prov­ince of Al­berta which will re­ceive CA$7 bil­lion (US$5.7 bil­lion; NT$177.54 bil­lion) less in en­ergy roy­al­ties this year, forc­ing the lo­cal gov­ern­ment to hike taxes and cut ser­vices for the first time in a gen­er­a­tion.

It has been a tremen­dous shock for this oil-rich re­gion af­ter a decade-long boom that saw home prices soar, a new car in ev­ery drive­way and jobs for ev­ery­one.

“The down­turn has been bru­tal,” said Brad Her­ald, vice-pres­i­dent of the Canadian As­so­ci­a­tion of Petroleum Pro­duc­ers (CAPP).

Oil com­pany ex­ec­u­tives ini­tially ex­pected the global en­ergy slump to be tem­po­rary and oil prices to soon bounce back, but they now ad­mit a re­turn to pros­per­ity could take longer than imag­ined, com­mented Robert Schulz, a pro­fes­sor of petroleum land man­age­ment at the Uni­ver­sity of Cal­gary.

Her­ald ac­knowl­edged the ini­tial fore­casts were wrong.

How­ever, he added: “We’ve seen ups and downs. If you look back at the past 30 years, we had five or six dips in the mar­ket, they all hap­pened be­cause of slightly dif­fer­ent rea­sons but the fun­da­men­tals of sup­ply and de­mand usu­ally get re­stored.”

In the mean­time, the in­dus­try has been slim­ming its li­a­bil­i­ties, lay­ing off work­ers and putting new mega-projects on hold.

Over the past six months, Canadian firm Sun­cor shed 1,000 jobs in the Al­berta oil sands. Amer­i­can firm Cono­coPhilips and its part­ner Paris-based To­tal cut 200; China’s Nexen slashed 350; and An­gloDutch group Shell an­nounced 300 lay­offs.

From Septem­ber to Fe­bru­ary, a to­tal of 20,000 jobs in the oil sands were lost, ac­cord­ing to the Canadian gov­ern­ment sta­tis­ti­cal agency.

“When com­pa­nies are tak­ing de­ci­sions on per­son­nel, ( fir­ing peo­ple) is the last thing they want to do,” Her­ald com­mented.

To­tal, mean­while, has suspended devel­op­ment of two out of four oil sands bi­tu­men de­posits. Chief ex­ec­u­tive Lau­rent Mau­rel said the two on the chop­ping block were sim­ply “not fi­nan­cially vi­able” at cur­rent oil prices.

In his Cal­gary of­fice, sur­rounded by maps and ge­o­log­i­cal sur­veys of the oil sands, how­ever, he in­sisted that for­eign in­ter­est in Canadian oil re­mains strong.

Each year, global oil re­verses di­min­ish “by 4.5 bil­lion bar­rels per day, and new de­posits must be mined or ex­tracted to meet grow­ing con­sump­tion,” Mau­rel ex­plained.

“The 2015 price of oil is ir­rel­e­vant. What mat­ters is what hap­pens in the long term,” he said.

De­spite re­cent set­backs, he noted, To­tal re­mains com­mit­ted to ex­tract­ing 130,000 bar­rels of oil per day from the oil sands by 2018, rep­re­sent­ing 5 per­cent of the com­pany’s global out­put.

Dou­bling Pro­duc­tion

The petroleum

in­dus­try has fore­cast new in­vest­ment in the oil sands to fall this year by one-third, to CA$46 bil­lion.

Long-term fore­casts un­veiled in Fe­bru­ary, how­ever, point to a dou­bling of oil sands out­put to about six bil­lion bar­rels per day by 2035. This year and next, the in­dus­try will likely see small in­creases of 150,000 bar­rels of oil per day, be­fore it picks up.

The dou­ble whammy of low oil prices and a lengthy de­lay in ob­tain­ing U.S. per­mits to build the Keystone XL pipe­line con­nect­ing the oil sands to re­finer­ies in the U.S. Gulf Coast, and other pro­posed pipe­lines to At­lantic and Pa­cific ports in or­der to reach for­eign mar­kets, are widely seen as mi­nor ob­sta­cles that can­not hold back a na­tion hell­bent on ex­ploit­ing its nat­u­ral re­source wealth.

“When we an­nounced Keystone in 2008, oil prices were be­low CA$40 per bar­rel. They rose to CA$100 and came down again, so we’re less in­flu­enced by short terms spikes,” said Mark Cooper, a spokesman for pipe­line builder Tran­sCanada.

“Our ship­pers will re­main com­mit­ted to Keystone.”

Even as the sec­tor strug­gles in land­locked Al­berta, it is eye­ing an­other po­ten­tial new en­ergy source off­shore and fur­ther north.

The U. S. Ge­o­log­i­cal Sur­vey thinks the Arc­tic seabed could hold 13 per­cent of the world’s undis­cov­ered oil and up to 30 per­cent of its hid­den nat­u­ral gas re­serves.

Sev­eral Arc­tic oil ex­plo­ration ex­pe­di­tions were re­cently suspended.

But Her­ald said: “The sec­tor will re­main in­ter­ested in (the Arc­tic) for decades to come given the sheer size of the po­ten­tial de­posits.”

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