A new report from IHS Inc. has said that despite lower oil prices and other industry challenges, growth in Canadian oilsands will continue and remain one of the top sources of global supply growth in the coming years. Oilsands growth, which previously increased 1.2 million bpd between 2005 and 2014, is expected to add an additional 800 000 bpd of new production by 2020. This would keep Canada in the position of being the third largest source of supply growth in the world through the period.
“Why the Oil Sands: How a Remote, Complex Resource Became a Pillar of Global Supply Growth,” is a research project of the IHS Oilsands Dialogue. It draws on previous IHS research into specific aspects of the oilsands and provides an historical context of the oilsands growth over the past 15 years and discusses the reasons that growth continues.
Kevin Birn Director, IHS Energy said, “a review of the oilsands development over the years shows a history of growth, even when headwinds to production emerged. Oilsands growth has propelled Canadian production higher, and Canada now produces more oil, conventional, unconventional and oilsands combined, than every member of OPEC except Saudi Arabia.”
Among the attributes supporting continued oilsands growth are the enormous scale of the resource and its location in a stable jurisdiction. The report says that openness to private capital and proximity to the world’s greatest economy, the US, are also factors that support future growth.
Against the odds
The report also says that growth of oilsands supply will continue through the medium term despite headwinds. These include lower oil prices, cost escalation, environmental scrutiny and uncertain timing of new pipeline capacity to access new markets. Slower growth from the lower price environment is emerging from a slower pace of construction, declines from more conventional oilsands production, and delay in unsanctioned project. Yet, the report does conclude that growth is expected as a result of both existing projects and those under construction where significant capital has already been spent.
Birn said, “certainly growth would have been greater had prices remained high, but there is sufficient inertia in the system from projects already underway to carry growth to nearly 2020. Those projects where significant capital has been invested will continue to operate and proceed to completion.”
Environmental concerns related to oilsands include regional impacts as well as GHG emissions. The oilsands do account for 0.14% of worldwide emissions, but their share of domestic emissions in Canada has grown with production. The GHG intensity of oilsands production ranges 1 – 19% higher than the average barrel of crude consumed in the US, but other crude oils can have a similar level of GHG intensity. The report notes that some of the more recent oilsands projects have trended closer to the US average as a result of innovation and learnings over time.
The report comments that uncertainty of new pipeline capacity has, in the past, contributed to price discounts as high as US$30/bbl. The increase of rail transport for oilsands has eased transportation bottlenecks and alleviated the price discounts. However, the report does note that moving crude by pipeline, which is generally less expensive and more predictable, remains the preferred option by producers and refiners alike.
Previous research by IHS has found that construction and operation of the Keystone XL pipeline would not have a material impact on GHG emissions. The study concluded that complex refineries on the US Gulf Coast that are designed to process heavy crudes will continue to demand types of crude that have a similar GHG intensity to oilsands, meaning that the US will continue to import crude oil of a similar quality from offshore sources such as Venezuela if additional supply of oilsands were not available.
The new report concludes that, while the long term path of oilsands growth will be linked to the pace and scale of the global oil price recovery, the fundamentals that have supported oilsands growth in the pat remain in place.
Birn said, “while trajectory of longer term oilsands growth beyond 2020 is not assured, the pillars of past growth, innovation, collaboration and stable investment climate in Canada, certainly remain.”
Edited from press release by Claira Lloyd