Few approved oilsands projects stand to be built in near term: analysts
Analysts say the application withdrawal for the Frontier project means the landscape has changed
There are dozens of approved oilsands projects that could be built in the wake of the shelving of the Frontier oilsands mine this week but analysts say they won't be built until more export pipeline capacity comes online.
The application withdrawal for the 260,000-barrel-per-day Frontier project by developer Teck Resources Ltd., nine years after it first applied for regulatory approval, means that existing producers with approved projects or those planning expansions have a decided advantage over new entrants, said oilsands analyst Phil Skolnick of Eight Capital.
Developers of in situ projects — where steam is injected to produce heavy oilsands bitumen through wells — also have a leg up over projects where the bitumen is accessed through open pit mining, he added, because their projects tend to be smaller, make money with lower oil prices and usually need only provincial approval.
"It seems like the in situ ones have an easier time getting over the goalposts," he said.
"With the mining projects, the economics are tougher to make work, especially in light of how the oil price outlook has been dramatically reduced... since late 2014."
Oilsands output could grow by as much as 1.3 million bpd, he estimated, but that's contingent on a number of factors: building both the Trans Mountain pipeline expansion and Line 3 replacement pipeline, increasing crude-by-rail capacity by a third and cancelling Alberta's oil production curtailment program.
In a recent letter to the Alberta government, Federal Environment Minister Jonathan Wilkinson said he estimates 2.7 million bpd of oilsands growth is planned or under construction. He warned that growth could potentially take emissions from the sector above Alberta's 100 million tonne legislated annual limit by 2030.
In contrast, the Canadian Association of Petroleum Producers last summer said oilsands production is expected to increase by about 1.5 million barrels per day by 2035 to 4.2 million bpd.
"I think the era of multibillion-dollar oilsands projects is definitely over," said Benjamin Israel, fossil fuels analyst for the environmental Pembina Institute.
"You should be looking at more nimble and agile oilsands projects — in situ expansions fit that definition."
He said new technologies such as the use of solvents to reduce the amount of steam required will help to reduce average emissions from in situ projects.
Existing Calgary-based oilsands producers have big growth potential, according to a report by Eight Capital.
Suncor Energy Inc., which produced about 570,000 bpd from mining and 100,000 bpd from in situ operations in 2019, could add 250,000 bpd through a mining expansion application expected to be filed soon, 165,000 bpd through two approved in situ projects and 160,000 bpd through an in situ project that has yet to be approved.
Two weeks ago, the Alberta government approved Suncor's 40,000-bpd Meadow Creek West in situ project.
Canadian Natural Resources Ltd., which produces about 415,000 bpd from its mining operations and 300,000 bpd from in situ, has approval for a 100,000 bpd mine and a 21,000 bpd in situ project, and is currently building a 40,000 bpd in situ project to start up in 2021.
In 2018, Canadian Natural bought the approved 100,000-bpd Joslyn oilsands mining project and now plans to use it to extend the life of its existing Horizon mine. Joslyn's previous owners had shelved it in 2014.
MEG Energy Corp. has two approved in situ projects that could add 230,000 bpd to its current output of about 100,000 bpd of bitumen — and has an application outstanding for an additional 164,000 bpd in situ project.
Cenovus Energy Inc., which has in situ facilities capable of producing 440,000 bpd, has approval to build four more projects that could add 525,000 bpd of capacity.
Other producing companies with approved in situ projects or expansions include Imperial Oil Ltd. (200,000 bpd), Athabasca Oil Corp. (60,000 bpd) and Husky Energy Inc. (200,000 bpd).
The Alberta Energy Regulator lists about 30 approved but not operating in situ projects, about half of which are owned by current major producers.
Most of the rest are smaller projects put forward by developers that analysts say are unlikely to ever have the financial strength to build them.
In December, the Canada Energy Regulator estimated Canadian oilsands output will grow from 3.28 million bpd this year to 4.46 million in 2040, with most of the growth from in situ projects.
That forecast assumes that pipelines and rail provide sufficient capacity.