WSJ: Was Obama Right? XL Pipeline May Not Have Enough Oil TO Carry
FORT MCMURRAY, Alberta—Amid rising costs, gyrating prices and a burst of supply competition down south, Canadian oil companies are rethinking investment in one of North America's earliest and fastest-growing "unconventional" oil frontiers—Alberta's oil sands.
On Thursday, executives at Suncor Energy Inc., Canada's largest oil sands producer by output, said they were reviewing three multibillion-dollar mining and upgrading projects that it and its partners have been considering, and that they would delay a final decision about going ahead with any of them. The move will help Suncor slash capital spending this year by 11%, the company said.
North American natural-gas producers brought on a glut of gas using new drilling and extraction technology to tap hard-to-reach reserves more easily. That has sent prices crashing, forcing some big producers to shut down some of their output and focus investment away from finding gas reserves and toward oil exploration.
More recently, big energy companies have scrambled to propose liquefied-natural-gas export terminals to ship some of that cheap gas to Asia, where prices are still high. Amid all the new plans, however, some executives and analysts now say price expectations among possible buyers have fallen, threatening the economics of some of the multibillion-dollar projects.
The new caution concerning oil sands in Canada comes amid sharply rising costs for everything from labor to construction material and contracting. These days, even the most cost-efficient oil sands producers need U.S. benchmark prices of at least $50 a barrel to justify investment in new projects, executives and analysts figure. Many of those projects—with newer technology using steam to coax bitumen to the surface—are going ahead or forecast to grow quickly.
But for operators who mine bitumen and produce synthetic crude from it, the break-even threshold can exceed $100 a barrel. U.S. crude is currently trading well under $90 a barrel.
"The economics are challenging today," said James Burkhard, head of oil-market research for oil consultancy IHS Cera.
Meanwhile, prices for synthetic crude have been buffeted by a flood of new production in the middle of the continent, especially in North Dakota. Producers there are using the same sort of drilling technology that gas producers have used to unlock fresh supplies of oil. The crude is similar in grade to Canada's synthetic oil, putting the two blends in competition with each other to find refinery buyers. At the same time, limited pipeline capacity has bottled up Canadian supplies, exacerbating price swings and threatening lower prices to come.
This is putting some big expansion plans up north on the back burner. On Thursday, Suncor Chief Executive Steven Williams told investors the company is reviewing three mining-related projects it has proposed with Total FP. Two of those projects—the Joslyn and Fort Hills mining projects— still seem economically viable at some point, Mr. Williams said. But a third—an upgrader—now looks "challenged" because of the new oil production in the U.S., he said.
But as costs ratchet up, prices for synthetic crudes have recently gyrated wildly because of pipeline bottlenecks and rising production of similar grades of crude, especially in North Dakota's Bakken oil fields.
In 2011, Canadian Oil Sands, the Syncrude owner, got an average annual premium for its synthetic crude of some $7 a barrel over the U.S. benchmark, says Ryan Kubik, the company's chief financial officer. This year, monthly prices have fluctuated from a $15 discount to a $15 premium, he said.
"With that incremental light oil production coming on" from Bakken producers, he says, "pipeline space coming from Canada into the U.S.…has become much more tight."
Canadian crude prices will "come under extreme downward pressure" next year and in 2014, with synthetic crude prices expected to drop to their lowest levels in years, according to a market analysis this year by consultancy Bentek Energy LLP. "This could cause a slowdown in oil sands development," the report warned.
And the XL pipeline may not have too many customers.
We can go ahead and build the pipeline and create some jobs. Then hope that the product will soon come to our country. If we have to wait hen Obama gets credit but also gets the blame. It is a very tricky blame game norris plays. In the article that Liza posted weare building and creating jobs with the building of other pipelines and infrastructure for ou own oil and gas.
Pipe makes it economic to produce at lower prices as it is some much more efficient, cost effective, safer far less pollution than training. BUt then Buffett would not get his political pay off for supporting Obama.
Once again RLP has no clue.
"At the same time, limited pipeline capacity has bottled up Canadian supplies, exacerbating price swings and threatening lower prices to come."
He misses the whole point in his emotional excitement to post something true Gasland,Oil Drummers and ethanol believers would love.
The lower prices do not make it to American consumers as the folks who figure out how to move it earn the profit. But then high gasoline prices are great for the American economy. Just ask any brain dead flat earth progressive.
They have new economics to go with their new meth. Neither of course works.