Monday, September 10, 2007

Alberta Oilsands Production Pressures Increasing.

The Alberta oil sands are coming under increased pressure. According to the Globe and Mail, demand for additional production is coming out of the U.S. to move from the current 1.2 million barrels per day to more than 3 million by 2015 in one estimate and over 3.4 million in the same time frame by another estimate.

Pipeline capacity is strained and the lead time for new capacity is a problem but some relief is expected by 2010 with new projects doming on stream. Then we have the refining issues and Midwest American refiners are reported to be spending abut $18billion up to 2012 to adapt to increased bitumen availability.

That additional refining capacity in the States brings another problem that may not sit well with Albertans. It could cause the discount between the conventional oil prices and the synthetic crude that is derived from oil sands to increase impacting negatively on provincial revenues.

Then you have expanded American refining capacity as a potential to undermine the over $40billion of scheduled Upgraders in the Edmonton area because they may not be cost effective. Albertans want the value added benefits of upgrading and refining in the province so this American refining capacity adaptation and energy demand is something the province is going to have to respond to aggressively.

Alberta is already suffering and not keeping up under the social and environmental, economic and inflationary strain of 1.2 million barrels pf daily production. To triple that in about 8 short years is going to take some serious adjustments to wages, investment in all kinds of infrastructure from physical to human, to social and natural stewardship initiatives.

If anyone thinks this is going to be resolved purely by market forces, the evidence today is that it is only going to get worse. The Canadian Press out of Toronto quotes the CIBC World Markets with some interesting observations. The story says the Canadian oilsands gain importance as other cut exports. “Canadian oilsands”…and out here in Alberta we thought the province controlled its natural resources by virtue of the Constitution…how naïve of us.

The prediction is that OPEC other countries like Russia and Mexico will be cutting exports in a few short years due to production lags and increasing domestic demands. The estimates are for a 7% decline in exports by 2010 – causing much higher oil prices.

Reports say that last year OPEC countries plus Russia and Mexico consumed about 12 millions of oil per day. That was 60% more than China and a td more than all of Western Europe. Canada’s oil consumption is reported to have actually declined last year.

CIBC economists Jeff Rubin predict oilsands will expand in the next decade and surpass deep-water sites as the largest sources of new supply…almost all of which he says will be exported to the U.S.A.

Alberta is rapidly emerging in the cross-hairs of geo-political energy battles and the forces that will be brought to bear on us are going to be substantial. We better get ready for that reality and quickly. A good start would be to find the new person to go to Washington DC to act on Alberta’s behalf on US issues, not the least of which will be energy export followed by demands for water exports.
NOTE TO READER: The impact of other countries and their oil policy was the subject of an editorial on Policy Channel on August 13. It adds fuel to the fire.