Introduction by Roger Annis, Nov 15, 2013
Enclosed are three news articles that review the challenging prospects for Alberta’s tar sands producers.
They face a daunting future as rival U.S. oil production surges and opposition grows to the three pipeline routes which they and their pipeline allies are struggling to construct–Keystone XL to the south, Northern Gateway and Trans Mountain to the west, and Energy East to the east.
The sleeper oil-by-rail schemes that are either in operation or proposed are an added element to the mix which this website has reported extensively. Presently, substantial amounts of fracked oil is moved by rail from the Bakken Field that lies under North Dakota and Saskatchewan. Tar sands producers are wielding bitumen-by-rail as a threat to obtain the pipelines they want. They and the railways are just crazy enough to unleash it if the pipeline options become closed.
The stretch of main line running west of Edmonton where CN Rail says it is exploring running 7-10 tar sands trains per day to Prince Rupert BC suffered its second derailment in one month, on Nov. 3. This time, no oil products were involved. This is the third derailment since 2007 along that stretch of track, near the town of Peers. Last month, nine railway cars carrying liquid propane derailed and exploded at the hamlet of Gainford, east of Peers.
There were no fatalities in either crash. The Transportation Safety Board says it will not investigate the latest crash. It is leaving that task up to… CN Rail.
In Quebec, the section of the MM&A rail line that was severed by the July 6 disaster at Lac Megantic has been reconnected and is set to reopen next week. But the MM&A has said it will no longer be moving any oil along that line. It’s hard to imagine that oil movement could ever be allowed resume along it.
Provincial premiers and municipal mayors across Canada are still pleading without result for the federal government to require railways to provide advance information of rail movement of dangerous goods through their respective jurisdictions.
Roger Annis is a member of the newly-formed Vancouver Ecosocialist Group.
1. Alberta oil faces political hurdles in East
By Shawn McCarthy, Global Energy Reporter, Globe and Mail, Nov 14, 2013
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/ontario-seeks-review-of-transcanadas-energy-east-pipeline/article15410948/#dashboard/follows/
TTAWA–Governments in Ontario and Quebec have thrown political hurdles in front of Alberta’s efforts to expand markets for its crude, launching public hearings into controversial pipeline proposals the industry regards as necessary to enable its fast-growing oil production.
The Ontario Liberal government ordered its provincial energy board to hold public consultations on TransCanada Corp.’s proposed $12-billion Energy East project, focusing on public safety, greenhouse gas emissions and the reliability of the province’s natural gas supply. TransCanada plans to convert sections of its main natural gas line to carry crude in Ontario, then build a pipeline though Quebec and New Brunswick to move 1.1 million barrels a day of crude to refineries and export terminals.
Separately, Quebec’s Parti Québécois government said it will conduct two weeks of hearings into Enbridge Inc.’s plan to reverse its existing Line 9B pipeline in order to ship western crude into Montreal. Environment Minister Yves-François Blanchet said the government will then determine a list of conditions that it would expect Ottawa to impose on Enbridge in order to approve the pipeline.
The provinces’ moves serve as new risks to promising plans to ship Alberta oil eastward, at a time when the energy industry is facing major resistance to pipeline proposals to bring crude to the West Coast and the U.S. South. Alberta is eager to access new markets, as a chronic backup of the province’s oil due to transportation constraints weighs on prices.
Ontario and Quebec acknowledge that Ottawa has the formal responsibility for approving interprovincial pipelines, but they appear to be taking their lead from British Columbia. The province has set five conditions that must be met before it would support Enbridge’s Northern Gateway project that would transport 500,000 barrels a day of oil sands bitumen to a West Coast export terminal.
Alberta Premier Alison Redford and her British Columbia counterpart Christy Clark recently agreed on a “framework” under which B.C. would ensure environmental, First Nations and financial concerns were addressed, but would not look to Alberta for compensation.
That deal could serve as a template for other provinces, said Peter Tertzakian, an energy economist with Calgary-based ARC Financial Corp. “We were always going to have to face some Canadian provincial geopolitics … but we need to be very careful as a country that we don’t head down a path where you play too hard and nothing gets done.”
Ontario Energy Minister Bob Chiarelli said the province would focus on the environment – including pipeline safety and climate-related issues – as well as First Nations issues and the economic costs and benefits that the project would bring.
Ontario is also concerned that TransCanada’s Energy East project will remove a source of gas supply for utilities and industrial users in the province. TransCanada has said it will ensure its gas customers receive service and that they will pay no more for that service than they would if Energy East had not been built, although they will need to enter long-term contracts.
Lisa MacLeod, an Ottawa MPP who serves as energy critic for Ontario’s Opposition Progressive Conservatives, suggested the province should let the federal approval process run its course and not add “another layer of bureaucracy.”
Ms. MacLeod also questioned why Ms. Wynne appeared to be supportive of oil-sands development when recently visiting Ms. Redford in Alberta, but might now be looking to throw up roadblocks.
For his part, Mr. Blanchet said Quebec remained “open” to the Enbridge proposal and wants to weigh the economic benefits and job creation potential of the project. However, he insisted that all security measures must be in place to protect the environment.
While the province may not have formal jurisdiction, “it isn’t true that the federal government can disregard what may be a consensual or even a unanimous position by the National Assembly,” Mr. Blanchet said Wednesday.
TransCanada, the federal government and Alberta all said they had no concerns with the two provinces holding hearings to assess the projects’ impacts, though federal natural Resources Minister Joe Oliver said they should not overlap or delay the federal approvals process.
“We welcome the opportunity to get the facts out about the benefits of this project. The process Minister Chiarelli outlined this morning will give us another opportunity to do that,” said Alex Pourbaix, TransCanada’s president of energy and oil pipeline, said in a statement.
Alberta Energy Minister Ken Hughes acknowledged the right of other provinces to ensure their interests are addressed. But he warned against singling out Alberta’s emission record, and against other governments imposing additional levies on the interprovincial transport of goods, including oil and gas.
Additional transportation charges that would reduce the competitiveness of the oil sands would hurt all regions of the country, including manufacturers in Ontario and Quebec that supply the oil industry, Mr. Hughes said. “We are all connected and we are all beneficiaries of the wealth that is created in Canada as a result of energy development.”
More related to this story:
Big boost for oil sands as key players forge ahead
TransCanada revenue surges as it waits on Keystone
Ontario must stand ground on pipeline projects, report says
2. The reality of a U.S. oil boom – and its threat to Canada
By Shawn McCarthy, Global Energy Reporter, Globe and Mail, Nov 13, 2013
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/us-to-surpass-saudi-arabia-as-top-oil-producer-by-2016-iea/article15386096/#dashboard/follows/
The U.S. oil boom will vault the country into first place among crude producers within two years, the International Energy Agency says, which will pose a stiff challenge for the Canadian energy industry as it faces rapidly declining American demand for imported oil.
“On the back of light, tight oil output, the United States is on the verge of becoming the world’s largest oil producer, and is well on its way of realizing the American dream of net energy self-sufficiency,” the Paris-based IEA said in its annual energy forecast, released Tuesday.
The IEA said oil prices would continue to rise and spur development of unconventional resources such as U.S. tight oil plays, the oil sands in Canada and deep-water production in Brazil. Oil prices are expected to climb steadily to $128 (U.S) a barrel in 2012 terms by 2035, said the IEA, which advises developed countries on energy issues.
But the combination of soaring production and falling demand in the U.S. underscores the need for Canadian oil producers to expand exports beyond traditional markets in the United States and find new international markets, especially in the fast-growing Asia-Pacific region. To make that happen, Canadian energy companies must win approval for at least some of the several pipeline proposals that would move crude to the West Coast, the East Coast and the U.S. Gulf Coast, destinations that would allow for global export to high-demand regions.
Those include China and India, which are expected to lead the increase in international oil demand along with the Middle East, as the developing world more than makes up for declining consumption in North America, Europe and Japan.
In terms of oil production, by 2015 the U.S. is expected to overtake Russia and Saudi Arabia, with oil output growing from 9.2 million barrels per day last year to 11.6 million in 2020. But as fields such as the Bakken in North Dakota and the Permian in West Texas age, U.S. crude production would plateau after 2020 and then begin a slow decline after 2025, it said.
Still, U.S. oil demand is forecast to fall more quickly than its production declines between 2025 and 2035. The IEA forecasts U.S. oil imports to drop to a mere 3.1 million barrels per day by 2035.
At the same time, Canada’s total production is expected to grow from 3.8 million barrels per day to 5.3 million in 2025 and 6.1 million in 2035. Brazil will emerge as an increasingly vigorous competitor to Canadian producers in the American market. The South American country is forecast to boost its output from 2.2 million barrels per day to 5.4 million in 2025.
The IEA pointed to the Canadian oil sands as an important source of new crude output for a world market that will require an additional 10 million barrels per day of crude production by 2025. But the agency is less bullish on the oil-sands production outlook than industry group Canadian Association of Petroleum Producers. It projects oil-sands production of 3.3 million barrels per day in 2025, compared with CAPP’s latest forecast of 4.5 million barrels.
But even the IEA’s more conservative estimate carries risks, given the lack of access to key markets.
“While the resources are unquestionably large enough to support such an expansion, achieving it is contingent on the construction of major new pipelines to enable the crude to be exported to Asia and the United States,” it said.
In releasing his annual fiscal update Tuesday, Finance Minister Jim Flaherty echoed that concern about pipeline access, saying the industry’s limited ability to ship crude to the West Coast and U.S. Gulf Coast is driving down the price of Canadian crude relative to other North American supplies and costing the country an average of $7.6-billion per quarter in lost export revenue.
While the IEA sees North America as a key source of growth in global oil production until 2020, it suggests the unconventional boom in the U.S. has a limited life span, and is unlikely to be mimicked elsewhere, given both the physical and political challenges involved in intensive hydraulic fracturing needed to maintain production growth. It acknowledges, however, that technology advances could extend the U.S. boom beyond current expectations.
Given the current forecast, the Middle East is likely to re-emerge as the oil powerhouse in the middle of the next decade, with the Organization of the Petroleum Exporting Countries regaining their dominance of the market.
3. U.S. to be top oil producer by 2015 on shale, IEA Says
By Grant Smith, Bloomberg News, Nov 12, 2013
http://www.bloomberg.com/news/2013-11-12/u-s-nears-energy-independence-by-2035-on-shale-boom-iea-says.html
The U.S. will surpass Russia and Saudi Arabia as the world’s top oil producer by 2015, and be close to energy self-sufficiency in the next two decades, amid booming output from shale formations, the IEA said.
Crude prices will advance to $128 a barrel by 2035 with a 16 percent increase in consumption supporting the development of so-called tight oil in the U.S. and a tripling in output from Brazil, the International Energy Agency said today in its annual World Energy Outlook. The role of the Organization of Petroleum Exporting Countries will recover in the middle of the next decade as other nations struggle to repeat North America’s success with exploiting shale deposits, the agency predicted.
The U.S. will overtake Russia, currently the biggest oil producer, in 2015 as it taps rock and shale layers in North Dakota and Texas with the use of horizontal drilling and hydraulic fracturing. Photographer: Eddie Seal/Bloomberg
“As production goes up and imports go down, it does have positive macroeconomic effects for the U.S.,” said Mike Wittner, head of oil research at Societe Generale SA in New York. “It’s good for the balance of payments, good for the dollar, good for jobs, for other heavy industries. But it doesn’t equate to being insulated from world oil markets.”
Soaring shale output in the U.S. is helping the world’s largest oil consumer achieve its highest level of energy independence in two decades, cushioning it against disruptions in Africa and the Middle East. The boom threatens revenues for OPEC’s 12 members, whose production is at its lowest in two years amid political unrest in Libya and theft in Nigeria.
Biggest producer
U.S. oil production will rise to 11.6 million barrels a day in 2020, from 9.2 million in 2012, as it taps rock and shale layers in North Dakota and Texas with the use of horizontal drilling and hydraulic fracturing, according to the IEA, a Paris-based adviser to 28 energy-consuming nations. The report didn’t specify an output level for 2015.
Over the same time period, Saudi Arabian production will fall to 10.6 million from 11.7 million and Russia slips to 10.4 million from 10.7 million barrels. The figures include natural gas liquids, condensates and crude.
U.S. output will plateau after 2020 and the nation will lose its top ranking at the start of the 2030s, the IEA said.
“We do not expect this trend will continue after 2020s,” Fatih Birol, the agency’s chief economist, said in London today. “It will come to a plateau and decline as a result of the limited resource base of light tight oil.”
WTI rices
U.S. crude production rose to 7.896 million barrels a day in the week ended Oct. 18, the most since March 1989, according to the Energy Information Administration. West Texas Intermediate (WTI) futures dropped as much as 83 cents to $94.31 a barrel in trading today on the New York Mercantile Exchange and were $94.58 as of 4:11 p.m. in London.
Global oil demand will expand by 14 million barrels to average 101 million a day in 2035, according to the IEA report. The share of conventional crude will drop to 65 million barrels by the end of the period because of growth in unconventional supplies, the IEA said without providing current data.
The concentration in global oil trade will continue to shift to the Asia-Pacific region from the Atlantic Basin, as China is on the verge of becoming the world’s biggest oil importer, the report showed. India will displace China as the biggest driver of energy demand growth after 2020, the IEA said.
Refinery closures
Expanding refinery capacity in Asia and the Middle East along with reduced demand in many developed nations is intensifying the pressure for plants to close, the agency said.
The IEA estimates that almost 10 million barrels a day of oil processing capacity is “at risk” by 2035, with refineries in Europe in particular the most vulnerable, it said. This equates to about 10 percent of current global capacity, based on data compiled by Bloomberg on more than 700 sites worldwide.
Brazil will triple output to 6 million barrels a day by 2035 as it exploits deep-water reserves, an expansion that will account for one-third of the increase in global production and make the nation the world’s sixth-largest oil producer, according to the agency.
While North American shale, coupled with rising production in Brazil and global supplies of natural gas liquids, will dominate output growth over the next 10 years, OPEC, and its Middle Eastern members in particular, will regain importance after that as supplies from outside the organization falter, according to the report. OPEC pumps about 40 percent of global oil supplies.
Not stirred
“The U.S. moves steadily towards meeting all of its energy needs from domestic resources by 2035,” the IEA said. “But this does not mean that the world is on the cusp of a new era of oil abundance. Light, tight oil shakes the next 10 years, but leaves the longer term unstirred. The Middle East, the only large source of low-cost oil, remains at the center of the longer-term outlook.”
OPEC’s members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. It will next meet to review production targets on Dec. 4 in Vienna.
More than half of the 790 billion barrels the world will need to produce by 2035 is needed to compensate for declining output from mature deposits, the agency said. Output declines at a rate of 6 percent a year at conventional oil fields once they reach peak production, according to the report.
Related: WTI Crude Falls to 5-Month Low as Discount to Brent Grows
