Canada oil sands output seen beating projections

Thu May 17, 2012 5:40pm EDT

* CIBC analyst sees up to 2.5 mln bpd jump by 2020

* New supply puts more pressure on pipeline capacity

* CAPP forecast due in coming weeks

By Jeffrey Jones

CALGARY, Alberta, May 17 (Reuters) - Production in the Canadian oil sands is likely to increase at a much faster clip than the industry currently projects, an analyst said, putting more pressure on pipeline companies to vastly expand capacity out of Alberta.

The forecast comes as companies plot billions of dollars worth of new pipeline routes to stave off costly bottlenecks. The latest is Enbridge Inc's plan, announced Wednesday, to spend C$3.2 billion ($3.15 billion) on pipelines, most of it to get crude from Alberta to Eastern Canada.

Andrew Potter, analyst at CIBC World Markets, said he expects production from the oil sands of northern Alberta, the world's third biggest crude resource, to jump to 2 million to 2.5 billion barrels a day by 2020 from last year's output of 1.6 million bpd.

That compares with the last forecast from the Canadian Association of Petroleum Producers, an often-cited study, of an increase of 1.4 million bpd. CAPP is expected to release its 2012 forecast in the coming weeks.

In a report, Potter said CAPP's current outlook appears conservative, based on the number and size of projects now under construction and those that he said have a high likelihood of being sanctioned by well-funded developers.

Under his scenario, overall oil sands production, from both mining and steam-driven projects, could climb to as much as 4.1 million barrels a day in eight years, 37 percent more than under the CAPP outlook.

"While long-term company forecasts are inherently optimistic, as, in reality, financing, inflation and crude oil price volatility wreak havoc with the best-intentioned plans, this is, nonetheless, a considerable gap," he wrote.

His forecast averages out to gains of 220,000 bpd-270,000 bpd each year, a figure that is between CAPP's forecast and companies' own, often optimistic, expectations.

The industry, analysts and governments have for more than a year pointed to CAPP numbers and said that Canadian oil production will bump up against current pipeline capacity by 2015 or 2016, underlining the need for such major projects as TransCanada Corp's Keystone XL pipeline to Texas and Enbridge's Northern Gateway conduit to the Pacific Coast.

The projects face staunch opposition from environmental groups and some native communities opposed to surging oil sands development and risks of oil spills from pipelines.

Ottawa is in the midst of a controversial move to revamp legislation on environmental assessments for major energy projects, saying opponents have too much power under the curent system to delay badly needed infrastructure.

On Wednesday, Enbridge said it plans a series of expansions in Canada and the United States in support of a reversal of Line 9 between Sarnia, Ontario, and Montreal, which would send crude to refineries in Quebec and eastward, which are currently fed by foreign crude.

"It helps alleviate some of that pressure," Potter said. "But the whole point of this report is to say that there is going to continue to be big pressure on infrastructure and we just need to see more and more of these things go ahead."

Over the past year, tight pipeline capacity has been blamed for price discounts on Canadian crude that have at times set records.

Major oil sands mining projects expected to start up in the next four years include Imperial Oil Ltd's C$10.9 billion Kearl development and its second phase, an expansion of Canadian Natural Resources Ltd's Horizon venture, and a pair of projects planned by Suncor Energy Inc and Total SA : Fort Hills and Joslyn.

Dozens of steam-driven projects are on tap, both in the development and planning stages, from companies including Canadian Natural, Suncor, Cenovus Energy Inc, and Devon Energy Corp.

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