CERI warns on Alberta oil sands investment
Claudia Cattaneo, Financial Post
February 05, 2009
CALGARY -- The global credit crunch and collapse of oil prices have cancelled the Alberta oil sands boom, resulting in a loss in investment of $97-billion to $241-billion in the next decade that will be felt throughout the Canadian economy, the Canadian Energy Research Institute said in a report Thursday.
While the Alberta deposits will still attract $218-billion in spending to develop new oil production in the next 11 years, the pace of development will be much slower than was expected only three months ago, the independent research firm said.
"We have slammed on the emergency breaks," said David McColl, senior economist at the Calgary-based independent energy research organizations.
"The Alberta oil rush is likely to be characterized as the Alberta oil slumber for the next few years as development stagnate. We believe that the era of grand announcements for oil sands projects is over."
The downturn comes only two years after many Albertans, including former Alberta Premier Peter Lougheed, were so concerned about unfettered development they were calling for a time out. The backlash led to a controversial review of royalties that resulted in a new regime starting this year that gives the province a bigger share of oil sands revenue.
Project cancellations, delays and restructurings started in the fall, as oil prices tumbled to a low of US$33 a barrel in December and credit dried up. One player, BA Energy Inc., filed for bankruptcy protection. Only two major projects appear to be staying the course: Kearl, owned by Imperial Oil Ltd. and Exxon Mobil Corp., and Jackfish, owned by Devon Energy Corp.
With less cash going into the business, oil production growth will moderate to a range of 1.9 million to 2.9 million barrels a day by 2015, rather than 3.4 million barrels a day expected in CERI's November, 2008, forecast.
That growth will rise to a range of 3.7 million b/d to 5.4 million b/d in 2030, rather than six million b/d under earlier projections. The group is providing a broad range because of uncertainty about the future of oil prices.
Greg Stringham, vice-president at the Canadian Association of Petroleum Producers, said CERI's projections are not substantially different from its own.
But he stressed that most projects have been delayed, not cancelled altogether, and will eventually be revived, suggesting the loss in investment is not permanent but is being pushed out into the future.
Oil prices have to recover above US$70 a barrel for investment to return, CERI said. Even then, it would take at least two years for growth to resume as operators re-assess plans and put in place financing.
The $97-billion loss is based on CERI's previous realistic growth scenario. The $241-billion loss is based on a more aggressive growth scenario and assumed all announced projects would go ahead, resulting in investment of $459-billion by 2020.
CERI said its new outlook reflects a scenario in which the price of oil stays below US$60 a barrel for most of 2009 and credit markets lack liquidity. Economic recovery begins in early 2010.
With over 70% of the initial investment taking place in Alberta and the remaining in other parts of Canada, "project delays will have real economic consequences," CERI said.
"Almost every community in Canada ... has been touched by the development of oil sands through the stimulating impact it has on job creation and economic growth."
The upside of slower growth is an opportunity for those staying in the business to capture bargains for materials and equipment, while putting less stress on the economy, CERI said.
