Canada's Oil Industry Needs More Outlets

[ceo_energemsier + 1,818]

Canada's Oil Industry Needs More Outlets

 

Per BP, Canada produced over 5.2 million b/d in 2018 and was the fourth largest oil producer in the world. This is nearly a 65 percent gain over the past decade. Canada’s oil production is overwhelmingly western-based, with over 80 percent coming from Alberta province and ~10 percent from Saskatchewan. This is a logistical problem since three in every four Canadians live in the eastern half of the country. Now accounting for 65 percent of national production, oil sands (crude bitumen) has exceeded conventional supply since 2010.

Canada exports 80 percent of the oil that it produces, almost all going to the U.S. Shipments to the U.S. have filled in nicely for the U.S. decline in imports from OPEC and Mexico since America’s shale revolution took flight in 2008. Over the past decade, U.S. oil imports from Canada have risen almost 75 percent. In fact, Canadian oil is critical for the U.S. because the country’s refining system is configured to process these heavier grades. In 2018, for instance, Canada accounted for half of total U.S. crude oil imports and nearly a quarter of U.S. refinery crude oil intake.

Canada though will need new outlets for its oil production, particularly with such stagnant domestic consumption. The goal to export from the West Coast to fast growing Asia has been hampered by a variety of factors, such as higher costs, pushback from environmental and indigenous peoples rights groups, carbon taxes, and a dearth of infrastructure. PM Trudeau has been more supportive than initially was expected. In June, he approved a $5.5 billion expansion of the Trans Mountain tar sands pipeline. Environmentalists have countered by calling on insurance companies to drop or refuse to provide coverage of the line.

Looking forward, oil sands development will remain essential for Canada, especially helped along if crude prices can start to rise again. Natural Resources Canada (NRC) reports that the oil sands have $315 billion of capital investment to date, including $10.4 billion in 2018. Thanks to the oil sands, BP puts Canada’s proven reserves at 168 billion barrels, third globally and a reserves-to-production ratio of about 90 years. Heavy oil suppliers will also benefit from the IMO’s new sulfur rule for bunker fuels that starts next year.

Yet, the pushback on developing Canada’s oil sands and related infrastructure continues to intensify. A case in point is the long-awaited $8 billion, 0.83 million b/d Keystone XL pipeline running from Alberta to Nebraska and then connecting down to refineries along the U.S. Gulf Coast. Only recently has the project been inching forward through a number of legal challenges. Canadian producers desperately need the help: in December, Alberta instituted a shut-in order to lift sunken prices due to a lack of takeaway capacity. The economic crisis in the province is one reason why Premier Rachel Notley lost her re-election campaign in April.

The heavy, viscous and energy-intensive oil sands are a prime target for environmentalists that demand Canada “keep it in the ground.” NRC reports that the oil sands account for 11 percent of Canada’s total GHG emissions, but they are just 0.1 percent of emissions globally. And the good news is that since 2000 the emission intensity of oil sands operations has dropped by 30 percent thanks to technological and operational improvements. In addition, oil sands producers recycle 80-95 percent of the water used in established mines and 85-95 percent for in situ production. Other emerging technologies, such as carbon capture and/or cogeneration (i.e., the combination of heat and power technology), can also help reduce emissions.

Besides the oil sands, there is also great potential for shale and light tight oil resources in Canada, similar to what has transformed the U.S. market. The National Energy Board (NEB), for instance, estimates that the Montney formation in BC and Alberta could hold tens of billions of barrels of crude oil and natural gas liquids. All told, NEB has Canada’s oil production rising to beyond 7 million b/d by 2040 and possibly even 9.5 million b/d if prices are high enough.

[Boat + 1,324]

Or you only let Canada export enough oil to satisfy US consumption demands which would be around 1 mbpd instead of the 3.5 they now enjoy. 

If Canadians thought oil was important they could build pipelines and refineries of their own and the ports to ship it. 

You want higher oil prices in the short term? Cut that 2.5 mbpd and free up some traffic on our highways. Quit running that extra oil over our aquifers. 

Trump who of course supports big Canadian oil wants another pipeline which would only exacerbate the trade imbalance with Canada. Imagine that.

If that oil was stopped the Perman might stop getting the blame for overproduction by anti Texas/Americans.

[Jan van Eck + 7,558]

4 hours ago, ceo_energemsier said:

Yet, the pushback on developing Canada’s oil sands and related infrastructure continues to intensify. A case in point is the long-awaited $8 billion, 0.83 million b/d Keystone XL pipeline running from Alberta to Nebraska and then connecting down to refineries along the U.S. Gulf Coast. Only recently has the project been inching forward through a number of legal challenges. Canadian producers desperately need the help: in December, Alberta instituted a shut-in order to lift sunken prices due to a lack of takeaway capacity. The economic crisis in the province is one reason why Premier Rachel Notley lost her re-election campaign in April.

In my view the problem with Keystone is that it is being charted to run over the Ogallala Aquifer.  That is a gigantic body of fresh water, left over from glacial times, that sits quite shallow over about seven States.  If you go build an oil pipeline smack over the top of it, you are engaging in Chutzpah:  the idea that nothing will ever go wrong.  Are there existing pipelines over the Ogallala?  Apparently, yes; although they are smaller, and a good number are actually natural gas. If you build a massively large pipeline and you have a failure then you have a massively large oil spill.  Personally I tend to not be so sanguine about technology; it has this unpleasant aspect of failure that nobody saw coming, and that is a big problem, as Boeing has now found out the hard way. 

Are there better solutions?  Yes, of course.  Reader Boat suggests that Canada "build pipelines and refineries of their own."  That makes sense.  Canada could, if the political will were there, build a pipeline to run from Alberta to Toronto and Montreal, especially Montreal where there are existing refineries. The Quebec political elite has said "No," although I remain unconvinced that they speak for the population generally. Another solution is twinning of a rail trunk line across the Canadian Shield, and use oil unit trains.  Building rail is cheap and fast, you dump the ballast stone and there are these gigantic machines that will drop the cross-ties and lay the continuous rail in, all in one operation.  Throw enough money at it and you would have a complete CBR set-up operational in two years.  Will the Canadians do that?  Of course not. 

The other thing that Canada seems not to be doing is setting up chemical plants to convert that oil into various plastics resins, then becoming the world center for manufacture of plastics, exporting the material all over the globe. Converting raw crude into value-added product is very much in their interest.  Will the Canadians do that?  Of course not. 

Canadians are notorious for making poor policy decisions.  We shall see how this plays out.  Cheers to all.