Future oil production in Canada

The Canadian Association of Petroleum Producers (CAPP) has just released a report ”Crude Oil – Forecast, Markets & Transportation”. In 2007 we wrote our article on production from the Canadian oil sands titled, “A crash program scenario for the Canadian oil sands industry” and since then I have followed developments in Canada. Therefore, it was with great interest that I downloaded CAPP’s report. Before we study the report in more detail, we should note the disclaimer on the first page, “This publication was prepared by the Canadian Association of Petroleum Producers (CAPP). While it is believed that the information contained herein is reliable under the conditions and subject to the limitations set out, CAPP does not guarantee the accuracy or completeness of the information. The use of this report or any information contained will be at the user’s sole risk, regardless of any fault or negligence of CAPP.”

The first thing that strikes me is that, under the descriptor “crude oil” CAPP discusses all oil types. We are so used to the price of oil (e.g. WTI or Brent) usually being described as the “crude oil price” that many regard conventional oil as “crude oil”. (http://www.oil-price.net/) However, if one searches for a definition of “crude oil” then one can find the following, “Crude oil is a mixture of naturally occurring hydrocarbons that is found in geologic formations, such as rock strata and can be refined into diesel, gasoline, heating oil, jet fuel, kerosene, and literally thousands of other products called petrochemicals. Crude oils are named according to their contents and origins, and classified according to their per unit weight (specific gravity). Heavier crudes yield more heat upon burning, but have lower API gravity and market price in comparison to light (or sweet) crudes.”

The fact that different forms of crude oil can require completely different methods of extraction with markedly different production costs makes it all the more important to know what type of crude oil one is discussing. Recently I listened to a lecture during which it was mentioned that there are 300 different types of oil and that the price of these different oils was set, primarily, relative to WTI and Brent. What is of interest for our future is the production flows of each of these different oil types since, ultimately, it is these flow rates that determine how much gasoline, aviation fuel and diesel will be available for future transport. Now let us return to Canada’s future:

The key points of this year’s outlook are:
• Canadian oil production continues to grow and although oil sands remains the largest component of growth, the resurgence of conventional crude oil production represents the largest year over year change to the previous forecast. This resurgence in conventional tight oil is occurring both in Canada and the U.S., enabling greater continental energy security and changing the historical flows throughout North America.
• The main market opportunities occur in the replacement of offshore foreign crude imports in Canada and the United States and in the potential for exports beyond North America.
• Transportation capacity is currently tight and in addition to new pipeline options coming forward, rail has quickly become another way to move oil to market.

The production volumes that they discuss are given in the table below and shown in the figure. The volume of oil production from the oil sands that we predicted for 2030 was 4.8 million barrels per day (Mb/d) which can be compared with 5.2 Mb/d in the CAPP report. As you can see in the figure, the higher volume is not projected today. Another problem is that, today, there is not sufficient refinery capacity for the higher production volume. It is worth noting that the possible increase during 18 years to 2030 is less than the yearly decrease in global production from existing oilfields.

Canadian_Crude_oil_table

Canadian_Crude_oil

In the Oil&Gas Journal there is a summary of the CAPP report. Regarding “Market and Transportation” I will cite this from the OGJ article:

CAPP notes the need to reach new markets is “a top priority for Canadian oil producers.”

Refineries in Quebec and the Atlantic provinces now import 86% of their feedstock and could absorb 700,000 b/d of Canadian oil, the group said. Refineries in Ontario have switched to domestic supplies, which now account for more than 90% of their feedstock.

Canadian oil can displace some of the 2.2 million b/d of imported heavy oil now processed in high-conversion refineries on the US Gulf Coast. CAPP forecasts Canadian oil reaching that market will rise to 1.1 million b/d by 2020 from 100,000 b/d at present.

Completion of conversion projects in Midwestern refineries will increase deliveries of Canadian oil, much of it heavy, to that region by 460,000 b/d by 2020. The Midwest currently receives 1.7 million b/d of Canadian oil.

High-conversion refineries in Washington and California also might become buyers of new volumes of Canadian oil as supplies of heavy feedstock from traditional sources decline.

China and India, to which Canadian oil now has limited access, also could become important markets. CAPP cites a US Energy Information Administration forecast that oil imports of the two countries combined will increase to 15.7 million b/d by 2030 from 9.2 million b/d by 2012.
CAPP says its outlook depends on growth in transportation capacity sufficient to accommodate the projected increase in supply. Although capacity is “currently tight,” it says, no production has been shut in for lack of transportation.

“Protracted approval processes for new pipeline projects are resulting in a variety of creative transportation proposals to access markets,” it says.