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For Canadian Oil Sands It’s Adapt Or Die
For Canadian Oil Sands It’s Adapt Or Die
That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations.
In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace.
Of course, the nature of capital intensive operations such as the oil sands is that they are also prohibitively expensive to shut down. Producers are left in limbo, praying that prices will rise.
The implications for Canada should not be understated. Of the nation’s estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.
Related: Is This The End Of The LNG Story?
Projects are being delayed, and many experts wonder if the current oil sands model has a future. Peter Tertzakian of ARC Financial told Alberta Oil Magazine that the era of oil sands mega projects was over.
In Alberta, an estimated one in 16 jobs is tied to the energy sector. According to the National Energy Board, crude oil and bitumen brought in $70 billion for Canada in 2014. Perhaps, as Tertzakian noted, new projects will simply adapt, becoming more nimble, flexible, and focused on value rather than quantity.
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Does Arctic Drilling Have A Future With Sub $50 Oil?
Does Arctic Drilling Have A Future With Sub $50 Oil?
Italian oil group ENI is expected to begin production from the Goliat Field off Norway in a few short weeks. The project, which has cost $5.6 billion, is expected to produce 34 million barrels of oil per year by the second year of production.
Yet ENI seems to be bucking the global trend, as would-be Arctic drillers in other parts of the region hand back leases or allow them to expire, citing high risks and high costs as major contributing factors. Successful environmental campaigns as well as an increased global awareness – and political will – to address climate change have also been influential.
All this against a backdrop of global oil prices below $50 a barrel and an outlook of continued oil market volatility.
With Arctic exploration and production being so expensive, the risks so great, and the current market conditions relatively unfavorable, one might ask why Shell, ENI, and others would continue.
Related: Low Oil Prices: Assessing The Damage So Far In 2015
The main reason is resource potential. The Arctic holds the last, great, untapped oil and gas reserves. The U.S. Geological Survey in 2008 estimated that the Arctic contains 22 percent of the world’s undiscovered hydrocarbon resources, totaling 90 billion barrels of oil, 1,670 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids.
But those resrources come at a significant cost. One estimate put project costs in the Alaskan Arctic at 50 – 100 percent greater than an equivalent project in Texas.
Shell has discovered this first hand. The company has sunk $6 billion into its arctic ambitions, and experienced several high-profile setbacks, including the abandonment of its drilling campaign in the Beaufort Sea after its oil rig ran aground in 2012.
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Natural Gas Needs To Clean Up Its Act
Natural Gas Needs To Clean Up Its Act
To call natural gas ‘clean’ would be a misnomer. Natural gas is a fossil fuel that emits carbon dioxide when burned and is an important contributor to climate change. The general consensus, however, is that when compared to oil (and petroleum products) or coal, natural gas it is by far the ‘cleaner’ choice for providing base-load power generation, heating homes, and for a series of other industrial and transport applications.
Still, the debate over methane emissions from natural gas production, transport, and distribution calls into question this assumption.
A new study by the Environmental Defense Fund (EDF) examined the methane emissions from natural gas production on federal and tribal lands. The study found that total natural gas loss, including flaring, amounted to 65 billion cubic feet (bcf) in 2013, or enough to meet the heating and cooking needs of around 1.6 million homes.
The implications of the study are serious. Not only does natural gas loss represent a waste of finite natural resources but it makes a significant and unnecessary contribution to the already seemingly impossible task of combating climate change.
Related: Can This Next Shale Hotspot Live Up To The Hype?
While methane (the major component of natural gas) has a far shorter lifespan than carbon dioxide, it is more efficient at trapping radiation, making the impacton climate change 25 times greater over a 100 year period. Over 20 years, methane’s warming potential is 84 times greater than CO2.
According to the Environmental Protection Agency (EPA), methane accounts for around 10 percent of U.S. greenhouse gas emissions, almost 30 percent of which came from the production, transport, and distribution of oil and natural gas.
The latest study is part of a much broader effort by the Environmental Defense Fund to measure methane emissions across the United States, not just on federal and tribal lands. In an earlier study released last year, the EDF argued that adoption of existing technologies and operating practices, as simple as more frequent inspections, could help the U.S. reduce methane emissions by 40 percent by 2018.
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