Edwards sees threat to oil sands projects
DAVE EBNER
From Friday's Globe and Mail
BANFF — High costs will likely derail some projects in the oil sands, according to Murray Edwards, the reclusive vice-chairman of Canadian Natural Resources Ltd., one of many firms working in the overheated Fort McMurray region of Alberta.
It was the strongest public declaration yet from a senior industry executive that some projects may not go ahead as planned.
For projects on the drawing board -- which is a long list including major ones from Petro-Canada, Total SA and Exxon Mobil Corp. -- the challenge is huge, Mr. Edwards said yesterday, without pointing a finger at any one company.
"These projects, long term, need prices higher than $50 [U.S. a barrel]," Mr. Edwards told reporters after in a rare public appearance yesterday afternoon at the Alberta Global Business Forum in Banff, an intimate annual gathering of top business and political leaders.
For projects in construction, such as Canadian Natural's Horizon, the challenges are less severe, he said.
A tally of industry projects suggests that oil sands production could quadruple to as much as four million barrels a day in 2020, up from about one million today.
Such growth would make Canada one of the world's most significant oil producers and underscores Prime Minister Stephen Harper's declarations this year that Canada is an emerging "energy superpower."
Mr. Edwards, a billionaire who helped recapitalize a moribund Canadian Natural in the late 1980s with $100,000 of his savings at age 28, is Calgary's heaviest hitter, renowned as the industry's finest deal maker and savviest operator. He helps guide Canadian Natural, the country's No. 2 producer, is chairman of the No. 2 driller, Ensign Energy Services Inc., and, among his other interests, owns the Lake Louise ski area near Banff and co-owns the Calgary Flames.
Pressures around Fort McMurray -- competition for labour, construction materials such as steel and the region's overstretched infrastructure -- have already forced one global player to amend its plan. Paris-based Total SA, which bought into the oil sands a year ago, had hoped to see some production in 2010 but in August revealed first production is now set for 2013.
"Given the current challenges we face . . . it is going to be difficult for the Canadian sector to deliver the forecast growth in oil sands volumes over the next 15 years," Mr. Edwards said in his presentation to the conference. "Costs are accelerating to the point where you have to start wondering if projects are still economic."
While Mr. Edwards was skeptical that the industry could deliver on heady forecasts for production gains, he was bullish about the prices of crude oil and natural gas.
He said supply-and-demand fundamentals for both commodities indicate oil could stay higher than $60 a barrel through the end of the decade and natural gas could average at least $8 for a 1,000 cubic feet, basing his outlook in part on forecasts from FirstEnergy Capital Corp., a Calgary brokerage he co-founded in the early 1990s.
The world is in an economic era "without precedent," Mr. Edwards said, pointing to high commodity prices, low interest rates and strong global growth.
Among the pressures in the oil sands, Mr. Edwards highlighted the demand for labour, basing his thoughts on a forecast from the Alberta Construction Association. In late 2005, the number of construction workers in the oil sands peaked at about 20,000. It has dipped this year but is expected to surge to about 40,000 in 2008.
For Mr. Edwards, the issue is a key hurdle to the success of his firm, Canadian Natural, which hopes to have phase one of its three-phase $10.8-billion (Canadian) Horizon oil sands project producing oil in 2008, with a goal to reach 232,000 barrels a day in 2012. The company last year outlined longer-term plans that would see a total outlay of more than $30-billion to reach 500,000 barrels a day by 2018.
Canadian Natural has been among the most innovative companies in dealing with the labour crunch, including building its own airstrip that handles 737s to bring in workers from across Canada. The company is presently constructing a school for millwrights -- experts in building industrial machinery -- at Horizon, so employees can work during the day and go to school at night.
Greg Melchin, Alberta Energy Minister, said immigration is a key. He spoke on the panel with Mr. Edwards and said the debate is over short-term labourers or bringing in workers as long-term citizens. He added that the best pool of labour outside Canada could come from the United States.
Cost escalation in the oil sands has been and remains extreme. In just the past five years, Mr. Edwards said the price to build a project has doubled. The trend remains intact, given Shell Canada Ltd.'s declaration in July that a planned expansion of its existing oil sands project could cost $12.8-billion, up 50 per cent from an estimate made just one year ago.
The other half of Canadian Natural's future is staked on natural gas, a commodity down about 70 per cent to a two-year low of less than $5 (U.S.) for 1,000 cubic feet from a record of more than $15 last December. Last week, the company made the fifth-biggest deal in the history of the Calgary energy business, plunking down $4.1-billion -- paid entirely with debt -- for natural gas properties in Western Canada from Anadarko Petroleum Corp., a deal orchestrated by Mr. Edwards.
At the start of his presentation, Mr. Edwards noted that the price of oil was down about 20 per cent since he was asked to speak at the conference and joked: "Next year, call somebody else, please."
theglobeandmail.com |
