There is no doubt that there is a huge amount of resource in place - between 1.7 and 2.5 trillion barrels, according to the Oil Sands Discovery Centre's Oil Sands Story
. Of this, 173 billion barrels (about 10%) is considered producible with current technology at 2006 prices ($66 barrel for WTI). Production to date has been relatively low, though--only 1.2 million barrels a day in 2008, according to Canadian Association of Petroleum Producers (CAPP
A big part of the reason that Canada can export oil to the United States is the fact that it is importing oil on its East Coast for its own use. When one looks at oil sands in relationship to its other oil sources (including imports), oil sands oil is only about one quarter of the total. The non-oil sands portion is expected to decrease in the future, so a significant increase in oil sands production is needed simply to offset expected decreases elsewhere. See my earlier post
Unless oil prices rise above today's level, and stay higher, it seems unlikely that there will be a major increase in oil sands production. Don Thompson from the Oil Developers Group told us that in order to justify new development, the cost of West Texas Intermediate (WTI) crude must be at least $80 a barrel. CERA indicates in a new report (free with registration
) that more than 70% of proposed Oil Sands expansion projects were postponed, after the drop in oil prices in 2008. CERA quotes a needed WTI price of $65 to $85 barrel to justify Oil Sands expansion--but based on a rate of return of 10%--which is probably not high enough.
Even beyond high oil prices, a major ramp up would also require a huge amount of investment funds. For example, if one wanted to add 1 million barrels a day of upgraded oil by adding new mines and upgraders, it would require an investment of roughly $126 billion dollars, based on a CERA estimate of $126,000 per flowing barrel
. It would also require a huge amount of credit availability and a veritable army of workers.
In the absence of a major improvement in technology (or perhaps even with one, since a big change in technology often takes a long time to implement), my estimate of the ramp up in oil sands production to 2020 is given below:
I am forecasting that oil sands production will approximately double by 2020 (from 1.2 million barrels per day in 2008, to 2.4 million barrels a day in 2020). This forecast, in part, reflects Tony Eriksen's ("ace's") calculation that projects already approved and in construction are expected to bring production up to 1.94 million bpd. Growth beyond that is expected to be constrained for a number of reasons, including difficulty in obtaining sufficient investment funds, need for a high price of oil to justify new construction, difficulty in obtaining enough diluent, and the possibility that royalties will be higher as governments discover that oil companies are among the few companies from whom higher taxes might be extracted.
How much Canadian oil will the United States import?
Will oil actually be exported to the US?
But how likely is this scenario? When one reads Canadian material, it becomes clear that many Canadians would very much like to diversify the countries it exports to, even if currently nearly all pipelines lead from Canada to the United States. With the US as its only export partner, Canada has little leverage in bargaining over price. Also, there are details such as the US charging less for gasoline than Canada--why should Canadians be taxed to keep their consumption down, and the same time Americans can buy Canadian oil and sell it for less? NAFTA
limits changes right now, but over the long term, that can be changed.
Canada is already working on an approach that will allow it to export oil in directions other than the US, to help diversify its exports. The approach is a rail link that acts like a pipeline, and can be implemented quite quickly. China and others with few environmental concerns are particularly favored as export partners. Canadian National (CN) also has tracks going East
, so this approach could also be used to bring oil from western Canada to eastern Canada.