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For Canadian Oil Sands It's Adapt Or Die
Submitted by Alexis Arthur via OilPrice.com,
That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.
In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace.
Of course, the nature of capital intensive operations such as the oil sands is that they are also prohibitively expensive to shut down. Producers are left in limbo, praying that prices will rise.
The implications for Canada should not be understated. Of the nation’s estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.
Projects are being delayed, and many experts wonder if the current oil sands model has a future. Peter Tertzakian of ARC Financial told Alberta Oil Magazine that the era of oil sands mega projects was over.
In Alberta, an estimated one in 16 jobs is tied to the energy sector. According to the National Energy Board, crude oil and bitumen brought in $70 billion for Canada in 2014. Perhaps, as Tertzakian noted, new projects will simply adapt, becoming more nimble, flexible, and focused on value rather than quantity.
U.S. shale producers have found great success with this approach.
Oil sands companies are already feeling the effects of a weaker macroeconomic environment and volatile global oil market. In August, Moody’s Investor Service downgraded Canadian Oil Sands Ltd to Baa3, one step above a speculative rating. Canadian Oil Sands holds a 36.74 percent share in Syncrude, one of the most significant players in the oil sands space. The negative outlook reflects poorly on the industry as a whole.
But with Canada’s oil sands production still rising, where will all this oil go?
Currently, Canada sends 99 percent of its oil exports - 2.9 million barrels per day - to the United States. Much of this is headed to refineries in the North East and on the U.S. Gulf Coast.
The U.S. has been suffering its own oil glut as increased productivity and efficiency gains in shale production have kept many operators afloat. However, even in the United States, oil production is finally starting to decline.
One way to ease an oversupply in the U.S. - and make room for even more Canadian crude - would be to reverse the outdated crude oil export ban. Lifting the ban to allow the U.S. to export crude globally makes economic sense and advocates are garnering support from across the political spectrum. Still, the political maneuvering required means that any real movement is likely to be a medium-term prospect at best.
In the meantime, Canada’s major limiting factor going forward is its lack of pipeline infrastructure. The United States will continue to consume Canadian crude but the market will eventually be saturated. Canada is looking to expand into markets in Europe and Asia but has no efficient means of getting there.
The controversial Keystone XL pipeline has grabbed the headlines but it is only part of the picture. Even if the pipeline were approved, Canada’s oil sands production would rapidly exceed its capacity. Instead, Canada is looking to improve transport infrastructure at home.
The Energy East Pipeline aims to send 1.1 million barrels of oil from Alberta to refineries in eastern Canada but has faced opposition from several municipalities in Quebec, through which it would pass en route to Brunswick.
The Northern Gateway Pipeline would carry over 500,000 barrels per day to Kitimat in British Columbia but has likewise experienced backlash from affected communities and environmental groups.
With pipeline infrastructure moving slowly through regulatory processes, environmental impact studies, and community consultations, there are few alternatives in the interim. Canada continues to send crude by rail but the risks have been evidenced by a series of high-profile accidents in the last two years.
In the short-term, there may be no obvious relief for Canada’s oil sands producers. Further credit rating cuts may force operators’ hands. Oil sands production was always going to be a risky venture, even in a high oil price environment. Volatility will have a far more lingering effect on current and future production.
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Adapt? OK. Here's my suggestion: Turn it into a giant family-oriented theme park. You could have the Crude Oil Slip-n-Slide, the Oil Barrel Log Flume and, of course, the big roller coaster would be named "Train Car Derailment". Educational features could include one called "Frack to the Max!" where you try to extract as much oil as possible without poisoning the ground water.
I'm sorry, but I just cracked myself up with that one.
They'll keep adapting until they go full bankrupt, exactly like our own fracking little business...
Whenever the phrase 'oil sands' appears, look for a scheme to make more money off the backs of the locals.
Despite all the childish rhetoric from the ZH crowd, I would say that it is pretty much a safe bet that all of the major investors in the Tar Sands oil deposit knew full well that there were as many upsides as downside risks to the price of crude oil on the world markets. Sure, it makes no sense to us mere mortals when the Goldman Sachs of this world tell us that $200/bbl oil is within sight and that cheap oil is OVER. Sure, that was 5 earth history minutes ago. And you can bet that they are going to be placing heavy bets in the market depending on what they are selling to the yokels. However, the Tar Sands is expensive, the oil companies knew this and they knew that if the floor fell on crude, which it still might do, that they would have to drastically reduce output and for a while, cancel all knew exploration and expansions. They have been through more booms and busts than we have. If the weak fail, that is the fate that all must face in the capitailst system. It's their system and they thrive or die inside it. And, if the Iran deal continues to move towards peace with them, there is all that oil that they could flood the market with in a heartbeat. Goodbye Lethbridge and Calgary? Maybe, or maybe not. We'll have to see.
I totally agree. And I am pleased you are using the correct moniker for it: Tar Sands. Full name Athabasca Tar-sands. Has been called that for as long as I can remember, but then Levant and his oil-soaked cronies and backers decided "oil" sands sounded better for some unknown reason. They just set themselves up by doing that, but I digress.
The real reason production is still growing is that the current government has all it's economic eggs in one oily basket, so they are likely shoveling out tax breaks and just plain old kick-backs by the truck-load right now to keep things "growing". They are only a few weeks shy of disaster if they let that greasy cat out of the bag. Expect the real crash to occur in a few short weeks, once the election is over. Won't matter who wins cause it's just a shit-sandwich for a prize.
Oh, Calgary's not going anywhere. The real question is who will be earning all those oil revenues when oil returns to fair value at USD200+. If Bay Street and the Saudis have anything to do with it, it won't be Albertans.
Not to mention that the only national government at all likely at the moment to be toppled by the Saudi oil dumping caper and replaced by something more to Wall Street's taste will be Stephen Harper's. (You have to laugh. They did this because they were too chicken to start a real war with Russia. Uncle Sugar could have overthrown Harper the old-fashioned way in a matter of hours.) Alberta is in for a world of hurt with socialists in office in Edmonton and Ottawa.
Fuck the United States of Canada.
And their constitution written by crown corporations!!
Fuck em right in the pussy. Full Recourse bitchezz.
RIPS
Canada could still fragment into many separate countries. I could live with that, I want no part of joining the United States of America.
How about we build some fucking refineries in our own country and let its own people buy some cheap gas instead of selling it to the U.S. and then buying it back again?
I have always wondered a lot about that myself. Countries with oil reserves having to actually import gasoline due to lack of a refinery... Speaks volumes about the stupidity of the people running those nation's governments.
Don't blame me, I haven't voted once in 10-15 years.
That is certainly a major problem. The yoke of globalist satanists is certainly fucking us. As for this nugget of illumination, wow, shocker, the oilsands is risky. I've known that since the 80s ( I think I originally was introduced to the concept when I drove by a turbo gas station on my big wheel and I heard an old man ranting).. I guess we can switch to obvious talking points like this, now that the hysteria of "peak oil" is for the moment, in flames.
Was going to post the same thing. Tree huggers are against it so Canadians continue to pay for inflated gasoline.
We actually had refineries. For a period of time, gas prices between Canada and the US were pretty close. Then, for some mysterious reasons, all the Canadian refineries were declared obsolete and closed. Fucking ridiculous. Now, Canadians pay $4US or so a gallon.
Hey here's a genius idea! Dig up the world's largest fresh water aquifir to sell the oil sands!
Hey seventh generation, fuck you!
:)
2 things.
1) Aquifer
2) Everything I've seen shows the use of fresh water in the oilsands going down.
Tell that to the native villages downstream that now have their water trucked in. Maybe Syncrude will truck in their lost fish and game too.
I was in Quebec and Ontario earlier this year and it was crazy how much street level retail was empty. Prime downtown areas and many many buildings empty. They are getting kicked in the balls.
Here is an example of the fall out. 3 day auction starting today. Over $30 MM worth of equipment.
http://gagp.auctionhq.net/view-auctions/catalog/id/150/
Anyone want to buy my bobcat, cheap? It has all the attachments!
I could have bought a road legal rubber tire backhoe instead, but because black gold being efficient was far secondary to looking cool.
Seen it far too many times out there, this shakeout is going to hurt them all but it is going to kill the folks who should be dead anyways under that pesky moniker known as 'reality'.
Should Canada start exporting "Cold Wind" to hot areas...?!
Too bad those Alberta clippers only come around in the winter, otherwise Chicagoans would pony up big bucks to cool off during tornado season.
Kind of like having a pumpkin harvest the day after Halloween.
When the wind blows in CANADA we spill water at the Hydro Power Generating Stations, and we give surplus power away to the ungrateful YANKS gratis. Since ENRON every cocksucking politician in CANADA assists the electricity cartel to bilk Canadian residents on power generation. The dyke whore douchebag Naughty Naughty Kathleen Wynne is about to sell off Hydro One so that she, and the other douchebags in her cabinet, can bilk us out of the fucking utility that we God damn paid for already. The susperstructure of the North American power grid is one huge racket since Skilling cooked the whole industry with his special brand of accounting. The price on electricity has absolutely gone through the roof ever since ENRON.
So, to answer your question, Americans down south get cheaper electricity to blow cold air through their air conditioners and into their houses already. Exporting cold air to hot areas is accomplished through electricity dumping on the part of Ontario CANADA through the mismanagement of our dyke Premier Naughty Naughty Kathleen Wynne 'the douchebag'.
"...production out of Calgary has continued to grow,..."
All about massive sunk costs. Any revenue at all services the debt.
That sound you hear is Bay Street cackling---everyone on the Street who isn't long on oil stocks and bonds anyway.
They've had it in for Albertans ever since they defied Bay Street in 1935 and sent a Social Credit government to Edmonton. Seeing Socred (now Wildrose) country taken down a couple of notches does what passes for Bay Street's hearts good.
Throw in a Bank of Canada rate cut---none of which got passed along to normal people, of course---and life is good on Bay Street.
Not only do they get to buy prime oilpatch claims for a song, they may put socialists in Edmonton AND Ottawa in one year, determined to spend what's left of the dominion's wealth (and make the banks a killing in interest).
The Saudi oil dumping was supposed to see off Vladimir Putin, the man our masters couldn't buy or defeat in war. That didn't work, but they may get the head of Stephen Harper, long a thorn in Barack Obama's side, as a consolation prize.