Oil sands output set for takeoff, CAPP predicts
New projects to boost production as they return from backburner
By Dina O'Meara, Calgary Herald June 10, 2010
CALGARY - New oilsands projects and investments have changed Canada's long-range supply picture for the better, according to a new industry report.
The emergence of several new players in Alberta's oilsands will lift overall crude production between 2020 and 2025, a period that wasn't expected to see any production gains in last year's forecast, the Canadian Association of Petroleum Producers said Wednesday.
"This improved outlook for the industry coincides with the new investments in oilsands projects by major Chinese companies," the association said in its 2010 to 2025 forecast.
Sinopec Corp. and PetroChina, both state-owned corporations, injected more than $2 billion into the flagging oilsands in 2009, buying stakes in Athabasca Oil Sands Corp.' s and Total SA's Northern Lights projects.
Both undeveloped projects had been languishing in an industry hard-hit by dropping crude prices and a global recession dampening demand.
More robust commodity prices and a less volatile investment climate in the latter half of 2009 pulled a number of projects off the shelf and back into action, said CAPP spokesman Greg Stringham.
This year alone, investment in Alberta's oilsands is expected to jump by $2 billion to $13 billion, up from $11 billion last year. More recently, China Investment Corp. invested $817 million in a project with Penn West Energy Trust, and Sinopec paid $4.65 billion US for a stake in Syncrude Canada, the largest oilsands operation in the world.
Oil prices have trended upward this year, and jumped three per cent, or $2.39, to close at $74.38 US a barrel Wednesday. The surge came after reports of strong demand from China and a 1.8-million-barrel draw last week on inventories in the United States.
Increased investment in the oilpatch has the association predicting Canada will be producing about 3.5 million barrels of bitumen per day, or 81 per cent of total crude production, by 2025 under its best case scenario.
Overall crude production is seen climbing to 3.88 million barrels per day by 2020, from 2.72 million barrels last year, and reaching 4.34 million barrels per day by 2025.
A more conservative outlook predicts production will stall at 3.2 million bpd in 2015, before falling back to 2.98 million bpd in 2025.
The previous forecast had shown slower growth in light of delays linked to lower crude prices and tight credit markets, which had halted some oilsands projects in Alberta.
The new forecast certainly is plausible, as most industry observers had forecast oilsands production to double by 2020, said Edward Jones analyst Lanny Pendill.
More importantly, the outlook reinforces that the future of Canada's oilsands is still bright, Pendill said.
"If you had gone back 12 months ago, with the pullback in oil prices that we were dealing with, the massive cost inflation and everything else, a lot people were questioning what the future of oilsands was going to look like," he said.
As it stands, oilsands production is expected to nearly triple within the next 15 years and represent the lion's share of Canada's crude supply, according to CAPP.
In contrast, conventional oil production will continue to decline in share, with light oil supply sliding as many producers ship oil south rather than invest in costly upgraders. Producers also anticipate using more light oil as diluent to ship bitumen to various markets.
Bruce Edgelow, ATB Financial vice-president of energy, agreed CAPP's detailed outlook will provide investors with a strong base to evaluate Canada's oil resources, particularly with new offshore U.S. production in peril.
"There's a fair number of continental investors looking at Canada in light of what's happening in the Gulf of Mexico," Edgelow said. "There's a growing lens turning north with respect to the oil story."
domeara@theherald. canwest.com
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