Alberta Oil Sands Output Seen Reaching 2.9M B/D in 2015

CALGARY Dec 06 2005 (Dow Jones Commodities News Select via Comtex) By Tamsin Carlisle, Dow Jones Newswires

Canada's oil production from oil sands will nearly triple to about 2.9 million barrels a day in 2015, from just more than 1 million b/d this year, according to a new forecast by FirstEnergy Capital Corp.

The Calgary brokerage house said its latest "mid-case" projection for oil-sands output over the next decade represents a modest increase over its previous forecast of production reaching 2.7 million b/d in 2015. But as much as 4.2 million b/d of crude oil could be pumped and mined from Alberta's big oil-sands deposits 10 years from now if all announced projects move ahead as planned, making Canada a producer of more than 5 million b/d of oil in 2015, FirstEnergy said in a research report.

FirstEnergy analysts also prepared a "low-case" forecast, under which Canada's oil-sands output would rise to only 1.9 million b/d by 2015. That projection assumes a "worst"-case scenario under which all oil-sands projects under production are completed but then expand very slowly as operators use only maintenance capital to find and apply "small debottlenecking solutions".

"Given this 5% annual increase, the oil sands could double production every 15 years, even with no serious capital investment. Yet a thirsty world will not wait - production is declining in the U.S., in the North Sea, in China and in the conventional producing fields of Canada, and production gains have drastically slowed in Russia. Therefore we believe that production will grow much faster than 5% per year, driven by massive investment in the oil sands," the analysts wrote, explaining why they consider their mid-case forecast more realistic.

FirstEnergy noted that its mid-case forecast "implies that some projects will be delayed or even cancelled." The analysts said this is to be expected due to constraints on available resources for developing oil-sands reserves.

Projects most likely to come into service as planned are those that have a committed owner or owners with a plan to secure a labor force or keep the existing labor force in place, they wrote.

FirstEnergy said a number of oil-sands developers fall into this category because they have planned "continuous expansions" that will allow workers to "move from one task to the next at the same site, working for the same employer." According to the report, such developers include Canadian Natural Resources Ltd. (CNQ), a partnership of Nexen Inc. (NXY) and OPTI Canada Inc. (OPC.T), and the Athabasca Oil Sands group of Shell Canada Ltd. (SHC.T), Chevron Corp. (CHV) and Western Oil Sands Inc. (WTO.T).

"Still, finding workers will be difficult," the report predicted. First Energy projects that, to meet its high-case forecast, oil-sands producers would need to employ 38,200 workers in 2010, up from 11,300 this year - a staffing level that already has significantly pushed up labor costs in the remote northern Alberta oil-sands region, contributing to major increases in capital-cost estimates for some big projects.

FirstEnergy said its "more realistic" mid-case forecast calls for an employment peak of 23,000 workers in 2010 - still requiring the sector to more than double its workforce in the next five years.

The firm noted that some oil-sands producers are already taking steps to improve their access to skilled workers:

- Canadian Natural is hiring workers previously employed on construction of the White Rose oil project offshore Newfoundland, and has built an airstrip to accommodate a Boeing 737 jet that will shuttle the workers across Canada.

- Oil companies Petro-Canada (PCZ) and UTS Energy Corp. (UTS.T) have brought base-metals mining company Teck Cominco Ltd. (TEK.SV.B.T) into their Fort Hills oil-sands project, providing access to a pool of skilled mine workers.

- Nexen and OPTI have "modularized" much of their Long Lake project, allowing for off-site construction work near the Alberta population centers of Calgary and Edmonton and internationally.

According to the FirstEnergy report, a recent spate of Alberta oil-sands project announcements includes a projection by EnCana Corp. (ECA) that its oil-sands properties could produce 500,000 b/d of oil by 2016, Canadian Natural's announcement of a long-term target of extracting 500,000 b/d from its Horizon project by 2018, the filing of a regulatory application by Imperial Oil Ltd. (IMO) for its Kearl Lake projects, and disclosure that Nexen and OPTI could develop three more oil-sands leases.

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