English | 中文版

Chris Lee
Deloitte

While Canada’s oil sands industry continues to be the target of mounting domestic and international scrutiny regarding its environmental impact, opportunities for sustainable growth, improved operations and continued strides in green technology innovation have never been stronger.  The fact is that negative perception of the oil sands has the potential to limit the sector’s foreign investment opportunities and interfere with its future development prospects.

But there’s good news, in that we are seeing more and more examples of companies who have traditionally been competitors joining forces to advance both the industry’s image and long-term business viability bycollaboratingto improve infrastructure, green technology and public education about environmental improvements.

Indeed, as demand for unconventional oil production heats up, oil sands players have begun re-positioning for another period of growth. Between the fact that roughly 75% of the world’s petroleum is locked up by national governments and the anticipated slowdown in deep water exploration that may reduce international supply, an explosion of new development and tremendous business opportunity in the oil sands could be imminent—if a corresponding escalation of costs can be avoided.

To make the most of the circumstances, all stakeholders would do well to keep the following ten trends in mind as they continue to develop and execute on their strategies:

1. Finding economic viability

Oil sands production is expensive. Before the 2008 economic downturn, when 46 projects were in production or proposed, the Canadian Association of Petroleum Producers (CAPP) forecasted five-year capital expenditures of more than $75 billion.  For projects to remain viable and continue, recent research showed that most new bitumen-producing projects can show profit at prices around $50 to $70 per barrel.  We expect exports of bitumen, diluted with synthetic crude, to increase significantly as US refiners bid for increasing supplies of heavy crudes to fill their existing upgrading equipment.  At the same time, many industry watchers believe prices will continue to climb as demand for oil increases across the industrializing nations and as the output of international oil fields in Mexico, the Middle East and China decline.

2. Managing capital costs

Labour costs are a significant proportion of any project, but small improvements in productivity could result in labour savings of millions of dollars and accelerate project completion.  Currently, oil sands production totals 1.3 million barrels per day and will consume nearly 50 million hours of labour over five years. By streamlining workforce logistics, automating manual processes and taking a more measured and collaborative approach to development (such as reworking relationships with their major service providers to mutually share risks and rewards), companies can make real strides towards controlling costs for the entire sector.

3. Minimizing carbon footprint

Despite the carbon intensity of oil sands production, the industry has taken significant strides in recent years to reduce its CO₂ emissions.  However, lack of legislative clarity around emissions reductions remains an issue.  As the Canadian federal government waits to follow the US’s lead, all environmental progress currently being made is taking place against an invisible target. To foster greater technological innovation, both federal and provincial governments should consider tax incentives and other programs designed to encourage more aggressive scientific research and development, while upping their effort to facilitate the international sharing of strategies for improving the oil sands’ environmental performance.

4. Meeting the challenge of water usage and land reclamation

In the oil sands, few issues are as emotionally charged as those involving the use of water and land.  Many oil sands companies are implementing technologies such as cyclic steam stimulation (CSS) and steam assisted gravity drainage (SAGD) to address the concerns associated with land disturbance. These approaches, however, tend to bring about new concerns: in situ methods require large amounts of steam to heat the bitumen, which in turn requires large amounts of fuel and emits more greenhouse gases. Additional work on this front does lie ahead, but the fact remains that the industry has made, and continues to make, significant strides to resolve these issues.

5. Finding talent

Labour shortages spread like wildfire when the sector last experienced rapid growth, prompting companies to compete ruthlessly for the same resources, pushing labour costs to unsustainable levels.  Now that the industry is on the verge of a new recovery, there is considerable concern that history is going to repeat itself. Fort McMurray, in particular, is under continuous pressure to develop its infrastructure on pace with the oil sands, a challenge only magnified by the “shadow” work force that spends 80% of its time working in the oil sands but does not consider the region home.  And as companies stretch their resource requirements, coupled with normal attrition, they risk a less experienced work force, which can lead to safety and plant reliability issues.  

6. Courting international investment

National oil companies (NOCs) have long expressed interest in Canada’s energy resources, and, over the past few years, that interest has translated into considerable new investment at an ever-increasing rate. While investment by NOCs has given rise to political debate around resource ownership, national identity and energy security, this international investment has also provided significant economic benefit. For proponents of NOC investment, then, the question is not whether to limit that activity but how to structure deals in ways that maximize shareholder value. For instance, resource owners can continue to attract investment while allaying security of supply fears by encouraging minority investments and joint ventures versus controlling interest acquisitions. The Canadian government, meanwhile, could improve the transparency of its foreign investment policies so that both North American companies and NOCs better understand the playing field.

7. Assessing the economics of upgrading

An immutable fact of oil sands production is that bitumen will always need to be upgraded. While the majority of that currently occurs in Canada, almost all of the growth is in the US, owing to a surfeit of underutilized facilities to which oil sand companies can ship their bitumen.  But at least two emerging trends may change this equation. First, US backlash against the oil sands may see some states limit the transport of bitumen or even synthetic crude into the US, impelling oil sands operators to find alternative markets where the upgrading and refining can take place. Second, and more importantly, is that the difference in price between heavy crude and light crude is currently too small to make grassroots upgraders economically viable. As oil sands companies consider where to locate their upgrading facilities, they are increasingly looking south to existing refineries where upgrading already exists or expansions can be built for less. 

8. Expanding markets beyond the United States

US imports of Canadian oil sands are forecast to average 1.07 million barrels per day by the end of 2010 and could increase to 1.3 million barrels per day by 2012. At this pace, Canadian oil sands could provide as much as 47% of US crude imports by 2030.  However, despite the huge appetite of US consumers for Canadian crude, reliance on the US market has begun to take a toll on oil sands producers.  To minimize the impact of US regulatory changes on the industry, pipeline companies, oil sands companies, and government agencies need to find the common ground that will facilitate the expansion of access to Canada’s West Coast.  With rising interest from China and other Asian countries, these regions are the next logical choice for market expansion.

9. Sharing technology

Media stories about the environmental impact of the oil sands abound, but less reported are the steps the industry is taking to minimize—and even reverse—that impact. For years, the industry has focused on developing cleaner and more sustainable technologies.  In light of this innovation, the oil sands industry may be positioning itself to do more than reduce its own environmental impact: it may also begin to act as an incubator for the development of clean technology that can have far-reaching applications.

10. Optimizing stakeholder collaboration

At a time when the oil and gas industry is under exceptional public scrutiny, the need for collaboration has become even more pronounced. This includes sharing best practices for improving environmental performance, sharing technology developments, and taking an integrated view of the full range of issues companies face in an effort to make the oil sands more attractive for growth and to maximize shareholder value.

As the problems are complex, so, too, are the solutions. The task ahead therefore requires foresight and a long-term approach. Furthermore, by adopting a 360-degree view of the issues, the players on this field should be able to devise mutually acceptable solutions.