Oilsands flowing south

Dina O'Meara, Calgary Herald, Feb. 3, 2010--Oilsands will continue to be needed to meet growing energy demands, with thermal recovery schemes taking over from mining operations, industry officials said at a conference in Calgary.
At the same time, heavy oil and bitumen volumes will travel south to existing refineries, boosting demand for diluent, an agent used to enable the sticky resource to flow on pipelines.

In the past 18 months, the price differential between heavy and light oil has narrowed to around $10 per barrel from $25, squeezing refinery margins and pushing back upgrading projects. The list of oilsands projects has been increased in the past month unaccompanied by a similar number of upgraders, analyst Stephen Fekete, with Purvin and Gertz, said Tuesday. Fekete noted that while production from the oilsands will be growing, upgrading and refinery capacity in Alberta is not.

"The list of projected upgraders is as long, but with the exception of a couple, most remain deferred or cancelled," he told an audience at the Insight conference. The situation already is leading to a diluent supply gap between what will be required to thin heavy oil for shipping and what is available, he said.

The light-heavy-differential squeeze raises interesting issues around pipeline capacity as production in the oilsands ramps up, added Steve Reynish, president of Marathon Oil Canada Corp.

"We do have mining and upgrading in our existing facilities and our expansion has mining and upgrading as well," he said. "Beyond that, we would consider looking at mining only and maybe taking the drillbit south of the border to any upgrading refining that already exists. The economics, at this point in time: the brownfield expansion of existing refineries looks like the cheaper option than the greenfield upgrader."

On Monday, Marathon announced it was cutting its oilsands capital budget by 32 per cent to $668 million, partly due to partner Royal Dutch Shell's holding back on investing in a second expansion phase of the 155,000-barrel-per-day Athabasca Oil Sands Project.

Thermal operations, where the bitumen is heated to a consistency where it can flow rather than be mined, are the future of Alberta's oilsands, said industry representative Pat Nelson.

Nelson, a former provincial energy and finance minister, is now the vice-chairwoman of the In situ Oilsands Alliance, a six-member group of oilsands developers using emerging technologies to squeeze bitumen from the Alberta sands.

"The future, in my view, is in situ," she said. "Only two per cent of our oilsands resources can be mined; the balance has to be developed through in situ processes."

Industry association spokesman Greg Stringham agreed that promoting a positive vision of Canada's oilsands needs to be addressed, but added the resource will continue to have a market.

Canadian oil will be needed by the United States to fill the gap of reduced volumes coming from Mexico and Venezuela, even in a flat demand scenario, said Stringham, spokesman for the Canadian Association of Petroleum Producers.

Production growth from the oilsands is seen as flattening for the next few years until major project expansions kick in fully and smaller projects come on board, he told the audience.