* Several new oil sands projects profitable at $60 oil
* Export pipeline capacity tight over next few years
* Recent narrow heavy oil discounts to be short-lived
By Jeffrey Jones
CALGARY, Alberta, March 27 A combination of
surging production from low-cost Alberta bitumen projects and
stubbornly tight export pipeline capacity will keep Canadian
crude oil prices volatile for the rest of the decade, energy
researcher Wood Mackenzie said on Wednesday.
The prediction comes as the Alberta and Canadian governments
struggle to find solutions to the problem of deep discounts in
prices for the country's heavy crude oil that have pressured
public finances as well as corporate bottom lines.
In recent months the discount on Western Canada Select heavy
oil has shrunk considerably, to less than $15 a barrel under
West Texas Intermediate from more than $40 under in January, as
Imperial Oil Ltd's Kearl oil sands project has been
slow to start up and as inventories in Canada have dwindled.
However, Wood Mackenzie analyst Mark Oberstoetter said the
improvement is likely to be short-lived as major new pipelines
to move the crude are slow to be approved and built and
production from the Bakken region of North Dakota in the United
States also jumps, competing for current space to market.
Oberstoetter said almost three-quarters of an expected
540,000 barrels a day of new bitumen production expected to
start up in the next two years will come from projects that are
already sanctioned and have a break-even oil price of $60 a
That means they are well insulated from weaker crude prices,
and so have little risk of getting deferred.
"What our analysis shows is that point-forward economics for
the vast majority of oil sands projects planned to start-up
between now and 2015 are attractive," he said in a statement.
Some unsanctioned projects, such as the Fort Hills oil sands
mining development proposed by Suncor Energy Inc and
Total SA, have somewhat higher break-even levels and
are at risk of being delayed given expectations of weaker
bitumen prices, he said.
Suncor has said the partners expect to make a decision on
Fort Hills by the end of June.
Major new pipeline proposals, including TransCanada Corp's
Keystone XL to Texas refineries and Enbridge Inc's
Northern Gateway to Canada's Pacific Cost, would
alleviate the pipeline bottleneck, securing higher prices for
Canadian and North Dakota oil, Oberstoetter said.
He pointed out, however, that they both remain controversial
and could still face more regulatory or political delays.
TransCanada has said that Keystone XL could be in service by
2015 if approved by this summer.
Wood Mackenzie said it does not expect meaningful expansion
of North American pipeline capacity until 2014, when such
projects as Enbridge's Southern Access and Tallgrass Energy
Partners' Pony Express pipeline systems start up.
"The companies without a natural hedge via an accessible
downstream position are the most impacted and may seek out rail
as an alternative option," it said.