This article is a great glimpse, yet it seems to tell us that certain market players throughout the US are less able to predict the future of oil recoverability and capacity than the rest of the population. The line: "The industry is also gambling that oil prices will stay high. If they collapse, expensive oil-sands projects may not pay off." is the needed throw-in to make people not embrace the Peak Oil reality we are already at the start of. The projects are not merely going ahead because companies have invested in them, but continues along with the direction of the US Dep't of Energy-- a department who are currently embarked upon the greatest shift in US energy supplies in their history, with the possible exception of the peak in continental production of conventional supplies that occurred in the 1970's. This radical re-orientation comes with every single one of the risks being listed here by the Wall Street Journal--and the companies continue on anyhow. Why might that be?
--M
Oil Companies Stake Future on Canada --- Reversal of Pipelines Marks Shift in
Outlook; Global Warming Clash?
By Russell Gold
11 July 2007
The Wall Street Journal
The future of the U.S. oil industry arrived last year in Cushing, Okla.,
moving along at two miles an hour.
It was the first crude from the Albertan oil sands to reach as far
south as the giant Cushing pipeline hub, one of the locations where
global oil prices are set. To get there, the crude traveled through a
pipeline that for decades carried oil in the opposite direction.
A month later, a second pipeline was reversed and Canadian crude
reached all the way down to southeast Texas, the world's largest
cluster of petrochemical plants and refineries and the traditional
front door for much of the U.S.'s oil supplies.
The pipelines, operated by Enbridge Inc. and Exxon Mobil Corp.,
represent long-term, multibillion-dollar investments in infrastructure
to enable Canadian crude to keep cars running on U.S. roads. But the
shift requires billions of dollars in investment and could clash long
term with efforts to curb global warming, and still won't be enough to
quench the thirst for oil in the U.S., which consumes roughly one out
of every four of the more than 80 million barrels produced daily around
the world.
Currently, the U.S. pipeline grid is set up to import oil into the
Gulf Coast. Some of that oil is sent north by pipeline or barge to
refineries in the country's Midwest region. But global supplies are
increasingly unreliable, as shown by Exxon's and ConocoPhillips's
decision last month to leave Venezuela, a major crude supplier to the
U.S., rather than give up lucrative projects there to a nationalization
wave. Canada is a reliable exporter, free from the political turmoil
that racks much of the oil-producing world.
"It's a big expansion of Canadian supplies into the U.S.," says
Shirley J. Neff, president of the Association of Oil Pipe Lines. "There
is no way a pipeline company will make an investment if it doesn't see
a long-term supply source and a market that needs to be served over the
long term."
Alberta's massive, gunky oil-sands deposits -- which yield a heavy
oil that is dirtier and more difficult to turn into gasoline -- are
about the same size as Saudi Arabia's but cost more to process and turn
into fuel. The oil sands currently produce about 1.2 million barrels a
day, but are expected to churn out 3.7 million barrels a day by 2020.
Much of this new supply is expected to be exported to the U.S. However,
rising costs and labor constraints could hamper production, and rising
internal Canadian demand could affect export levels.
Producers are very interested in capturing more U.S. markets for
Canadian crude. Although exact figures aren't compiled, the amount
being spent on Canadian oil-sands development, new pipelines to bring
the crude to the U.S. and to retrofit refineries is expected to top $15
billion a year through the middle of the next decade. This easily
exceeds the amount being spent to build the U.S. ethanol industry,
according to London-based consultant New Energy Finance.
"The people who understand the industry the best understand that
long term the most substantive solution is in the oil sands," says
Charles Swanson, managing partner in the Houston office of Ernst &
Young. "The fundamental economics are stronger than the stuff we hear
about today that is trendy and sexy," he says, referring to ethanol and
other biofuels.
But that environmental push could pose a barrier. Extracting the
heavy Canadian crude and turning it into gasoline requires more energy
and produces more carbon dioxide, the main global-warming gas, than
turning a barrel of conventional Texas light oil into gasoline. If
regulators begin to tax carbon emissions, that would put gasoline from
oil sands at an economic disadvantage, says Peter Tertzakian, chief
energy economist with ARC Financial Corp., a Calgary, Alberta,
private-equity investor.
The industry is also gambling that oil prices will stay high.
If they collapse, expensive oil-sands projects may not pay off.
During the past year, Canadian crude has pushed deeper into the U.S.
than ever before, capturing new markets, as traditional sources of
supply for the giant Gulf Coast refining complex fall off.
Mexico, a major crude exporter, is facing falling output levels, led
by the rapid decline of its giant Cantarell field. The growing Mexican
economy is demanding more fuel, lowering export levels further.
Venezuela is in the process of booting out Western oil companies and
its unpredictable leader is talking about shipping oil to China. Not
long ago, plentiful Venezuelan crude traveled by pipeline into
Illinois, where it was turned into gasoline for Midwestern drivers.
Today, there isn't enough Venezuelan crude to create a need to pipe it
to Illinois.
The rising tide of Canadian crude is subtly changing the political
rhetoric in Washington. "Energy independence" is being redefined so
that Canadian crude isn't really viewed as an import. "The desire for
independence is due to political instability throughout the world and
that doesn't apply to Canada," says Patrick D. Daniel, chief executive
of Enbridge, the Calgary-based pipeline company.
In September, BP PLC said it would spend $3 billion at its Whiting,
Ind., refinery so that as much as 90% of the crude it takes in will be
Canadian. The next month, ConocoPhillips and EnCana Corp. said they
would create a joint venture that matches oil-sands production with
U.S. refineries. In May, Husky Energy Inc. bought a refinery in Lima,
Ohio, for $1.9 billion. The company expects to spend an additional $2
billion to $3 billion to add equipment so the refinery can process
heavier Canadian crudes.
Meanwhile, earlier this month, Enbridge and Exxon said they are
considering building a pipeline from Illinois to the Gulf Coast, to
help bring even more Canadian crude. Canada has a huge pool of
untapped oil and the U.S. is the largest oil consumer in the world,
says Enbridge's Mr. Daniel: "This really is a perfect marriage. We have
two countries with the best relationship of any two countries in the
world."
