Production volumes in the Alberta oil sands continue to inch up as production expansion projects sanctioned in better times — almost all of the projects small in scale — come online. However, several major pipeline projects remain on the drawing board; taken together, they would appear to provide far more pipeline takeaway capacity than the oil sands will need. Which raises two questions: how much incremental pipeline capacity is needed, and which pipeline project or projects are most likely to advance? Today we continue our series on stagnating production growth in the world’s premier crude bitumen area, the odds for and against a rebound any time soon, and the need (or lack thereof) for more pipelines.
In Part 1, we started with a reminder that while the three oil sands areas in northern Alberta — the giant Athabasca deposits and the smaller Peace River and Cold Lake areas — contain proven reserves equivalent to more than 160 billion barrels of crude oil, simply having vast hydrocarbon reserves in the ground isn’t enough. Production costs and the cost of delivering product to market need to be competitive if an area is to continue drawing investment — at least over the long-term in the case of areas with higher upfront development costs like the oil sands and the Gulf of Mexico (see Don’t You Forget About Me).
Oil sands producers have been especially hard-hit by the collapse in oil prices, in part because their hydrocarbon-extraction process is more complicated and costly than their shale-play counterparts, and because the oil sands are far away from most major refinery centers. And it’s not only a matter of having to transport product longer distances — oil sands producers also need to either add diluent to their bitumen to allow it to flow through pipelines, or transport high-viscosity bitumen in special, high-cost coil rail cars that can be heated before unloading, and none of that comes cheap.