Canadian Association Petroleum Producers’ Forecast
7 Jun 2013
BY YADULLAH HUSSAIN Financial Post firstname.lastname@example.org
Shale oil from fracking will fuel surge, report shows
While the oil sands grab all the headlines, conventional oil from Alberta is also likely to emerge as a strong contributor, cementing the province’s position as an energy — albeit landlocked — superpower, leaving other provinces in the dust.
The concentration of output in Alberta means pipelines and railway issues will only magnify as nature appears to have played a cruel joke by bestowing geological riches on the province, but spiked it with geographic constraints.
The Canadian Association Petroleum Producers’ bullish, almost defiant, forecast, published this week, shows Alberta oil sands and tight oil production growing leaps and bounds, almost unconstrained by market access issues.
Oil sands production alone will double from current levels in a decade and reach 5.2 million barrels per day of production by 2030. Total Canadian crude production will hit 6.7 million barrels per day, expected to be the fourth largest in the world by that time.
That’s nearly 500,000 barrels per day more from CAPP’s previous estimate, and 800,000 bpd higher than the International Energy Agency forecast.
“Of the 500,000 bpd of additional capacity, 300,000 bpd is from conventional tight oil production, and only 200,000 bpd from the oil sands,” said Greg Stringham, vicepresident, markets and oil sands at CAPP.
Alberta will make up 88% of total Canadian oil by 2030, from its current level of 68%, according to the association’s benchmark annual report.
The province will also lead the tight oil surge as companies crank up production from stubborn reservoirs via horizontal drilling coupled with multistage fracking.
Last year, CAPP had predicted Alberta conventional production to reach 408,000 bpd by 2030. This year, its estimates have inflated to 703,000 bpd, which could still be conservative, the association said.
While bullish on Alberta, the forecast may dampen the aspirations of other provinces harbouring hopes of their own mini oil booms, as they award leases and seek investments from a whole host investors.
Even Saskatchewan, the province that spearheaded the drive for tight oil, is set to play second-fiddle to Alberta going forward.
“Tight oil is moving from Saskatchewan to Alberta,” Mr. Stringham said. “Last year most of the growth came from Saskatchewan, as it was the first one to embark on tight oil projects. Production is now relatively flat, and we are seeing that technology applied and move into Alberta.”
Saskatchewan is hoping to raise production exponentially, but CAPP estimates the province’s crude production to rise marginally from its current 470,000 barrels per day to 490,000 barrels per day by 2030.
Atlantic provinces will also see their light and medium output crash from a high of 284,000 bpd by 2019 to 87,000 bpd by 2030.
There is not much for peripheral oil regions such as the Northwest Territories and Manitoba either.
“Manitoba has grown significantly from where it was three years ago, but it’s still pretty low,” Mr. Stringham said.
“They are offsetting the declines that we have seen on the conventional side… The drilling and activity will continue to really offset the natural decline that is happening.”
But the new light and tight oil will have to find other markets as the U.S.’s own comparable blend makes Canadian crude unwelcome in refineries down south. “That’s the big shift that we have noticed this year,” Mr. Stringham said. “Tight oil is not just happening on our side. It is happening in the U.S. as well.”
U.S. oil production exceeded imports last month for the first time in 16 years, latest data from the U.S. Department of Energy show.
New Canadian conventional light oil could well end up in Eastern refineries that currently import 700,000 barrels per day, CAPP says, laying the case for the eastern pipeline proposals from Enbridge Inc. and TransCanada Corp.
Meanwhile, the province is drilling deeper to meet high production targets. While surface mining led growth in the early years, around 135 billion barrels, or 80% of the reserves, are buried too deep and need steam-assisted gravity drainage technology, known as SAGD, that uses steam to melt the stubborn oil.
In-situ production is expected to surge from just under a million barrels per day in 2012 to 3.52 million bpd by 2030. Surface mining will be no laggard either, doubling from 810,000 bpd last year to 1.68 million bpd by the end of the forecast period.
The optimistic forecast comes at a time when observers are predicting a slight cooling off in oil sands development, primarily due to pipeline constraints and competition from other global plays.
Barclays Capital recently said Canada may be the only region in the world that could see a drop in capital expenditure this year, while RBC Dominion Securities expected projects valued at $7-billion to be put on ice if the Keystone XL is delayed or denied. The industry will need to haul 2.5 million bpd by expensive rail if major pipelines are rejected, according to ITG Investment Research.
If producers are privately fretting, they certainly aren’t showing it.
“CAPP’s views are in the unconstrained world, with some risk adjustments made with respect to oil sands projects to take account of the differing degrees of success that specific companies have had in terms of delivering their projects,” said Judith Dwarkin, chief energy economist at ITG Investment Research, whose own estimates are largely aligned with CAPP’s forecast.
And while independent observers believe a Keystone XL denial will be a blow to new projects, the industry is taking a more measured view.
“Keystone XL is an important one, and it may impact the timing of this growth. In the longer term it is not necessarily the only option that’s out there,” said Mr. Stringham of the CAPP. “This forecast is not dependent on any single plan approval. But it is dependent on having some pipeline capacity and rail.”
Indeed, Canadian producers may be in a position to send an additional 1 million barrels a day to the U.S. Gulf Coast and 460,000 more barrels a day to the U.S. Midwest due to crude conversion projects at refineries there, CAPP said.
“Mexican heavy is in decline, Venezuelan heavy is at risk, so there is a market — provided the crude can get there,” Ms. Dwarkin said.
via Prosperity Saskatchewan http://prosperitysaskatchewan.wordpress.com/2013/06/07/canadian-association-petroleum-producers-forecast/