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Petroleum News: Oil sands to build global presence

Consulting firm estimates Alberta resource will account for 25 percent of world’s unconventional supplies by 2025

By Gary Park
Week of February 25, 2007 Vol. 12, No. 8

More than three decades of research and development in the once-scorned oil sands of Alberta may now be headed for a major payoff.

According to United Kingdom-based Wood Mackenzie, the 175 billion barrel deposit will be a “big driver” as unconventional oil resources surge to 25 percent of total worldwide oil supply by 2025.

A report by the consulting firm said unconventional output, including heavy oil, oil sands and shale oil, will increase over the next 18 years from 8 million barrels per day to 20 million bpd, of which Alberta is forecast to contribute 4 million bpd.

International companies can no longer afford to ignore these reserves if, as expected, conventional non-OPEC supply peaks within a decade, Wood Mackenzie said.

“Not since the 1970s, when the first oil shock occurred, has so much industry focus been directed at unconventional resources,” said the report, which estimates the resources at 3.6 trillion barrels of oil equivalent.

“Oil companies, primarily in the U.S. and Canada, have been able to leverage technology developments pioneered in the 1970s to position themselves in the vanguard of unconventional hydrocarbon developments.”

Given the challenges of discovering accessible natural gas reserves, international oil companies can’t bypass unconventional deposits if they have any desire to grow, said Wood Mackenzie managing consultant Rhodri Thomas. But he cautioned that exploiting the potential will need answers to technical, commercial, fiscal and environmental problems if the international companies are to profit from their investments.

Even so, he told the Calgary Herald, the Alberta “oil sands economic model is robust and the significant reserves will support long-term projects.

“The base fiscal terms for unconventional plays can be more favorable than those available for conventional developments,” Thomas said.

The study said oil sands projects should be able to generate internal rates of return of about 10 percent with oil prices at only US$30 per barrel. Even if prices dipped below that threshold he did not expect any developments to be shelved.

Wood Mackenzie sees oil staying above US$40

However, Wood Mackenzie has a more bullish view of the outlook for commodity prices. It is counting on oil to remain above US$40.

Thomas said now that the oil sands are gaining global attention much of the skepticism over the deposit’s role in global supply is fading, making Alberta a destination for those lacking supplies.

That interest is being spurred by growing challenges in accessing non-OPEC regions and the difficulties of operating in Latin America and Russia.

The report said unconventional oil and gas will meet 20 percent of global needs by 2025, including 40 percent of U.S. gas supply.

On another positive note, Gordon Lambert, vice president of sustainable development at oil sands producer Suncor Energy, said Kyoto Protocol targets won’t cause upheavals in northern Alberta provided the Canadian government does not impose excessive regulations to lower greenhouse gas emissions.

After appearing before a House of Commons committee studying environmental legislation, he said Suncor does not anticipate jobs losses or a harsh economic impact if it is required to meet Kyoto standards.

Lambert said the company has invested in environmental measures and improving the efficiency of its operations without any devastating consequences.

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