Friday, November 11, 2011

Alberta's oil sands, TransCanada's Keystone pipeline xl & Enbridge's attempt to access China

    Keystone XL, struggling through the approval phase, aims to bring more of Canada's oil to the United States in an effort to reduce their dependency on Middle East oil by 75% by 2020.
Among other top sources, Mexico is an unsustainable source due to dwindling resources there while Saudi Arabia (number 2) is viewed as unstable due to its situation within the Middle East & participation in opec (opec has tried to influence the price of oil by capping production). TransCanada's $7 billion pipeline (proposed in 2008) would double Alberta's oil exports to the United States. The Keystone Pipelines lowers delivery costs (reliance on overseas shipping/the many smaller pipelines that would be needed in place of it). The pipeline would be the safest pipeline in use so risks associated with oil spills would be minimal. There has already been over 40 months of review including three (and a final) major environmental assessments and numerous public meetings. Even with that considered, US President Obama put a key decision on the matter on hold until after the 2012 elections, by ordering another environmental assessment. The sticking point appears to be the pipeline's proposed route through Sand Hills, Nebraska (Sand Hills covers the mid to western portion of the state and has been designated an ecoregion by the WWF with 85% of Sand Hills (1/4 of Nebraska) being intact natural habitat). However, other routes result in a longer pipeline track and that creates more risk according to TransCanada Corp, Canada's 4th largest petroleum company. Even if another route is chosen it is highly likely that it will still impact Nebraska given that eight of the 14 different routes affect the state (only 1 avoids the sensitive Ogallala aquifer but six reduce the mileage across Sand Hills). The pipeline project would immediately create 20,000 American jobs while giving oil refineries in Texas a much needed boost in raw supply. According to TransCanada president Russ Girling “This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed." The 1,700 mile Keystone Pipeline would carry 700,000 barrels of oil per day to six Texas refineries in Padd III (would reduce Canada's reliance on refineries in Padd II where a glut of supply has depressed the price of Western Canadian Select oil). The Keystone Pipeline isn't the only major North American project underway, there's also the 800,000 bpd Wrangler Pipeline (Enbridge & Enterprise Product Partners) that will pipe oil from Cushing OK to the Gulf Coast. Another company, Kinder Morgan already operates three pipelines between Canada and the United States. (USA Today: Obama delay of Canadian pipeline won't stop tar sands) Oil price is up 25% over the last month and a half (ending November 16) driven by tensions between Israel and Iran.
Update January 20, 2011 Obama rejected a permit for the Keystone Pipeline. In response, Stephen Harper threatened to give more support over to the other pipeline project Northern Gateway Pipelines which will take the oil to British Columbia then overseas to destinations in China. Canada is home to 90% of 2P oil reserves outside of OPEC nations. The irony behind it all is that the decision by Obama makes the US more dependent on oil from unstable sources (Venezuela, Saudi Arabia) while also making the US a less financially secure/more hostile place to do business for traditional allies like Canada.
Alberta is home to nearly 170 billion barrels of proven and probable oil reserves (much of it amongst easily processed oil sand) exceeded only by Saudi Arabia and Venezuela (AP:China eyes Canada oil, US's energy nest egg) In Alberta alone, more than 1.6 trillion barrels of oil in inferred resource isn't even included because extraction methods SAGD and THAI/CAPRI aren't able to bring it to the surface by economically viable means. However, considering only conventional sources, Canada has major sources outside Alberta (Saskatchewan and Newfoundland combined have about 1.4 times as much oil reserves as Alberta). (NEB - Energy Reports Canadian Energy Ovewview) Approximately 20% of Alberta's oil sands are close enough to the surface to be recovered by open pit mining, the rest requires vairous in-situ technologies; the government of Alberta requires that oil companies bring the land back to 'equivalent land capability' that is, restore it to a level that makes it useful to the community either as boreal forest (which was initially destroyed) or pasture for bison (though many companies have only restored a fraction of that, for example Syncrude Oil restored 22%). Oil sands operations have been approved to use about 360 million m3 of water from the Athabasca River (runs through the mining district, water source is a glacier over 1,200 km away), that's twice as much water used by the entire city of Calgary though less than 1% of the water from the river is used by the province and oil operations; 24 m3 of water is used to produce 1 m3 of synthetic oil (1 m3= 6.29 barrels of oil). As oil sands production grows, companies like Canadian Natural Resources (ranks behind a couple companies in terms of oilsands production, Suncor is 1st at 355,000 bpd in January 2012) are improvising in order to reduce their usage of water from the Athabasca river so they continue to remain below the limit; CNRL now separates water from solids more effectively by injecting carbon dioxide captured from its hydrogen plant into tailings lakes reducing the need for additional water. 90% of conventional oil reserves are controlled by state owned oil companies.

By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Tar sands crude is over five times more expensive to extract than middle east oil however with oil prices up more than 400% since 2001 and Alberta continuing to charge one of the lowest royalty rates in the world (down from $3/bbl in 2001 to $2/bbl in 2009) there is much profit to be made. Many smaller Canadian companies lack the billions needed to extract the oil and that has created opportunity for foreign companies including Norway's Stat Oil which has shown a lot of interest (Statoil's licenses in Venezuela were revoked by Chavez and their core reserves in the North Sea are nearing depletion). Fort McMurray is at the epicenter of Alberta's oil boom.
With crude oil fetching higher prices in Asia, Canadian producers are also looking to other markets outside North America (nearly all Canadian oil (2M bbls/d) currently heads south, 2010). The supply chain has, more recently become overwhelmed in the United States due to the release of 30 million barrels of reserve oil onto the market Parkersburg News and already filled up pipelines and storage tanks. With China's interest in Canada growing, another major pipeline project has been proposed; The 728 mile (1,200 km), 575,000 bpd Northern Gateway Pipeline proposed by Enbridge (construction by 2015, Enbridge already operates the world's longest oil pipeline). The new pipeline system is composed of two pipelines, 1 designated for the import of natural gas condensate, the other to the export of crude oil from Edmonton to Kitimat BC. Currently 99% of Canada's oil goes to just one market and even within that market (USA) Canada isn't getting as much in return for its oil as it could be getting since 55% of that oil goes to an area in the north east known as PADD II where a glut of supply is keeping prices down on West Canadian Select. The pipeline is gaining the attention of politicians and oil companies eager to broaden their customer base. More on Oil Supply and Demand (2011-2016)

The US delaying a key decision in the Keystone Pipeline case can only hurt North America’s energy indepedence given that China wants to tap into Canada’s oil supply and Canadian companies like that because heavy oil commands higher prices in Asia (than it does in the United States or even Canada). The Northern Gateway Pipelines which would carry Alberta oil to Kitimat BC then be loaded onto tankers headed for Asia. No Keystone Pipeline means China would eventually take a larger share of Canada’s oil putting US supply at risk (Canada is the largest source of US oil, Canada is also one of only a handful of countries with production growth).

Ironically, environmentalists are both helping and hampering efforts to provide access for Asia; The oil pipelines face fierce opposition from environmentalists and Native Indian groups concerned over wildlife and possible oil spills (like what happened with Enbridge in Michigan in 2010); at the same time American environmental groups have opposed the oil sands on the grounds that it makes excessive use of water and increases greenhouse gas emissions.

Here's what Newt Gingrich has to say about the Keystone Rejection
The Iranians are practicing closing the straits of Hormuz, the Canadian prime minister has already said to the US president, if you don't want to build this pipeline to create 20,000 American jobs and bring oil through the United States to the largest refinery complex in the world, Houston, I want to put it straight west in Canada to Vancouver and ship the oil direct to China so you'll lose the jobs, you'll lose the throughput, you'll lose 30 or 40 years of work in Houston. The president cannot figure out, I'm using milder words here, utterly irrational to say I'm now going to veto a middle class tax cut to protect left wing environmental extremists in San Francisco so that we're going to kill American jobs, weaken American energy, make us more vulnerable to the Iranians and do so in a way that makes no sense to any normal, rational American.
 According to Alberta's 2012 budgetary report, total oil production will reach 3M bpd by 2014, 2.4M of that is from non-conventional sources like bitumen (bitumen royalties totalled $5.7B in 2011 will be $9.9B in 2014).  2011-2012: non-conventional oil production was at 1.78 million barrels per day.  Conventional oil production will be 500,000 bpd in 2013.  Provincial royalty revenue:  Bitumen contributed $5.7B of the $6.5B total which includes conventinal, in 2012, 30% higher than the $4.4B earned the year before.  Total will be around $12.2B in 2014.

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