Energy Evolution: September 12, 2005
NEB Forecasts An Increase For Crude Oil Output
With the expansion of mined and in-situ bitumen and East Coast offshore production, Canadian crude output is expected to climb to 2.9 million bbls a day by the end of 2006, says a new National Energy Board (NEB) study.
Total net available supply, which includes upgrading and blending, is projected to reach 2.8 million bbls per day next year, an increase of 24% over 2000 levels, according to the study, Short Term Outlook for Crude to 2006.
However, oil production is projected to fall about three per cent this year from 2004 to about 2.6 million bbls a day due to operational problems experienced to some degree at all three integrated oilsands mining projects near Fort McMurray, Alberta.
The decline will reflect the forecast 12% reduction in total synthetic crude production to about 571,000 bbls a day from record 2004 levels of 649,000 bbls a day.
In-situ bitumen production, which rose 34% between 2000 and 2004, is expected to average 484,000 bbls a day in 2006 as production from eight phases of expansion in existing or new thermal projects comes onstream. Primary bitumen recovery also is projected to increase by two per cent to 109,000 bbls a day by the end of 2006.
Although oil-directed activity has been somewhat overshadowed by the record-breaking number of natural gas wells being drilled in Western Canada, it has been responding to higher prices, the NEB study said.
In addition to the Alberta oilsands, this response is evident in the Newfoundland and Labrador offshore and in Saskatchewan and Manitoba, the NEB study said.
While the conventional areas of Western Canada are relatively mature in terms of exploration and development, with a projected recovery rate of only 22% of oil in place, the remaining supply represents a large target for exploitation, the study noted.
To further encourage enhanced oil recovery (EOR), governments have recently introduced several measures, including modified fiscal terms and increased support for EOR research, the NEB study said.
Conventional light and medium production in Alberta is expected to continue at a five per cent a year decline to 353,000 bbls a day in 2006.
The NEB study is forecasting a further reduction of two per cent per year this year and in 2006 for conventional heavy oil production in Alberta, with output totalling 199,000 bbls a day in 2006.
Heavy oil activity has declined by an average of three per cent a year since 1997 as producers have focused on gas drilling, the study said.
While production in Saskatchewan has been relatively flat, averaging 332,000 bbls a day between 2000 and 2003, higher oil prices have resulted in increased drilling. The study said drilling counts in Saskatchewan have risen by about six per cent per year between 2002 and 2004.
As a result, Saskatchewan production was up two per cent in 2004 and that growth rate is expected to continue into 2006, with forecast production of 355,000 bbls a day.
In Offshore Newfoundland and Labrador, the addition of the 100,000 bbls per day from the White Rose project late this year is forecast to raise total production to 360,000 bbls a day.
This forecast for that province is despite declining production from Hibernia and Terra Nova, the study said.
In Ontario, increased development drilling, which increased to 34 wells from 10 the previous year, will help to offset a long-term decline trend and should translate into higher production of 3,000 bbls a day for this year and 2006, the NEB study said.
Global oil markets are expected to remain strong through 2006.
The NEB study indicated the main drivers for global oil production are expected to be:
The NEB study cites industry experts who believe West Texas Intermediate (WTI) prices likely are to trade in the area of $50 (US) per bbl next year.
The oil market appears to perceive the WTI downside to be limited to about $40 to $45 per bbl, said the study.
Wider-than-average heavy/light oil differentials are expected to continue, but narrow somewhat from those in late 2004, the NEB outlook said.
However, “bitumen and extra heavy oil producers requiring substantial quantities of light hydrocarbons for blending will likely face a significant challenge in maintaining profitable operations, particularly in the winter months,” the study warned.
The NEB report also identified a number of short-term market issues, including tight diluent supplies and a lack of heavy oil pipeline capacity, although these are being addressed over the next few years.
Reliability of supply could also become more of an issue as conventional oil production declines, said the NEB, citing the disruptions in synthetic crude oil supplies that hit the major oilsands producers in late 2004 and early 2005.
“As well, upgrader outages could lead to future discounts after production levels are restored to compensate refiners for the risk of potential unreliable supply,” the NEB study said.
According to the NEB, strong economic growth and associated demand for petroleum products will keep refinery utilization high at about 90%. – By Elsie Ross