The economic freefall in the latter portion of 2008 and the stall of early 2009 has been a rough ride for Canada's oil and gas industry. One of the hardest hit segments has been Alberta's oilsands. As of the end of Q1 2009 a number of oilsands projects have been deferred or delayed, with the recent announcement of the proposed Petro-Canada/Suncor amalgamation (creating "Big Suncor") further focusing certain oilsands players on whether or not their projects will proceed. Decisions on the future of certain projects will have to be made and, as a virtual certainty, a "greening" of the industry undertaken to ensure various markets remain open for export. Although the pace of development of upgrading and extraction will be slower than during the Summer of 2008, the oilsands seem to provide the only realistic means of replacing the world's declining conventional hydrocarbon reserves. The size of Canada's hydrocarbon resources in the form of oilsands remains second only to those of Saudi Arabia - making it inevitable that Canada will remain a major player in the provision of energy for decades to come.
In March of last year we outlined the "Top 10" events expected in 2008 that would provide major strides towards the achievement of new production levels in the oilsands. What follows is an update of those Top 10 events for the 2009 calendar year - the status of projects, movement among the players and the most recent trends noted in industry publications.
- Canadian Natural Resources - Horizon Oilsands Project (Phase 1) [110,000 barrels/day]
First oil at Horizon was produced on February 28, 2009 and the first shipment of light synthetic crude to the sales pipeline began on March 18, 2009. The project is anticipated to spend the remainder of the year ramping up to full production of 110,000 barrels/day. Phases 2 and 3 of the project are currently "on hold".
- OPTI/Nexen - Long Lake (Phase 1) [60,000 barrels/day]
First production of premium sweet crude from the upgrader at Long Lake has been announced by Nexen, which now holds a 65% interest in the project. After purchasing a 15% interest from OPTI for $735 million, Nexen is now operator of both the upgrader and the Long Lake SAGD Project. Syngas from the upgrader is being used (to heat water and produce steam) for SAGD operations, which will significantly reduce the need for purchased natural gas. Over the next year the upgrader is expected to ramp up to full design rates of approximately 60,000 barrels/day. Sanction for Phase 2 has been deferred until late 2009.
- Petro-Canada/UTS Energy/Teck Cominco - Fort Hills [145,000 barrels/day]
In October 2008, Petro-Canada announced the deferral of the construction decision for the Fort Hills upgrader, which has now been delayed indefinitely. The final investment decision for the mining portion of the Fort Hills project has also been delayed, with Petro-Canada stating it hoped to take advantage of the softening construction market to reduce costs. Big Suncor will have major decisions ahead of it as it must determine which oilsands mining projects it wishes to undertake, and whether the Fort Hills upgrader (originally planned for the Edmonton area) is now necessary.
- Suncor Energy - Upgrader 2 Expansion [Current production: 350,000 barrels/day(Base Mine and Millenium); Voyager Expansion: 190,000 barrels/day]
Commissioning of Suncor's $2.3 billion expansion of its second upgrader is now complete and will allow Big Suncor to produce a total of 350,000 barrels of light synthetic crude per day from its two upgraders. The schedule for the $20.6 billion Voyageur expansion was slowed considerably in October, ostensibly due to the precipitous drop in oil prices, the spike in construction costs and uncertainty in financial markets. Query whether a revival of the Voyageur expansion (including construction of a 3rd upgrader) will become a priority following the creation of Big Suncor.
- Imperial Oil/Exxon Mobil - Kearl Lake (Phase 1) [100,000 barrels bitumen/day]
The project is still in the preliminary engineering phase, with a revised cost model and go/no-go decision expected at some point in 2009. Work continues at a consistent pace with detailed design engineering, procurement of certain long-lead items and site preparation ongoing. No upgrader is planned to process the bitumen.
- Total E&P Canada/Enerplus Resources - Deer Creek/Joslyn (Phase 1 North) [50,000 barrels bitumen/day]
A one-year delay of Phase 1 (North) was announced by Total in July of 2008. Total has also withdrawn its application with regulators for the Northern Lights (formerly Synenco) oilsands mine, stating that it wanted to focus on its Joslyn North mine and other projects while determining its strategy for Northern Lights. Total's commitment to the oilsands seems clear, but its specific and next steps in developing its assets are not always transparent.
- EnCana/ConocoPhillips - Foster Creek and Christina Lake Expansions [120,000 barrels bitumen/day]
Christina Lake was producing 12,000 barrels of bitumen/day and the most recent expansion of this facility has increased production capacity to 18,000 barrels/day. Total combined production from the two projects in Phases "1A" and "1B" is currently 63,000 barrels/day. Phase "1C" construction at Christina Lake is nearing completion, with start-up expected in 2010. Phase "1D" at Foster Creek has received regulatory approval and first production (steaming) will ramp up in Q4 of 2009. Production capacity will effectively double by 2010 to about 120,000 barrels per day. Expansion is progressing as scheduled.
- Petro-Canada - Strathcona (Edmonton) Refinery [135,000 barrels/day of light synthetic crude]
Refit of the refinery to handle (oilsands) light synthetic crude oil was complete as of December 2008 and the Strathcona Refinery is now ramping up to process 135,000 barrels/day. Subject to pre-existing commitments, and as an asset of Big Suncor, this recently updated refinery would be the obvious destination for Big Suncor product processed through any of the Suncor upgraders.
- Husky Energy - Sunrise (Phase 1) [Proposed 50,000 barrels/day]
Husky is currently conducting front-end engineering work on the project, including area infrastructure and site preparation in order to "optimiz[e] development planning". However, a go/no-go decision, and the timing of same, has not yet been made.
- Devon Canada - Jackfish (Phase 1) [35,000 barrels/day]
Operation (SAGD steaming) has begun and production is ramping up for Phase 1 of the Jackfish project. Application for regulatory approval of Phase 2 has been made, with detailed engineering and some construction underway.
Conclusion
If expectations in early 2008 could be characterized as optimistic, expectations at the close of Q1 2009 could best be characterized as realistic, with a dose of uncertainty thrown in for good measure.
Certain information for this article was taken from Oilsands Review: The Unconventional Authority (January, February & March 2009)
