27-05-04

Canada's oilsands could easily produce more than 2 mm bpd of oil in 2015, but the industry's already heavy reliance on natural gas is also expected to more than double, the National Energy Board reported.

Oilsands production is expected to surpass 1 mm bpd this year and reach more than 2.2 mm barrels in the next 10 years, Canada's national energy regulator said in a new report. But more than half the cost to produce synthetic oil from the northern Alberta oilsands is tied directly to the volatile cost of natural gas.

Natural gas is used to heat water and produce steam needed to heat tar-like bitumen reserves deep underground to boost oilsands production. As well, natural gas is used as a fuel to produce electricity, run machinery and operate refinery systems.

The oilsands currently uses 600 mm cfpd of gas, or 4 % of conventional production from western Canada. By 2015, use will increase to upwards of 1.6 bn cfpd or 10 % of gas production.

"Gas supply and its impact on gas prices is acritical issue to the oilsands industry," states the report.

Along with record high prices for crude oil, natural gas has also remained at very high levels for this time of year, hovering around $ 6.70 per thousand cf. Canadian gas production, which increased dramatically in the 1990s, is expected to stay relatively flat, producing about 17 bn cfpd until about 2010. Conventional supply from the Western Canada Sedimentary Basin is expected to decline by 2006-2007.

As a result, future oilsands development is expected to rely more heavily on new technologies that use other fuel sources. For example, the $ 3.4 bn Long Lake oilsands plant, being built by Calgary energy producer Nexen and Opti Canada intends to create its own synthetic gas from the bitumen it produces.

The energy regulator also says about $ 60 bn worth of projects, pipelines and other supporting infrastructure is slated for development through to 2015, with $ 20 bn already invested. But it is unlikely that all these projects will go through.

"Ongoing volatility in crude oil prices is expected and suggests that it is unlikely that the entire $ 60 bn in projects will be constructed within the planned timeframe," the report states. "Market conditions will determine the pace of oilsands development."

The report also suggests that Alberta's petrochemical industry, facing tight supplies of feedstock gases from conventional natural gas production, could use the ethane and ethylene produced during the bitumen upgrading process.

Source: Canadian Press