Canadian oil sands to lead US imports

June 14, 2010
Canadian oil sands are poised to become this year the main source of crude imports by the US, according to new research from IHS Cambridge Energy Research Associates, Inc.'s (IHS CERA) Canadian Oil Sands Dialogue.

Canadian oil sands are poised to become this year the main source of crude imports by the US, according to new research from IHS Cambridge Energy Research Associates, Inc.'s (IHS CERA) Canadian Oil Sands Dialogue.

Supply from Canada's oil sand ultimately could increase to 20-36% of all US imports of oil and refined products by 2030, up from 8% in 2009, IHS CERA said in The Role of Canadian Oil Sands in US Oil Supply, the first of four reports to be released this year.

"The fact that oil sands by themselves...are set to become the largest single source of US crude oil imports this year emphasizes the importance they have attained as a supply source," said Daniel Yergin, IHS CERA chairman. "This ranking demonstrates the impact of investment and innovation over the last decade. It also shows how integrated Canada and the US are in terms of energy, as in their overall economies."

Growth in oil sands production is the main reason Canada has become the largest external source of oil to the US. Oil sands production more than doubled to 1.35 million b/d in 2009 from 600,000 b/d in 2000. "This more than offset declines in conventional Canadian production and boosted US imports of Canadian crude oil from 1.4 million b/d to 1.9 million b/d in that time frame," said IHS CERA analysts.

Large reserves

With economically recoverable volumes estimated at 170 billion bbl, the oil sands are concentrated in the Athabasca region around Fort McMurray in northeastern Alberta, Peace River in northwest Alberta, and Cold Lake, east of Edmonton.

The IHS CERA study said output has the potential to triple or quadruple by 2030.

Development costs for oil sands, while high, fall within the range of some of the largest sources of new supply—those "with the greatest ability to add new productive capacity over the next 5-10 years," IHS CERA analysts said.

The consultant firm compiled a list of the top 15 countries with the potential to increase oil production over the next decade, including Algeria, Angola, Azerbaijan, Brazil, Canada, Iran, Iraq, Kazakhstan, Kuwait, Libya, Nigeria, Qatar, Russia, Saudi Arabia, and the UAE. Canada ranks eighth in potential among that group. According to IHS CERA analysts:

• Canada has one of the most—if not the most—open oil and gas investment climate. No company has a privileged position because of state ownership.

• Canadian oil sands are not government controlled. Of the 30% of new production capacity not controlled by government, one tenth is comprised of Canadian oil sands.

• Of the 15 countries, Canada is closest in proximity and policy to the US.

• Canada has the capacity to increase its heavy crude supplies, which are an important part of the feedstock mix for US refineries.

Of the 15 countries, only Canada, Iraq, Kuwait, and Saudi Arabia are projected to add new heavy crude supplies.

Because of its oil sands, Canada is one of the few countries in the Western Hemisphere with the potential for a major boost in oil production over the next 20 years.

Environmental concerns

But producers must solve environmental problems including water, land use, and reclamation of tailings, the fine silt-like waste material left in ponds after oil sands processing. Government regulation of oil sands is as robust as in many other oil-producing regions in the world, according to the report. However, escalating oil sands production will require advances in water management and in the pace and scale of tailings management and site reclamation.

An earlier multiclient IHS CERA study found the total "well-to-wheels" greenhouse gas emissions (GHG) from oil sands, from extraction and processing through combustion of its products, generally are 5-15% greater than conventional crude processed in the US.

"The pace of technological innovation in the production of oil sands has been substantial in the past, with major technological strides in optimizing resources, innovating new processes, reducing costs, increasing efficiency, reducing GHG emissions, and reducing its environmental impact," IHS CERA said. "However, new techniques and technologies will be needed to continue to grow production sustainably. Cooperation between the Canadian and US governments and the private sector will continue to be crucial to the continued advancement of new technologies."

Supply and demand

IHS CERA believes that US oil demand peaked in 2005 but that it will remain strong, projecting it at 17.8-19.3 million b/d in 2030. Over the next 20 years the US is expected to remain the world's largest oil market, at least 30% larger than the Chinese market.

However, types of crude available are changing. Since 2004, supplies of medium and heavy crudes have tightened, bumping up against continued expansion of US coking capacity.

"Based on known projects already under construction or likely to proceed, US coking capacity is expected to increase by over 300,000 b/d from 2009 to 2013," the study said. "To capitalize on these costly upgrading investments and maximize refined product production, US refiners will need heavy and medium crudes." Half of all US refineries have cokers, compared with one in six in Europe.

The market for heavier crudes is expected to remain tight until 2015-16. "At that point stabilized Venezuelan production and substantial growth in Canadian oil sands supply [will] converge with growth in medium and heavy supply from the US, Brazil, Saudi Arabia, and Iraq to unravel the tightness in the market and the competition for these crudes," forecast IHS CERA analysts.

The consulting firm estimates global oil production capacity will reach 96-110 million b/d by 2030. But to reach these supply levels, the industry over the next 20 years would need to add 2.8-3.5 million b/d of production capacity each year.

IHS CERA also estimates the oil supply available to the US from domestic production and imports will exceed 20 million b/d by 2030, surpassing demand.

In the next decade on average, more than 150,000 b/d of new US productive capacity is projected to be added each year, the analysts said. But overall US supply is expected to remain relatively flat as declines of existing fields offset the new production. "US liquids production, excluding biofuels, should average over 7 million b/d over the next decade—just above where it is today," the report said. Yet there are numerous downside risks that could reduce projected US supplies by 3.5-4 million b/d by 2030, analysts said.

The study preceded the Apr. 20 explosion and sinking of the Transocean Deepwater Horizon and consequent spill in the Gulf of Mexico. Its projection for a 150,000-b/d/year addition to US production capacity assumed increases from deep water that might not now be possible.

The Obama administration has said its goal is to decrease dependence on foreign oil. "By most measures, Canada is less foreign than other sources of supply," said IHS CERA. Besides being its main trading partner with more than $1.5 billion of goods traded daily over the border, Canada is a strong ally of the US. Both countries are members of the North Atlantic Treaty Organization (NATO) and since 1958 have jointly administered the North American Aerospace Defense Command. Canadian armed forces are deployed in Afghanistan, participating with the US and other NATO forces.

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