|The forecast growth in oil sands production (In-Situ and Mining).|
A new study released by the Joint Economic Committee (JEC) of the US House of Representatives concludes that the accelerated development of huge reserves of unconventional oil in Canada will undermine the OPEC oil cartel in coming years.
According to the study, Canadian Oil Sands: A New Force in the World Oil Market, estimates of proven oil reserves rank Canada second only to Saudi Arabia, with the possibility that Canada’s reserves may be even larger. Strong economic incentives would exist, even with oil prices at half the current level, to ramp up oil sands production and more than double output in ten years.
The large Canadian reserves of unconventional oil and their rapid development is very good news for consumers in the US and around the world. While these reserves can supply only a limited amount of oil at the current time, their development is exactly the kind of thing the OPEC cartel has hoped to avoid.
OPEC’s production quotas and failure to invest in expanded capacity have severely limited the conventional oil supply in the face of an unexpected increase in Asian demand. Concerns about Iran and terrorism have only exacerbated the situation. The result is sky-high oil prices and every economic incentive to develop alternative energy sources.
The Canadian oil sands will be an increasingly important factor in the world energy market in coming years. These reserves are immense and their potential output is very significant for the future energy balance. The oil sands will not solve the energy problem, but they will help to undermine OPEC’s power to increase oil prices and will thereby enhance US energy security.—JEC Chairman Jim Saxton (R-NJ)
On the strength of expected oil sands output growth and despite declining conventional oil output, Canada can be expected to move from 7th to 5th place in ten years among the world’s oil producers.
The report, which focuses on the economics, not the technology or the feasibility of greatly expanded oil sands production, notes that although the projected amounts of oil produced are not large enough to achieve energy independence for North America, they represent a growing counterweight to OPEC’s market power and as such increase national energy security.
One of the underlying assumptions of the report is that OPEC has held back on developing more of its reserves, and that the accompanying increase in price caused by now surging demand is spurring the development of oil sands.
...as long as those who hold market power are opting to reap prices far in excess of the cost to develop the oil sands, they also are feeding the growth of a potential industry giant. High oil prices help to overcome shortrun increases in production cost while Alberta’s input markets and infrastructure adjust to a larger scale of oil sands production. In the long-run, the cost is likely to stabilize and may even decline, leading to ever larger rates of oil output.
What sets the Canadian oil sands apart from most other sources of oil under development is the vastness of the known resource and the secure access to it. It may take the oil sands industry a decade or more to stabilize the cost per barrel while accelerating the rate of output, but once it does, it will cap the power of OPEC.—“Canadian Oil Sands”
|The current production from Canada and the North Sea is represented by the dotted line. The increase in oil sands production doesn't offset the decline in conventional production.|
However, a new study by the Uppsala Hydrocarbon Depletion Study Group, Uppsala University, Sweden, has concluded that even in a very optimistic scenario Canada’s oil sands will not prevent the peaking of oil production (Peak Oil). Even if a crash program were immediately implemented it may only barely offset the combined declining conventional crude oil production in Canada and the North Sea.
The study, “A Crash Program Scenario for the Canadian Oil Sands Industry”, will be published in Energy Policy.
The Uppsala report argues that the implementation of a crash program for the Canadian oil sands industry has serious difficulties, including the lack of a sufficient natural gas supply and the problem of meeting Kyoto obligations (oil sands production is carbon intensive). Practical long-term production would require, in the report’s estimate, nuclear facilities to generate power for the in-situ projects.
Unfortunately, while the theoretical future oil supply from the oil sands is huge, the potential ability for the Canadian oil sands industry to meet expectations of bridging a future oil supply gap is not based on reality. Even if a Canadian crash program were immediately implemented it may only barely offset the combined declining conventional crude oil production in Canada and the North Sea.
The more long-term oil sands production scenario outlined in this report does not even manage to compensate for the decline by 2030. Today, world wide, there are many oil producing areas in decline whose productions have to be offset by new production. With the exception of ultra-deep off shore fields, of the world’s 65 oil-producing countries, 54 have passed their peak production and are in a state of continuous decline.
There are some areas that need the immediate attention by the world’s energy planners. Firstly, the future for the Canadian in situ oil sands production. How much can these activities grow without serious fuel costs problems as well as accelerating CO2E-emissions arise? Secondly, how effective will large scale SAGD in situ projects be for reservoirs of lower quality? Thirdly, is it realistic to include the construction of nuclear facilities for input energy for oil sands projects when making production forecasts? If not, how is the energy going to be provided and how much additional energy supply will be needed in order to extract the bitumen at the required high production levels? The Hirsch report [earlier post] has shown that the Canadian oil sands resources play a vital role for future energy planning, thus it is of outmost importance that these questions are thoroughly investigated as soon as possible.