CERI: Alberta oil sands industry outlook 'very robust'

Jim Stott
Special Correspondent-Calgary

CALGARY, Mar. 4 -- Canada's oil sands industry in Alberta has a "very robust" future—given a reasonable outlook for oil prices and it can overcome a number of challenges.

That was the conclusion of a new study released Wednesday in Calgary by the Canadian Energy Research Institute (CERI) on the outlook for one of the world's largest oil reserves.

The study, which covered 2003-17, was presented by Robert B. Dunbar, CERI's senior director of research.

Study results
The study stated that supply costs for oil sands are higher than previously reported and that the industry faces many other challenges. It said a number of oil sands projects will proceed but others will require innovative commercial and technological solutions to bring them on stream.

The study noted that the oil sands in northern Alberta now have been recognized as one of the largest oil deposits in the world. According to OGJ, at yearend 2002, there remained 174 billion bbl of crude bitumen established reserves, which places Canada second only to Saudi Arabia in total oil reserves.

The study said that if all proposed oil sands projects proceed on schedule, industry could see a production increase to 3.5 million b/d by 2017, representing 2 million b/d of synthetic crude and 1.5 million b/d of unprocessed crude bitumen.

The study went on to say that while many projects will proceed on schedule, others likely will be deferred. Raw bitumen and synthetic crude oil supply costs are higher than previously published and seem to confirm why some projects are proceeding and others are on hold while pending reviews.

Pricing scenarios
The study presented a number of pricing scenarios for oil, stating that $25/bbl for West Texas Intermediate oil at Cushing, Okla., would produce a reasonable return on investment of 10%.

In addition to economics, the study said the industry is facing challenges associated with environmental impact, capital costs and labor availability and productivity, energy requirements, sources and costs, water requirements, market constraints and supply, infrastructure restraints, and concurrent production of natural gas and crude bitumen.

Solutions to these problems, the study said, will require ongoing industry attention and ingenuity. Dunbar said that Canada's ratification on the Kyoto Protocol for Climate Change is another potential problem.

All of the pricing scenarios presented will offer substantial oil sands production gains over current levels of 1 million b/d. Projects now under construction will add 160,000 b/d of capacity by 2007.

A high-growth scenario with WTI prices of $32/bbl would raise production to 2.8 million b/d by 2017.

A moderate scenario of $25/bbl, viewed by CERI as the reference case, would raise production to 2.2 million b/d by 2017.

A low-growth price of 18/bbl would choke off oil sands growth by 2007. Industry production would peak at 1.16 million b/d by 2007. Operating projects would continue and projects under construction would be completed.

Dunbar said CERI's current view is that future oil prices are more likely to be higher than $25/bbl and that many projects are basing their economics on mid-$20/bbl prices.

Natural gas demand for oil sands by 2017 could reach 1.5-2.2 bcfd, the study said. The study director said the industry and researchers are actively seeking ways to reduce North America's reliance on gas. He said there are a number of alternatives being investigated, including producing gas from bitumen, nuclear energy, and improved technology.

Dunbar said surface mining will remain a mainstay of oil sands production during the study period, but in situ recovery from deeper deposits are the long-term future of the oil sands.

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