Claudia Cattaneo: Get used to it, the oilsands are unstoppable

Canada’s oilsands have been battered badly by low oil prices, adverse government policies and transportation constraints, but production is continuing and growth looks unstoppable until the end from the decade, based on two new reports.

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The message to oilsands supporters, opponents and competitors: Get accustomed to it.

An analysis by RBC Capital Markets says oilsands production is on target to grow by a further 760,000 barrels a day in the next four years, from 2.4 million barrels each day right now to peak at 3.A million barrels each day in 2020 – a surprising trajectory given today’s depressed oil prices.

The flood of new oil is originating from a handful of megaprojects already built or under development: three mining projects (Kearl, Fort Hills and Horizon), and five in-situ projects (Foster Creek, Christina Lake, Kirby, Surmont and Sunrise).

As impressive as the growth is, RBC says it is still 235,000 barrels each day short of previous expectations due to deferrals and cancellations over the past year.

The oilsands’ long-time horizon, which was once their great attribute, might be a hindrance inside a more volatile future

Oilsands growth means Canada’s overall oil production will climb to 4.6 million barrels a day by 2020. That’s 40 per cent lower than previously expected, but still a remarkable leap from the 2 million barrels each day produced in 2000, confirming Canada as one of the world’s oil producing powerhouses.

One from the interesting facets of the oilsands growth trend is it is fueled largely by Canadian operators Suncor Energy Inc., Canadian Natural Resources Ltd. and Cenovus Energy Inc., while international companies that had previously rushed to the deposits such as Statoil ASA and PetroChina are sitting on the sidelines.

The picture gets foggy after 2020, when oilsands production could plateau. No growth plans have been announced beyond this decade, as oil prices and policies remain uncertain, particularly Alberta’s intends to cap oilsands greenhouse gas emissions at 100 megatonnes annually. Details of the controversial plan remain a mystery 3 months after its announcement by Alberta’s NDP government.

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In contrast to U.S. tight oil, which may be throttled up or down within months, oilsands projects aren’t well-suited to quick course corrections simply because they require long-lead times – four or five years from design to production for in-situ operations, and at least seven to eight years for mining operations, according to the report by RBC oil analysts, including co-head of worldwide energy research Greg Pardy.

Long lead times also mean the oilsands sector may be not able to make the most of potentially favourable market conditions post 2020, when oil prices might have recovered, resulting in the industry peaking well below its potential, previously pegged at around 6 000 0000 barrels a day.

Another report, by Peters & Co., re-enforces that oilsands operations that use steam-assisted gravity drainage (SAGD) technology are unlikely to shut in production and can instead ride the low oil price cycle.

The SAGD market is in its infancy and has no operational knowledge about widespread steaming and production shut-ins for extended periods, the Calgary-based dealer said.

One of the finest risks is reservoir damage from an influx water, Peters said within the report.

“Shutting in SAGD wells on the widespread basis remains a serious concern for operators, with substantial risks to the reservoir, well-bores, surface facilities and efficiency of the project,” the dealer said.

Peters concludes that oil prices would have to decline below US$20 a barrel for operators to check out shutting in production. Operating costs for the better projects have been in the $15 to $20 a barrel, split between variable costs like power and gas, and fixed costs like maintenance and staff.

The bottom line is the oilsands have limited flexibility to respond to today’s new realities other than by cutting costs, that is already happening overall, and that their long-time horizon, which was once their great attribute, could be a hindrance inside a more volatile future.

ccattaneo@nationalpost.com

Twitter.com/cattaneooutwest