Special to The Northern Miner
Petroleum producers are expected to pump another $25 billion into the Canadian oil sands over the next decade, even though the world is so soaked in oil that the Organization of Petroleum Exporting Countries (OPEC) is cutting production to support prices.
Industry observers say the renewed interest in northern Alberta’s oil sands is the result of a combination of factors, including dwindling supplies of conventional crude throughout North America, Canada’s reputation as a safe haven for investors, and, more importantly, new technology that has significantly improved the return on investment in oil sands projects.
“The developers are looking at the long term,” says William Almdal, the regional co-ordinator of a working group for oil sands participants and a past president of the Canadian Institute of Mining, Metallurgy & Petroleum. “American oil resources are going downhill quickly,” says Almdal. “It’s really a footrace between Canada and Venezuela to supply the U.S. market with oil.”
The world currently produces about 70 million barrels of oil a day, more than enough to meet demand. As recently as last December, prices were trading at a 12-year low. They have since climbed to the US$16 level on the expectation that OPEC will cut production but are still well below 1997 prices.
But much of this supply is in politically risky locales, including Nigeria and the Middle East. Alberta, on the other hand, offers a relatively safe haven for oil companies and a geographically logical source of supply for the North American market.
The province’s oil sands are coated with an estimated 1.7 trillion barrels of the black tarry hydrocarbon called bitumen. About 300 billion barrels of this resource, equivalent to the proven reserves of Saudi Arabia, can be recovered and upgraded to light crude using available technology.
Almdal says 54 separate projects designed to tap this resource, including upgraders, pipelines and terminals, have been announced recently.
But low oil prices are beginning to take their toll on the development binge. At the beginning of April, Mobil Oil Canada announced it would postpone by two years the $2.5-billion Kearl project near Fort McMurray, Alta., owing to low prices and competition for cash within the company. The announcement followed a decision by
Some smaller projects have also been delayed, including Petro-Canada’s MacKay River project and Gulf Canada Resources’ Surmont development.
Despite the setbacks, Statistics Canada expects proposed investments, coupled with a decline in the supply of conventional oil reserves in Canada, to boost the share of crude production from oil sands in Canada to 50% by 2005 from 26% today.
Technological innovation, and the consequent decline in costs and increase in productivity, is largely responsible for the resurgence in investment. Improvements in coker technology designed to remove the carbon from bitumen have resulted in higher yields and higher sulpher recovery.
One of the most promising new technologies is hydrotransport, which uses less costly and more energy-efficient slurry pipelines, instead of conveyor belts, to transport the sand to the extraction plant.
The move to replace large-scale draglines and bucket-wheel excavators with heavy trucks and shovels has also increased productivity.
“Costs per barrel were $13.56 last year,” says Almdal. “If we took all the new technology and used it, we’d be in the $10-per-barrel range.” He adds that it will take several years to replace and/or upgrade all the existing facilities with new technology.
These costs compare favourably with conventional oil production because oil sands deposits require no exploration. Petroleum producers spend up to US$8 per barrel looking for buried oil reserves, using seismic exploration and drilling. Most of Alberta’s oil sands, on the other hand, lie at or close to surface and have been recognized for more than 250 years.
The introduction of a lower royalty system rate for Alberta’s oil sands operations in 1996 has encouraged development, as have recent changes to federal tax rules for mining and heavy oil projects.
One of the biggest expansions yet to be announced is Suncor Energy’s Project Millenium in the Athabasca oil sands, which won approval from the Alberta government at the end of March. The $2-billion dollar project is designed to double the company’s oil sands production to 220,000 barrels per day in 2002 and reduce its production costs to about US$9 per barrel of light crude.
Syncrude Canada, representing a consortium of partners led by Imperial Oil, is also in the midst of an expansion. Syncrude is developing the Aurora mine to replace reserves from the aging Mildred Lake mine. Athabasca Oil Sands Trust, which has an 11.74% stake in the Syncrude project, recently arranged an offering of trust units worth $46.6 million to fund its share of the project.
Although still at the prefeasibility stage, the Fort Hills project held by Koch Canada and UTS Energy also promises to be a major contributor to Alberta’s bitumen production. The partners have completed exploratory drilling at the site and expect to make a final decision to proceed by early 2002. The operation is expected to produce up to 90,000 barrels of bitumen per day.
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