December 14, 2008
Alberta Oil Sands Production To Fall Short Of Goal

The long term growth in capital infrastructure to extract more oil out of tar sands in Alberta is called into question as large tar sands projects get canceled in response to the oil price decline.

Bob Dunbar, president of Strategy West, a Calgary oil sands consulting firm, says the risk of a no-growth period in the oil sands is high.

"If we have a prolonged financial economic crisis, then I think this industry is coming to a halt, other than startup and completion of projects that are already underway," says Mr. Dunbar, who was one of the oil sands' first regulators three decades ago with the Alberta government.

He sees oil sands production growing to 2-million barrels a day, from the current 1.3-million barrels a day, as projects under construction are completed by 2010-2011.

Then, the pipeline dries up. The industry's goal was to produce about 3.5-million barrels a day by 2015.

How long will the recession last? I wish I knew.

The Canadian Association of Petroleum Producers expects a smaller decline in expected tar sands oil production growth.

Deferred and cancelled oilsands projects could result in 300,000 fewer barrels a day flowing from northeast Alberta by 2017, the Canadian Association of Petroleum Producers (CAPP) said Friday.

The industry association expects oilsands spending to drop more than 25 per cent, to $16 billion in 2009 from a previous estimate of more than $20 billion. Overall upstream spending - including the East Coast offshore - is expected to fall about 15 per cent to $43 billion from $50 billion in 2008, said Greg Stringham, the group's vice-president of markets and fiscal policy.

If OPEC and Russia manage to make a bigger oil production cutback now then fewer projects will get canceled. But if OPEC can't get it together and the recession is long then we are going to be set up for a bigger surge in oil prices when they finally bounce back.

Jeff Rubin, chief economist at CIBC World Markets, sees an 800,000 barrels per day loss in new Alberta oil sands capacity.

"In the Alberta oil sands alone, we estimate that project cancellations and delays, affecting $100 billion of investment, will shave over 800,000 barrels from daily new capacity, roughly half of earlier projected growth in the next five years. And what is happening there is occurring in Brazil, West Africa and the Middle East itself."

I look on the bright side: oil not burned in the next few years due to project cancellations and delays is oil we'll have after world oil production goes into sharp permanent decline.

Update: The many oil project cancellations and delays are driven by oil prices that have fallen below project costs. Many projects require at least $55 per barrel to break even.

Goldman Sachs analysts Giovanni Serio and Jeffrey Currie identified 30 oil projects that require a price of $55 to break even, according to a Dec. 10 research note. Those ventures include Petroleo Brasileiro SA’s Tupi field, the biggest oil discovery in the Americas since 1976, and deepwater concessions in Angola belonging to BP Plc and Total SA.

Project delays might cut available oil by 4 million barrels per day. That's more than OPEC is expected to cut in order to restore prices.

These delays could curb future global fuel supplies by the equivalent of four million barrels a day within the next five years, according to Peter Jackson, an energy analyst at Cambridge Energy Research Associates. That is equal to 5 percent of current oil supplies.

One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices. Many companies are waiting for those costs to come down before deciding whether to go forward with new projects.

Exxon, however, is unbowed by the oil price drop and will increase spending in 2009.

Dec. 11 (Bloomberg) -- Exxon Mobil Corp., the world’s largest company, may raise spending on oil exploration and refineries by $5 billion next year as rival energy producers reduce budgets to cope with falling prices and a recession-driven drop in demand.

Exxon has not been investing enough to maintain oil production. Partly, this is a result of inability to get access to fields where most of the remaining oil resides. At this point national oil companies control most of the remaining oil and the big international oil companies are slowly shrinking as their own fields deplete.

Share |      Randall Parker, 2008 December 14 01:33 PM  Energy Fossil Fuels

th said at December 15, 2008 6:55 PM:

Just what OPEC likes, with less non-opec production, they won't worry so much when they all cheat on the production quota hooplah. Least of their worries is technological replacement of fossil fuels, they know tilting at medieval windmill stuff and various other nonsensical mirages when they see it, alternatives, where the absurd and the masses part company.

Greg said at December 17, 2008 6:13 AM:

All this talk leaves an impression that the oil production in Alberta is going to decrease in the short to medium term. While in fact it only amounts to an increase, just not as fast as originally anticipated. Besides, the $55 break-even point is based on current material and labor costs; who said that those costs would remain the same during an economic crisis? They will go down. And current slowdown in capital investment gives the industry a chance to concentrate on improving efficiency, instead of expanding oil extraction base. In the longer term, it will cause lower capital requirements for new facilities - once (if) the oil price increases.

Nick G said at December 17, 2008 5:46 PM:

" tilting at medieval windmill stuff and various other nonsensical mirages when they see it"

Actually, they're terrified of wind, solar & EV's. They think a little longer term than we do...

cancer_man said at December 18, 2008 4:15 PM:

Greg is right, and for some reason people following oil assume numbers like "$55" are set and stone and wouldn't decrease over the next decade.

reread what you wrote:

"I look on the bright side: oil not burned in the next few years due to project cancellations and delays is oil we'll have after world oil production goes into sharp permanent decline."

try this:

"I look on the bright side: income that I can't get in the next few years due to withdrawl resctrictions is income I'll have after I continue to get poorer and poorer."

Randall Parker said at December 18, 2008 9:49 PM:


The price of oil has fallen because demand has fallen. We have more days of oil in storage. We have less getting used.

Income versus oil: Each barrel of oil will become more valuable with time once the number of barrels getting made declines year after year. Whereas money held back from getting spent on consumption only will become more valuable with time if invested in an activity that produces more wealth.

If you are going to use analogies use ones that fit.

Paul F. Dietz said at December 20, 2008 10:38 AM:

One thing that's affecting oil prices right now is a shortage of oil storage capacity.

Futures contracts right now have significantly higher prices a month in the future than in the current contracts. This situation, called "contango", is a symptom of lack of storage capacity (if not, people could make a profit by buying the oil, storing it for delivery in a month, and buying/selling appropriate futures contracts).

Oil storage capacity is in short supply because of sustained production that has been greater than demand, of course.

The $140+ peak price we saw early this year was clearly not a sustainable equilibrium price; the trough price will likely not be sustainable either.

cancer_man said at December 21, 2008 11:45 AM:


it isnt a perfect analogy, but reread hat you wrote:

"I look on the bright side: oil not burned in the next few years due to project cancellations and delays is oil we'll have after world oil production goes into sharp permanent decline."

So "permanent decline" but...oh, except for the increase due to what wasn't used earlier.

It looks like you see many great technological beakthroughs... except for any regarding energy. And not just oil extraction but in using oil much more efficiently, using alternatives, etc.

Randall Parker said at December 21, 2008 1:12 PM:


If we burn less now all we do is make the eventual decline less steep. We do not set ourselves up for an increase later. The oil in the ground isn't making baby oil molecules the longer it stays here.

You know I see many advances coming in energy technologies. We differ on how fast these advances will come. I see them as not coming fast enough to prevent a several year long decline in living standards.

I also do not see enough biotech advances coming in the next 10 years to allow us to achieve actuarial escape velocity in the next 10 years. Does that make me pessimistic about the ultimate outcome of biotech advances on longevity? No. But it does make me realistic about the short run.

cancer_man said at December 22, 2008 5:23 AM:


Then what you are saying is that what we don't use now is trivial - yet you seem a little relieved. How can you have it both ways?

The biotech example isn't the same since oil prices would rise very high thus reducing demand.

Did peak oil happen in 1998 as many predicted? 2003? 2005? 2007? Now, 2012?

Randall Parker said at December 22, 2008 7:45 PM:


A couple million barrels per day now will make a small difference 5 or 10 years from now.

A little relieved: I look for small reasons for optimism. How is this having it both ways? I think you argue in bad faith.

The biotech example is appropo because it shows that you can't always get what you want. Just because some technology is going to provide some benefit some day doesn't mean it will provide it soon enough to help in particular years or for particular people.

In 1998 predictions: You have to get more specific and name names. Better that you name names of petroleum geologists if you want to start doing that. Otherwise you can cherry pick and find any prediction that favors our dismissive attitude toward Peak Oil predictions.

If you read the serious students of Peak Oil most who make predictions say that they can't predict the exact year. They also say they expect a bumpy plateau of some years before the decline sets in. Some think we are already on that bumpy plateau. Others think we get on the final bumpy plateau in a few years.

Also, if you want to get examining what the predictors say keep clear whether a particular prediction was about oil, oil plus natural gas liquids, whether tar sands oil is included, or whether they are predicting "all liquids" peak. These aren't all the same dates. We've already peaked for conventional on-land oil. Whether offshore and unconventional and NGL can deliver a total fossil fuels peak date as late as 2015 remains to be seen.

Arguments along the lines of "the wolf never came before" are unconvincing for reasons demonstrated in the old tale about the boy who cried wolf. Those arguments are especially unconvincing since the boys who cried wolf in the past were not the serious students. Hubbert himself did not predict a world peak for the 1970s, 1980s, or 1990s.

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