Alberta upgrading capacity to lag oil sands output
07 Jun 2010 14:33 ET
* Bitumen output seen more than doubling to 3.2 mln bpd
* Output rose 14 pct in 2009
* Upgraded oil output seen rising 77 pct by 2019
By Jeffrey Jones
CALGARY, Alberta, June 7 (Reuters) - Gains in oil sands production is expected to outstrip increases in Alberta's processing capacity over the next decade as oil companies go slow on building new facilities to protect profit margins and guard against the return of surging construction costs.
The province's energy regulator said on Monday that this trend will prevail despite government efforts to foster construction of upgrading plants to bolster economic activity and job creation from the vast oil sands resources of northern Alberta, the largest crude source outside the Middle East.
In its annual report, the Energy Resources Conservation Board (ERCB) predicted production of raw bitumen from the oil sands would more than double to 3.2 million barrels a day by 2019 from 1.49 million in 2009.
The figure for last year was up 14 percent from 2008.
Output of upgraded synthetic oil, meanwhile, is expected to hit 1.3 million barrels a day, a 77 percent increase in 10 years, the ERCB said.
The difference lies in expectations that price spreads between light and heavy crude will remain narrow, said Carol Crowfoot, manager of the ERCB's economics group.
Upgraders turn the tar-like oil sands crude into refinery-ready synthetic oil. In recent years, many U.S. refineries have added equipment for such conversion.
"The wider that spread -- so the cheaper it is to get your raw bitumen in and the more expensive it is for the product coming out the other side of that upgrader -- the better your economics," Crowfoot said.
"The market right now is very narrow so the economics to build an upgrader just aren't there."
In addition, companies remain wary of the massive cost overruns and labor shortages that plagued Alberta's construction industry before the recession began in 2008, she said.
Still, some companies are planning upgraders. North West Upgrading Inc and Canadian Natural Resources Ltd are in talks with the Alberta government to build a 150,000 barrel a day plant near Edmonton.
The pair seeks to cut price risk by processing bitumen that the government would collect in lieu of cash royalties.
A regulatory hearing has also begun into Total SA's plans for an upgrader that would be integrated into its Joslyn oil sands project.
In its report, the ERCB pegged Alberta's total remaining bitumen reserves at 169.9 billion barrels, down from 170.4 billion the year before, due to 2009 production.
The regulator also revised reserve estimates for some of unconventional resources located outside the traditional Athabasca oil sands region.
It said recent drilling results at the Athabasca Grosmont deposit, northwest of the Fort McMurray area, resulted in a 28 percent increase to in-place carbonate crude resource to 406 billion barrels. No projects have been approved for that deposit yet.
The ERCB also boosted its estimate for the Cold Lake upper deposit by 20 percent to 33.2 billion barrels, and its view of the lower Cold Lake by 5 percent to 62.9 billion.
In natural gas, Alberta's established reserves totaled 37.5 trillion cubic feet and ultimate potential resources were estimated at 78 tcf.
The regulator said it expects to publish resource estimates for shale gas in the near future. Last month, the government announced royalty incentives aimed at fostering shale gas drilling. (Reporting by Jeffrey Jones; editing by Peter Galloway)
((jeff.jones@thomsonreuters.com; +1 403 531 1624; Reuters Messaging: jeff.jones.reuters.com@reuters.net))
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