In The News / Oilsands Projects
High Prices May Slow Oilsands Progress
Chris Varcoe
Calgary Herald
Friday, February 21, 2003
Stubbornly high prices for natural gas could slow down the development of Canada's oilsands industry, but are unlikely to permanently sidetrack such ventures, say industry experts.
Natural gas prices have more than doubled in the past year, rising 2.8 cents Thursday to close at $6.162 US per million British thermal units on the New York Mercantile Exchange -- its highest level in two years.
In Western Canada, spot prices for gas also struck a two-year high as cold weather and tight supply levels in North America pushed the market up.
While Canada's petroleum producers are seeing profits inflate with high commodity prices, natural gas costs have an impact on oilsands projects that use the fuel in the extraction process.
Today's prices could delay future development of oilsands operations that use gas to create steam needed in the recovery process, energy economist Carol Crowfoot said Thursday at an oilsands conference in Calgary.
"These things cannot be looked at in isolation. At risk are these projects with $6 or $7 natural gas," Crowfoot, president of GLJ Energy Publications in Calgary, told reporters.
"(But) I feel completely optimistic that these projects will, through technological advancements, be viable and we need the projects. Our conventional supply is declining on the crude oil side."
Canada's oilsands production is projected to top one million barrels per day this year for the first time and some estimates predict the resource will eventually make up 90 per cent of the country's crude output.
However, as production of the tar-like bitumen ramps up, companies face the conundrum of burning more gas.
One popular recovery process, known as steam assisted gravity drainage (SAGD), uses pairs of wells, one to inject steam to heat the bitumen, the other to draw out the liquefied substance. It's meant for bitumen too deep to mine.
The average thermal oilsands project uses about 1,200 cubic feet of gas per barrel of bitumen, said Daryl Wightman, president of the Canadian Heavy Oil Association.
Cumulatively, Canada's oilsands operations will burn about 2.5 billion cubic feet of gas per day by 2015 -- enough to consume all of the northern gas shipped along the proposed Mackenzie Valley pipeline, according to a study by FirstEnergy Capital.
"Gas is the single-biggest variable cost in any kind of oilsands operation," said analyst Martin Molyneaux of FirstEnergy Capital.
"Should oil prices go down and gas prices stay high, then everybody starts reviewing the economics," Molyneaux said.
"Right now, everyone is just kind of plugging their nose at gas prices and driving on."
Petro-Canada, which has two large SAGD projects in development, says every $1 increase in the price of natural gas increases its oilsands operating expenses by $1 a barrel.
"Given the price of a barrel of heavy oil right now, it's still very economic for us at current gas prices," said Petro-Canada spokesman Chris Dawson.
Many analysts believe the issue will become more critical in the coming years because of shrinking gas production in North America.
In Canada, output is expected to drop by about 200 million cubic feet per day this year and remain flat in 2004-05.
Some proponents have suggested using nuclear power in northern Alberta to create energy for the oilsands business. Other companies are looking at innovative technology -- such as implementing vapour extraction technology that uses propane -- in the recovery process.
In the oilsands business, several large-scale SAGD projects are on the books, including Suncor Energy's Firebag venture and Nexen Inc's Long Lake development, each slated to produce 140,000 barrels per day within a decade.
Both companies say they have strategies in place to mitigate the impact of gas prices. Suncor produces more natural gas than it consumes, while Nexen plans on using synthetic gas in the thermal recovery process.
"If you're buying natural gas just to create steam, you're burning a high-value product to get a low-value product," said Nexen's Tim Jeffery.
"In this business, you've got to control your input costs and as soon as gas prices go up, you're probably eating any sort of profit you've got."
Canadian In-Situ Oilsands Projects
Company Project
2003 & 2008 est. daily production
Canadian Natural Res. Primrose/Wolf Lake
42,000 - 90,000
Imperial Oil Cold Lake
140,000 - 205,000
EnCana Foster Creek
25,000 - 70,000
EnCana Christina Lake
4,000 - 10,000
Petro-Canada Mackay River
20,000 - 30,000
Petro-Canada/Nexen Meadow Creek
0 - 80,000
Deer Creek Energy Joslyn Creek
0 - 30,000
JCOS Hangingstone
5,000 - 15,000
ConocoPhillips/TotalFinaElf Surmont
0 - 25,000
Suncor Energy Firebag
0 - 105,000
Nexen/OPTI Long Lake
0 - 70,000
Husky Tucker Lake
0 - 30,000
Husky Kearl Lake
0 - 37,500
Source: FirstEnergy Capital Corp., January 2003 |
