The Canadian Tar Sands -- Fool's (Black) Gold?
"CALGARY July 19, 2005 -- The Canadian Association of Petroleum Producers (CAPP) is projecting significant potential growth in crude oil production by 2015 as released in its 2005 Canadian Crude Oil Production and Supply Forecast.
"Total Canadian production is projected to increase from the current 2.6 million barrels per day to reach 3.9 million barrels per day (b/d) by 2015. The 1.3 million b/d growth in production represents an increase of 50 per cent over the annual average level of production recorded in 2004.
"'Canadian oil producers are increasing production to meet rising global demand,' says Greg Stringham, Vice President, Markets & Fiscal Policy at CAPP. Growing production will serve Canada’s domestic market, export markets in the United States and will help meet growing global oil demand.
"The primary source of Canada’s growing crude oil supplies is the expected development of Alberta's vast oil sands reserves. Oil sands production, which now exceeds the 1.0 million b/d plateau, is forecast to almost triple by 2015 to almost 2.7 million b/d. With 175 billion barrels reserves, Alberta has the second largest petroleum deposit in the world."
If the "second largest petroleum deposit in the world" will only produce 2.7 million bpd by 2015 (ten years from now!) we are in serious trouble. Over the past four decades, Saudi Arabia was able to routinely produce 5-7 million bpd and over 10 million bpd in a crisis (such as during the Iranian Revolution). Other Persian Gulf states and the Former Soviet Union were able to produce significant quantities of light sweet crude oil during the same time.
Global demand is currently 85 million bpd, and China is just beginning to industrialize. Energy Information Agency economists apparently capable of extending a line on a graph project global demand in 2015 to be 103 million bpd. The great super-giant fields that have supplied the world with mostly high grade crude oil for decades are in terminal decline (Ghawar, Abqaiq, Berri, and Safaniya in Saudi Arabia, Burgun in Kuwait, Gachsaran in Iran, Beaufort Sea in Alaska, Cantarell in Mexico, Daqing in China) or already dead (Kirkuk in Iraq, Samotlor and Romashkino in Sibera, the great Texas fields). By 2015, all these great fields will be completely exausted or at best mere shadows of their former selves. And all this oil will be replaced by a mere 2.7 million barrels a day of less valuable, hard to refine heavy crude?
Where will the other 100.3 million bpd come from?
"In Western Canada, conventional oil currently accounts for more than one of every two barrels of oil produced. While there has been a gradual overall decline since the late 1990s, the lifespan of Canada's conventional oil resources continues to be extended from earlier forecasts through advances in technology."
"Looking forward, crude oil produced from oil sands will more than offset declines in conventional production. The shift in the source of production means that by 2015 approximately three out of every four barrels of oil produced in Canada will come from oil sands."
In Canada, depletion of conventional oil should, we are told, be offset by a 1.7 million bpd increase in production from the tar sands. But what will Saudi Arabia do to offset the depletion in its fields? What will Russia do? (Answer: there's nothing they can do.) The Peak Oil naysayers invoke the names: tar sands, shale oil, heavy oil, ultra-deepwater, Antarctica, etc. as if they had some magic power to change a terminal decline in total oil production. None of this adds up to anything close to 85 million bpd (let alone 103). Even if the world is able to maintain production at 85 million bpd in 2015 (not very likely) that oil will have to be shared between ourselves and our friends in the industrializing world (especially the 2.4 billion people currently living in China and India.)
Peak Oil is here. An additional 1.7 million bpd by 2015 from tar sands or from any other source changes nothing. Indeed, one could ask for no stronger proof that unconventional oil production will make no difference than this claim by CAPP.
"Total Canadian production is projected to increase from the current 2.6 million barrels per day to reach 3.9 million barrels per day (b/d) by 2015. The 1.3 million b/d growth in production represents an increase of 50 per cent over the annual average level of production recorded in 2004.
"'Canadian oil producers are increasing production to meet rising global demand,' says Greg Stringham, Vice President, Markets & Fiscal Policy at CAPP. Growing production will serve Canada’s domestic market, export markets in the United States and will help meet growing global oil demand.
"The primary source of Canada’s growing crude oil supplies is the expected development of Alberta's vast oil sands reserves. Oil sands production, which now exceeds the 1.0 million b/d plateau, is forecast to almost triple by 2015 to almost 2.7 million b/d. With 175 billion barrels reserves, Alberta has the second largest petroleum deposit in the world."
If the "second largest petroleum deposit in the world" will only produce 2.7 million bpd by 2015 (ten years from now!) we are in serious trouble. Over the past four decades, Saudi Arabia was able to routinely produce 5-7 million bpd and over 10 million bpd in a crisis (such as during the Iranian Revolution). Other Persian Gulf states and the Former Soviet Union were able to produce significant quantities of light sweet crude oil during the same time.
Global demand is currently 85 million bpd, and China is just beginning to industrialize. Energy Information Agency economists apparently capable of extending a line on a graph project global demand in 2015 to be 103 million bpd. The great super-giant fields that have supplied the world with mostly high grade crude oil for decades are in terminal decline (Ghawar, Abqaiq, Berri, and Safaniya in Saudi Arabia, Burgun in Kuwait, Gachsaran in Iran, Beaufort Sea in Alaska, Cantarell in Mexico, Daqing in China) or already dead (Kirkuk in Iraq, Samotlor and Romashkino in Sibera, the great Texas fields). By 2015, all these great fields will be completely exausted or at best mere shadows of their former selves. And all this oil will be replaced by a mere 2.7 million barrels a day of less valuable, hard to refine heavy crude?
Where will the other 100.3 million bpd come from?
"In Western Canada, conventional oil currently accounts for more than one of every two barrels of oil produced. While there has been a gradual overall decline since the late 1990s, the lifespan of Canada's conventional oil resources continues to be extended from earlier forecasts through advances in technology."
"Looking forward, crude oil produced from oil sands will more than offset declines in conventional production. The shift in the source of production means that by 2015 approximately three out of every four barrels of oil produced in Canada will come from oil sands."
In Canada, depletion of conventional oil should, we are told, be offset by a 1.7 million bpd increase in production from the tar sands. But what will Saudi Arabia do to offset the depletion in its fields? What will Russia do? (Answer: there's nothing they can do.) The Peak Oil naysayers invoke the names: tar sands, shale oil, heavy oil, ultra-deepwater, Antarctica, etc. as if they had some magic power to change a terminal decline in total oil production. None of this adds up to anything close to 85 million bpd (let alone 103). Even if the world is able to maintain production at 85 million bpd in 2015 (not very likely) that oil will have to be shared between ourselves and our friends in the industrializing world (especially the 2.4 billion people currently living in China and India.)
Peak Oil is here. An additional 1.7 million bpd by 2015 from tar sands or from any other source changes nothing. Indeed, one could ask for no stronger proof that unconventional oil production will make no difference than this claim by CAPP.
posted by Cassandra at 5:38 PM
5 Comments:
It would be interesting to compare this figure from CAPP to the projections for supply coming from tar sands made by CERA. With only 1.7 million b/d coming from tar sands that leaves alot from ultra-deep water, heavy oil and NGL's if total supply is supposed to increase by 10%.
Our saviours: horizontal drilling (already being done), tar sands (only 1.7 mil b/d), ultradeepwater (expensive and limited supply), NGL's (marginal). Great!
If the price of oil skyrockets because of peak oil, you can bet that people will be scrambling to make a fortune by digging that oil out of the ground much more quickly. The "2.7 million bpd by 2015" projection has been a consensus reached during a time when oil was mostly in the $10-40 range. That justifies a certain amount of capital investment that gets you 2.7 Mbpd by '15. However, if a crisis emerges and oil trades to $120/barrel, that will justify a (much) larger capital investment and production will increase more quickly.
The real questions are:
Are there really 175 billion barrels?
How much is it a matter of investment vs. solving remaining technological challenges? (The latter is less "coin-operated")
How high does oil spike in the year it takes to build a city of 50,000 people in Alberta and really ramp up production?
I understand that there are resource limitations in the tar sands production as well. Natural gas and water. However, if we start losing 3% of worldwide production annually, there just isn't any way to ramp up production fast enough. We are talking 2.5 mbpd per year, not per decade.
Plus, as crude oil rises, natural gas does as well. That means that it doesn't really become that much more economical to melt and mine tar sands with oil at $120 and natural gas at $20 than it is with oil at $60 and natural gas at $10.
The costs of the tar sands project are already far over-budget and no one appears to be offering to invest hundreds of billions of dollars in the project at current prices ($65). Investment may double at $100 oil, but it won't rise by a factor of twenty and that is what it needs to do, assuming the natural resources could support such an investment.
Yes, increasing production 2.5mbpd per year is a daunting prospect. My optimism stems from my impression that it's a relatively simple, scalable process that requires well understood things like big trucks and large processing plants. Finding and drilling for oil requires more petroleum engineers, seismic testing, supercomputer time, dry holes, research to increase yields, and political instability. It seems that the oil-sands equation responds more directly and quickly to capital investment.
The natural gas price increase really isn't a problem. If today it costs $10 of natural gas to make a barrel of oil worth $60 and tomorrow everything doubles and it takes $20 of gas to make a barrel worth $120, then I'm clearing $50 today and $100 tomorrow - my profit doubles as well. (In reality the total cost of production is roughly $15/barrel - I don't know how much of that is natural gas).
> no one appears to be offering to invest hundreds of
> billions of dollars in the project at current prices ($65)
True. My guess is that this is because there are still some people who think oil will go back to $20 and many who think it will go back to $40, which increases the perceived risk of the investment. As oil heads towards $120 that risk will seem to go down and the prospect of huge rewards will help to balance it. I imagine that this week's activity has already caused attrition in the ranks of the $20 believers.
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