By Shaun Polczer, Calgary Herald January 1, 2010

Shelved projects being dusted off

After a fitful start to 2009, when tens of billions of dollars worth of new oilsands projects were either shelved or delayed in the face of recession, Alberta's oilsands showed signs of renewal leading into the new decade.

January and February were the cruellest months, after oil prices fell to decade lows, throwing the viability of the province's economic growth engine firmly into doubt. The ides of March saw Petro-Canada and Suncor put the troubled Fort Hills mine firmly on the back burner in the wake of their $40-billion merger, adding even more uncertainty as the country's largest oilsands players retrenched into a decidedly defensive posture.

By spring, the wheels of growth were returning as signs of economic recovery began to sprout and new projects were brought back to the drawing board.
In May, Imperial Oil gave the green light to the $8-billion Kearl oilsands mine, suggesting that project sanctioning delays saved it more than $1 billion in lower costs as a result of the downturn. The project, which will produce 100,000 barrels per day starting in 2012, had been in the works even before Imperial's parent company, Exxon, acquired Mobil Canada in 1999.

By taking a counter-cyclical approach, Imperial CEO Bruce March suggested the company would pursue an aggressive growth agenda even as other producers pulled back in full retreat. Kearl, which will become Canada's fifth major mining project, will eventually produce 300,000 barrels per day over 50 years when subsequent expansion phases are fully built. Although it had been under consideration for the better part of the decade, observers suggested the final decision to move ahead was never really in doubt -- it was just a question of when, not if, it would proceed.

"The oilsands is a long-term play. Five years from concept to crude really isn't a long time," says Janet Annesley, the Canadian Association of Petroleum Producers' vice-president of communications. "As prices stabilize in the near term, producers become cautiously optimistic. But what's really important is looking ahead to the future. Oilsands projects are not made in a year and they're not unmade in a year."

Although CAPP lowered its long-term oilsands production forecast in 2009 for the first time in recent memory, pipeline companies said they saw no reason to slow down on the construction of big, new superpipes to carry oilsands output to the United States.

In fact, several producers insisted that TransCanada Corp. maintain an accelerated construction pace on its Keystone pipeline to the Gulf Coast, chief operating officer Russ Girling said in a year-end interview.

With traditional markets such as the U.S. Midwest reaching 75 per cent saturation for Canadian crude, a big driver for oilsands growth will be reaching new markets, either off shore or deeper into southern states such as Texas, where oilsands production represents less than one per cent of the total volume reaching the largest refining market in the world.

Anticipation of Keystone -- which is presently filling up with oil ahead of the first commercial deliveries this year -- has resulted in lower differential discounts and what could herald permanent structural shifts in the North American oil market.

"The biggest question is, where are you going to put that resource? Where's the next logical place you can take that crude to?" Girling said. "A number of those large Gulf Coast refiners wanted to access the Canadian crude and Canadian producers wanted access to the Gulf Coast."

At the same time, Asian buyers were looking to Alberta's oil-soaked sands. On Aug. 31, the publicly traded arm of China's state oil company, PetroChina, acquired 60 per cent interests in a pair of in situ projects pursued by privately held Athabasca Oil Sands Corp. at MacKay River and Dover in northeastern Alberta. Earlier this month, unitholders approved the sale of Harvest Energy Trust to the Korea National Oil Corp., which included a large heavy oil component and several undeveloped oilsands leases.

With the vast majority of oilsands deposits considered too deep to mine, a far greater bounty lies on tap for those who can invent the next generation technology needed to bring it up from underground.

According to Pat Nelson, vice-chairwoman of the In Situ Oil Sands Alliance, less than two per cent of the oilsands region is amenable to surface mining. About 80 per cent of Canada's bitumen resource is accessible only by drilling wells and adding heat or chemical catalysts to bring it to the surface.

In an interview, Nelson said 2010 could be the year in situ comes to the fore. At some point in the next 12 to 24 months, in situ production will surpass volumes obtained by mining.

"In situ is the future of the energy sector," said Nelson. "It's pretty important to the next phase of development."

Whereas oilsands mining is dominated by a handful of major multinationals with deep pockets, the emerging in situ realm is giving rise to a clutch of nimble juniors actively pursuing innovative technologies such as fire flooding and solvent injection.

In situ is widely seen as having a lower barrier to entry. Big mines can take a decade to plan and build; smaller in situ projects are cheaper with fewer environmental impacts, Nelson said.

This year could be the one companies such as Petrobank, Laricina Energy and Osum Oilsand Corp. go prime time.

"Our members have been very, very active, There's a lot of enthusiasm out there," she said.