June 24, 2008

Capital costs, labour constraints help trim forecast for Canadian oilsands output

CALGARY

The expected output from Canada’s oilsands by 2020 will be lower than previously forecast because of higher capital costs, labour constraints and environmental regulations, Canada’s biggest energy industry group says in a report.

Production from oilsands operations are expected to increase to 3.5 million barrels per day, down from a 2007 estimate of about 3.7 million barrels, said Greg Stringham, vice-president of markets and fiscal policy for the Canadian Association of Petroleum Producers.

“It really is not a loss in oilsands. They’re still going to achieve their potential. It’s just it’s taking longer to achieve the potential,” Stringham told reporters after an industry luncheon.

Even with crude oil trading well above US$130, the soaring costs of steel, labour and construction are causing producers to take their time approving new projects, Stringham said.

He added that regulatory uncertainty over the past year regarding royalties and environmental reviews have also caused companies to delay making big spending decisions.

Companies are not balking too much at new federal rules that will require all oilsands producers to implement carbon capture and sequestration technology at their sites by 2012, he said, citing Nexen Inc. and OPTI Canada Inc.’s joint Long Lake project as one that has already started incorporating the new rules into its plans.

Under what CAPP calls a “moderate scenario,” Canada’s overall crude oil production is expected to rise to 4.5 million barrels per day in 2020 from 2.7 million barrels per day in 2007.

In a more “aggressive” forecast, which was developed for pipeline planning purposes, CAPP predicts production will jump to about five million barrels per day in 2020.

In both cases, the oilsands are expected to provide the most growth, as conventional and East Coast supplies decline.

A CAPP survey of Canadian and U.S. refineries found that demand for Canadian oil would be rising along with the supply, the report said.

Demand from Canadian refineries is expected to rise 33 per cent between last year and 2015 and U.S demand for Western Canadian crude oil is expected to shoot up 120 per cent in that time period.

“We saw all this oil coming, but we weren’t really sure that the demand pull was there.

“For the first time we’ve started to see an increase in interest in activity in the further parts of eastern Canada,” Stringham said.

Canadian Press

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