Editorial comment
Signs of revival in Canada’s oilsands industry are bringing the buzz back to oilsands in 2010. Husky Energy has announced it will move forward with its Cdn$ 2.5 billion Sunrise oilsands project, and Total and ConocoPhillips have approved the expansion of their Surmount operation, at a cost of Cdn$ 3.3 billion. In addition, Canadian Natural Resources Ltd and Cenovus Energy Inc. have both given the green light to new projects. This resurgence in oilsands activity in Alberta adds up to a total of Cdn$ 8 billion in expenditure in the coming year: a real boost to previously locked-in ventures.
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Oilsands activity took a battering after the Summer of 2008. Sky high oil prices pushed up labour and engineering costs, and with them, expectations, but then prices plummeted. Oilsands projects slowed to a halt in late 2008 in the global recession, with nearly Cdn$ 100 billion in development plans being shelved.
Now, since costs have fallen and returns are higher than a year ago, operators expect to have saved billions of dollars on dormant oilsands projects. In addition, the present narrowing in price difference between heavy and light crude oils means that it is now more profitable for producers to ship heavy oil. Heavy oil usually trades at a lower price as it is more expensive to refine, but it becomes more profitable as production rates fall. This also means that producers can afford to put on hold expensive heavy oil upgrading facilities.
In 2010, oilsands activity is expected from Suncor, Imperial, Husky, BP ConocoPhillips and Total. Yet with the sound of Cdn$ 8 billion oilsands investment ringing in our ears, there are already concerns over whether growth will be steady and sustainable. Talk of possible labour shortfalls is a worry: depending on how quickly oilsands projects ramp up, predictions are for worker bottlenecks in 12 to 18 months. Despite a 6.7% unemployment rate in Alberta at the moment, it is feared that there will be a scramble for, and a shortage of, labour in the near future.
There also needs to be sufficient pipeline infrastructure in place to handle extra oilsands production. Canadian crude supplies the US, but is also increasingly in demand from growing Asian economies. In order to get Canadian crude to market, pipeline capacity will be needed to transport the oil from Alberta’s oilsands to important US hubs and to the east and west coasts (for shipping overseas). Currently, the Enbridge, Trans Mountain and Express pipelines serve the Western Canadian crude market, at a total capacity of 2.45 million bpd. Future growth in production will undoubtedly require more transport capacity.
So how does the pipeline industry match its expansion projects with the supply and demand cycles of oilsands crude? Of course, additional pipeline infrastructure means more route choice and flexibility, and therefore greater energy security for the US and beyond. However, an over-build of pipeline capacity can mean stranded pipeline assets, with the price of excess capacity being borne by producers and shippers. Canadian Energy Pipeline Association (CEPA) members expect to invest more than Cdn$ 43 billion in pipeline expansion projects over the next 15 years but no one can tell whether this will match oilsands growth, or miss the mark.