Oilsands future looks rosy
Production from unconventional source expected to gain supremacy
John Morrissy, Canwest News Service
Published: 1:31 am
OTTAWA - Canada's oilsands are taking over where conventional oil production left off, with profits in the oil-extraction industry rising 18 per cent to a record $23 billion in 2008 on rapidly rising output from the huge oil reserves, according to the Conference Board of Canada.
"Investment in upgrading and oilsands mines are finally paying off, as non-conventional production is set to accelerate rapidly," the board said Thursday in its outlook for the country's oil-extraction industry.
"Non-conventional oil production will be the main driver behind gains in domestic production for the foreseeable future."
In fact, the oilsands will surpass conventional production for the first time this year, said the report's author, Todd Crawford.
After peaking at 1.8 million barrels a day in 2002, conventional crude output will fall to 1.37 million barrels a day in 2008 and further to 1.2 million barrels in 2012.
This is largely a result of declines in the western sedimentary basin, but also a function of falling numbers on Canada's East Coast, whose three fields all face declining output before new fields go into production, Crawford said.
Production in the oilsands, meanwhile, will rise from 1.25 million barrels a day in 2007 to a 1.48 million barrels in 2008 and to 1.62 million barrels in 2009, Crawford said.
This will drive Canada's energy industry to another year of record profits in 2008 as oil prices are expected stay above $80 US, the report predicted.
However, rising industry costs and new global supply coming on-stream will cause profits to fall by 29 per cent in 2009 before picking up again in 2010.
Crawford said changes to Alberta's royalty regime won't have an impact on investment in the oilsands, estimated to contain the world's largest crude reserves outside Saudi Arabia.
"Even though royalties may be higher, (oil) prices have been quite a bit higher than company forecasts, so in the end we forecast it'll come out to be a wash," Crawford said.
Rising material price, however, are a more daunting matter, Crawford said, much more so even than labour, and constitute the greatest component of cost gains for the year.
Rising prices of steel, concrete, diesel fuel and other inputs for Alberta's massive oilsands projects will rise 22 per cent in 2008.
Such double-digit gains over the past four years have driven many of the projects into multi-billion-dollar cost overruns.
Canadian Natural Resources was the latest to do so, saying its Horizon project in northern Alberta will now cost as much as $8.7 billion, $1.9 billion more than initial estimates.
Horizon will be one of the drivers of oilsands output this year when it starts producing in the third quarter at an expected rate of 110,000 barrels a day.
Suncor, whose oilsands business is located near Fort McMurray, produced 245,000 barrels a day on an annualized basis in January and is targeting average annual output of 275,000 to 300,000 barrels a day in 2008.
New output will also come from a bitumen upgrader -- which converts the thick oilsands petroleum into usable crude -- being built by BA Energy, expected to begin operations this year.
Gains in oilsands output will more than make up for conventional crude declines and Canada's overall output is forecast to rise 9.2 per cent in 2008.
http://www.canada.com/edmontonjournal/news/business/story.html?id=bfd3ac...
© The Edmonton Journal 2008
