Canadian oil sands execs eye weaker heavy oil differentials nervously
Edmonton (Platts)--25Jan2013/432 pm EST/2132 GMT
Unfavorable Canadian oil price differentials are making Alberta's
multi-billion dollar oil sands facilities less competitive and causing
concern among industry and government officials.
"The panic button is not being pressed as yet, but heart beats are being
definitely felt in the industry. Differentials between Alberta's [Western
Canadian Select] and WTI have been fluctuating for a while and now the margin
is at its widest," Neil Shelly, executive director of the Alberta Heartland
Industrial Association, told the group's Annual Stakeholder conference
Platts assesses the WCS Hardisty Canada blend on a calendar month average
basis. On Thursday, the blend was assessed at minus $33.50/b to the calendar
month average of NYMEX light sweet crude, which is used widely as a basis for
pricing for Canadian pipeline crudes.
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Thursday's assessment was slightly stronger than November 1's CMA minus
$41.25/b, but is still substantially weaker than the minus $8.50-$24.50/b
range that differential traded in for most of 2012.
Syncrude Sweet Blend Canada crude was assessed at a premium of 60
cents/barrel to the benchmark WTI calendar month average Thursday. The spread
gyrated between minus $8.80/b and plus $14.25/b in 2012 in reaction to global
oil price and production trends.
"The situation has been turning unfavorable for us and now we are
forecasting earnings of C$7.6 billion [$7.56 billion] as royalties from the
sale of bitumen by producers for fiscal 2013-14, some C$3 billion lower than
expected," Alberta's assistant finance minister, Kyle Fawcett, told Platts on
the sidelines of the conference.
Todd Hirsch, ATB Financial senior economist, said Alberta's oil
producers "who operate in a high-cost environment to build large projects,"
will have to adopt all the means possible to ensure they remain competitive
and not let complacency set in.
One way out for Alberta's oil sands producers would be to open up new
markets, Shelly said, adding that there is a pressing need to upgrade bitumen
in the province until pipelines are built to provide export access.
Tim Uppal, a federal minister of state and MP for Edmonton-Sherwood
Park, said given the current "concerns" about the fate of the
TransCanada-backed Keystone XL pipeline that would move Canadian crude south
to the US Gulf Coast, the Canadian government is putting its might behind
opening up new markets in Asia.
"The Canadian Prime Minister [Stephen Harper] was recently in China and India and they have a demand for our crude oil. The Northern Gateway and [Trans Mountain Expansion] projects will open up access along the Pacific Coast and there is a process that must be followed and the cabinet has a role in that process," he said.
The Gateway and Trans Mountain Expansion facilities will transport
525,000 b/d and 890,000 b/d, respectively, from Alberta to British Columbia
Meanwhile, Doug Bertsch, vice president for regulatory and stakeholder
affairs with the North West Redwater Partnership, said despite current
uncertainties the company is still moving ahead with a C$5.7 billion
investment to build the first phase of a new bitumen upgrader in Alberta.
"This is the right time and is the right thing for us to do," he said.
"The first phase will have a nameplate capacity of 50,000 b/d and we have
already awarded seven [engineering, procurement and construction] contracts.
In 2013, our primary focus will be on site grading, foundation and civil works
relocating three oil and NGL pipelines that run across our 600-acre site."
David Chappell, president of Williams Energy Canada, said the company
plans to invest some $600 million in the province's industrial heartland. It
plans to file a regulatory application in the near future for NGL and olefins
processing facilities to tap offgas produced by bitumen upgraders.
The facilities are scheduled to start-up in the second quarter of 2015 at
11,000-12,000 b/d and by 2017 output will be ramped up to 15,000 b/d of
ethane, ethylene, propane and propylene, he said.
Offgas is a mixture of hydrogen and light gases, including ethane,
butane, propane and butylenes produced from oil sands operations and also
when bitumen is upgraded to synthetic crude oil.
"Market access for the province's oil and gas producers is not just
building new pipelines. Alberta needs to be less of a bitumen exporter and
focus on adding value within the province. Our estimates indicate that export
of 20,000 b/d of propylene and 20,000 b/d of polypropylene to Asian markets is
the equivalent of 62,000 b/d and 132,000 b/d of bitumen, respectively,"
--Ashok Dutta, email@example.com
--Edited by Keiron Greenhalgh, firstname.lastname@example.org