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Oil Sands - Alberta 2006: Projects, Participants & Market Opportunities
Utilis Energy, LLC
‘Since the mid 1990s, more than $US15 billion has been invested in oil sands, either to expand existing projects or develop new ones. From 2002 to 2010 another $US15 billion in investment is on the books for potential development’
Geopolitical pressures and economics play important roles in the sourcing and development of energy and new strategic supplies of fuel. The availability of economical and secure supplies of energy, in particular crude oil, is especially important to the US, a nation that consumes approximately 25% of the world’s energy. Instability in the Middle East, most recently hostilities in Iraq and potential uncertainties involving the continued supply of oil from Iran, have been a catalyst for the US to seek crude oil supplies that are closer to its demand base and in recent years three of the four top crude oil suppliers to the US have become Venezuela, Mexico and Canada - all in close proximity to the US with more favorable freight economics than other suppliers.
However, in order to feed growing US energy demand, increased oil production and the development of non-traditional sources of supply are required. Developments in technology make it possible to utilize fuels that were once thought to be economically unfeasible. While significant strides have been made towards the development of alterative forms of power generation, such as fuel cells, solar and wind power, energy produced from these sources is insufficient to meet the expected growth in US energy demand. New sources of petroleum products are therefore required.
One of the most attractive means to increase crude production from secure supply sources is the further development of the Canadian oil sands industry, which is primarily located in the Province of Alberta in western Canada.
Over recent decades, Canadian oil sands production has grown from relatively modest test-well quantities to volumes in excess of 1 million barrels per day. Oil sands are also beginning to make a significant contribution to Canada's total oil production - which averaged approximately 2.6 million barrels per day in 2005. As Canada’s traditional oil field production matures and declines, oil sands production will continue to increase and offset the decline in conventional crude oil production, ultimately becoming Canada's foremost source of oil.
According to the Alberta Energy and Utilities Board (EUB), total raw bitumen production – the petroleum product directly obtained from oil sands - exceeded total conventional crude oil production in the Province for the first time during 2001. In 2005, Alberta oil sands production has been approximately equal to Alberta’s light and heavy conventional crude production. One million barrels of daily oil sands production is being upgraded to approximately 650,000 barrels of synthetic crude per day with the remaining 339,000 barrels being marketed as bitumen. In 2005, crude oil derived from oil sands and associated bitumen accounted for approximately 50% of Canada’s crude oil output, and it is expected to increase to 77% of Canadian crude production by the year 2012. Over the next decade, forecasts estimate that the amount of synthetic crude produced from Alberta's oil sands will reach 1.5 to 1.7 million barrel per day. The amount of bitumen shipped to the market is also expected to more than double its current volume of approximately 350,000 bbl/d.
A favorable regulatory environment and increasing oil sands production has resulted in greater oil sands derived revenues, in the form of royalty payments from operating leases, paid to the Canadian government. During the 2004 - 2005 fiscal year, these revenues amounted to $10.2bn, two and a half times the revenues raised from the industry in 1998. Estimates for 2005 – 2006 industry revenues are currently approximated at $14.7bn.
There are approximately 1,800 oil sands lease agreements in place with the Province of Alberta totaling 12,350 square miles of developable territory. Alberta’s Department of Energy asserts that close to 80% of the Province’s potential oil sands areas are still available for lease, exploration and development. While not all of these open leases will yield significant oil sands opportunities, the sheer number still available and the increasingly favorable economics behind their development continue to offer the potential for favorable investment opportunities.
Report structure
This study has two functions and consists of two basic components. The first function and component are to provide a straightforward and easy to understand introduction to the many aspects of the Canadian oil sands industry, with a particular focus on the commercial mechanics behind the extraction and development of oil sands resources, the economics of such developments and the potential markets for this resource.
The second function and component is to provide readers with an accurate evaluation of the current state of the oil sands industry by providing the most up-to-date information available on corporate involvement with project development and production.
Using information obtained from companies involved with Albertan oil sands ventures, we have calculated current oil sands bitumen production in Alberta, which has risen to just above 1.1 mbbl/d in the first quarter of 2006, an increase of approximately 10% since the end of 2005 and almost 33% above production levels in the second half of 2003 which totaled approximately 0.83 mbbl/d. Projected oil sands production levels are expected to increase further during the remainder of 2006 with an additional 85,000 barrels due to come online, resulting in production of approximately 1.2 mbbl/d.
This study has been designed to be is an invaluable asset for those wishing to understand the fundamentals and increasingly favorable economics surrounding this rapidly growing industry.
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