Canada: In search of alternative resources. As reserves of conventional oil are depleted,
producers are focusing on other resources to meet increased demand
Financial Times, September 29
By Scott Morrison in Toronto
Residents of the Canadian oil producing province of Alberta have reason to smile these days. While high oil and natural gas prices have boosted energy costs across the country, Albertans still enjoy the lowest prices in Canada.
Moreover, high energy prices have sparked a surge in exploration and production that has fuelled Alberta's solid economic expansion. The province is awash in unforeseen oil and gas revenues and the Alberta government has decided to share its wealth from royalties by doling out CDollars 1.8bn in rebates to help residents and businesses cover energy costs. But even as energy companies and the provincial government rake in vast revenues this year, the country's Alberta-based energy sector is undergoing a fundamental transformation.
Reserves of conventional oil in Alberta, long the lifeblood of the country's energy sector, are being depleted with little prospect they can be replenished. "It's getting harder to find and it's more expensive. (Conventional oil) is being replaced with new sources," says Pierre Alvarez, president of the Canadian Association of Petroleum Producers.
This challenge comes at a time of burgeoning US demand for energy supplies, particularly natural gas, and growing domestic demand. To meet these opportunities, Canada's producers are increasingly focused on a variety of new energy resources within Alberta and across the country.
Several factors are enabling Canadian producers to tap less accessible and more expensive energy sources. High oil and natural gas prices have produced a windfall for the country's producers, enabling them to make record investments to find and exploit new sources.
Canada's energy groups are expected to generate as much as CDollars 24bn in cashflow this year, a large proportion of which will be reinvested into exploration and development. Furthermore, technology has also improved to the point that reserves of oil and gas previously not economical are now viable alternatives.
As the world's third largest natural gas producer, Canada presently meets about 15 per cent of US demand for natural gas. Producers have increased production by 70 per cent during the past 10 years to almost 17bn cubic feet per day, of which about half is exported. But the industry has only tapped about one- sixth of Canada's estimated 656,000bn cubic feet of natural gas resources.
Canadian exports to the US are seen to grow by about 10 per cent a year over the medium term as new sources of natural gas come on stream. Brian Prokop, an analyst at Peters & Co in Calgary, estimates that Canadian natural gas exports will double in seven years.
Three areas are of particular interest to natural gas producers. Energy groups, which have primarily tapped Alberta's shallow natural gas reserves, are now focusing on deeper wells in Alberta and neighbouring British Columbia.
The industry is also moving to develop Canada's Atlantic potential, starting with the Sable Island offshore project which went into production at the end of last year and will provide more than 3,000bn cubic feet of natural gas to markets in Canada and north-eastern US states through 2025.
The other focus is on Canada's far north, estimated to contain 175,000bn cubic feet of natural gas. Development has long been delayed by native concerns, environmental issues and a lack of infrastructure.
However, high prices have prompted energy groups to look again at plans to build a pipeline that will transport gas from the Northwest Territories and neighbouring Alaska.
Native groups, once opposed to a pipeline, are now seeing the economic benefits of developing the region's resources. Some observers believe that gas could flow from the north within five to 10 years. "I think the political will to do it will become stronger as people's heating bills double this winter," says Mr Prokop.
An important development for Canada's natural gas sector has been the construction of the Alliance Pipeline, which, starting late in October, will be able to carry 1.3bn cubic feet of natural gas per day from north-eastern British Columbia and north-western Alberta to the Chicago area, where it connects with the North American pipeline grid.
However, with Canadian natural gas producers already operating at full capacity, industry sources say they will have a difficult time increasing production to make up for the immediate energy shortfall that is expected to push North American heating costs up sharply this winter. Another area of intense interest has been Alberta's oil sands, with vast deposits of heavy oil that are mined and processed into synthetic crude.
With an estimated 300bn barrels of recoverable reserves, the oil sands of northern Alberta have already attracted investments totalling CDollars 33bn. The resource already accounts for about 15 per cent of Canada's crude production, and with planned expansions and new projects going into production in the next few years, industry sources expect the oil sands will supply up to 50 per cent of Canada's oil supply by 2005.
The resource has long been known to the industry and after decades of development, producers such as Syncrude and Suncor devised technology to mine the sand and process it at extraction plants which separate tar-like bitumen from the grains with hot water and steam. The bitumen is further processed before being refined into synthetic crude oil.
Canada's offshore oil reserves are also being developed after producers managed to overcome high technological and financial hurdles. The Atlantic coast energy industry was kicked off in 1997 when the CDollars 6bn Hibernia project went into production, designed to produce 150,000 b/d of crude oil.
Terra Nova, the region's next offshore project, is expected to produce 115,000 b/d beginning next year. The Pacific coast is also seen to have great long-term potential, with a 1998 Geological Survey of Canada report indicating the region could hold up to 9.8bn barrels of oil and 1.2bn cubic metres of gas.
Exploration in the region has been banned by Ottawa since 1972 on environmental grounds, but prospects for renewed activity appear better after a recent British Columbia government report suggested the issue should be seriously considered as a means to improve the region's troubled economy. |
