High costs trim forecast for oil sands production
NORVAL SCOTT
November 16, 2007
CALGARY -- Output from Alberta's oil sands will grow more slowly than was predicted last year as spiralling costs deter investment in the vast but difficult resource, Canada's national energy regulator says.
The National Energy Board forecast in a report released yesterday that by 2015 Canada's total oil output will be 4.05 million barrels of crude a day, 61 per cent greater than it was in 2005.
Of that total, 2.8 million b/d will come from the oil sands, the report states, down 200,000 b/d - an amount roughly equal to one large oil sands development - from the NEB's forecast last year.
Not one oil sands operation has so far has been brought on stream at a cost anywhere near budget, and some have overrun initial estimates by almost 100 per cent as Alberta's oil boom has driven up the cost of employees and materials.
The NEB estimates that the cost of adding a new b/d of synthetic crude production capacity in the oil sands now ranges between $80,000 and $100,000.
If oil prices - now nudging $100 (U.S.) a barrel - remain high, Canada's crude output could rise to almost six million b/d by 2030, of which five million b/d would come from the oil sands, the report, entitled Canada's Energy Future, states.
Conversely, if oil prices fall to around $35 a barrel, Canada would only produce about three million b/d of crude by 2030, and only 2.7 million b/d of that would be from the oil sands.
At the moment, that prospect appears unlikely, NEB analyst Bill Wall says.
Meanwhile, Canada will become a net importer of natural gas by around 2028 if current production and price trends continue, with the shortfall from dwindling Western Canadian output being met by liquefied natural gas from overseas.
According to the NEB, gas production will drop only slightly in the medium term, from more than 16 billion cubic feet a day in 2005 to just over 15 bcf/d in 2015. Prices are expected to support a recovery in domestic natural gas drilling from a lag in 2007 and 2008, with an average of 18,000 wells drilled each year.
Thereafter, high prices could support an increase in output to around 19 bcf/d by 2030, but a more likely scenario is that lower prices will cause output to instead fall to less than 11 bcf/d.
Production at that level, combined with increased domestic demand from economic growth and power generation plants, would mean the country would be forced to bring in more gas than it exports.
Greg Stringham, a vice-president of the Canadian Association of Petroleum Producers, said the gas price used by the NEB for its main forecast - $7 per million British thermal units - is on the pessimistic side. It would be too low to support investment in high-cost unconventional and tight gas projects and not high enough to reduce demand, he said.
"That price doesn't provide the big push to get into the more expensive resources that Canada has," Mr. Stringham said.
"There's lots of gas in this country, but it's a question of economics and whether prices become high enough to develop more supply."
Elsewhere in the study, the NEB estimates that Canada's demand for energy will grow by between 0.3 and 1.4 per cent a year to 2030, despite prices that will likely be higher than those experienced in the past.
However, the country's supplies will remain "ample," while Canada will continue to improve its energy usage and efficiency, according to the regulator.
Exports of electricity will increase, in part because of the anticipated construction of five new nuclear plants in Ontario and New Brunswick, the NEB states.
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