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Canada’s Oil Industry
Canada is currently ranked the world’s eight largest producer of crude oil. It is expected to reach to the fifth position by 2015 driven by an increased production from Alberta’s oil sands. According to Statistics Canada, Alberta represented 68% of our country’s national oil production in 2007. The other two important sources of oil production are the Western Canada Sedimentary Basin (WCSB) and the offshore fields in Atlantic Ocean.
In the recent years, Canada’s privatized oil sector has witnessed significant consolidations. The largest integrated oil producer in the country is Imperial Oil. In 2002, Alberta Energy Company and PanCanadian Energy merged to create EnCana, the country’s largest independent upstream operator. Other significant oil producers in Canada are Talisman Energy, Suncor, EOG Resources, Husky Energy, and Apache Canada.
The following graph indicates a steady growth in Canada’s oil production as new oil sands and offshore projects have replaced aging fields in the western province.
While Canada is a net oil exporter, it also imports sizable quantities of crude oil and refined products primarily from Algeria (crude oil), Norway (crude oil) and the U.S. (refined products). As the major population centers in the eastern part of our country are not well connected to the country’s principle production facilities in the western interior, it is easier to import oil along the coastlines rather than transport it domestically. According to the International Energy Agency (IEA), in 2007 the country imported around 1.2 million bbl/d (billion barrels per day) of crude oil and refined products.
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Canada’s oil and gas sector is undergoing a significant shift from conventional oil to non-conventional oil production from Alberta’s oil sands. Reserves and production of conventional oil and natural gas continue to decline despite new discoveries, since new discoveries have smaller pools with lower production rates and steeper decline rates. As shown in the following figure, although the number of producing wells has been increasing, the productivity from these wells has not offset the overall decline in production rate.
Canada’s oil and gas sector is undergoing a significant shift from conventional oil to non-conventional oil production from Alberta’s oil sands. Reserves and production of conventional oil and natural gas continue to decline despite new discoveries, since new discoveries have smaller pools with lower production rates and steeper decline rates. As shown in the following figure, although the number of producing wells has been increasing, the productivity from these wells has not offset the overall decline in production rate.
IEA predicts that in the future course of time the increase in Alberta’s oil sands production will offset this decline in Canada’s conventional crude oil production. However, industry experts suggest that the production of synthetic crude from oil sands is only economically viable with relatively high crude oil prices. Moreover, extraction of bitumen from oil sands requires significant amount of water and natural gas and any increase in natural gas prices or a sharp reduction in natural gas supply would have negative impact on the oil sands production.
Despite these difficulties, several Asian companies are getting attracted towards Canada’s oil sands with an intention to secure higher equity oil stakes in the wake of steadily decreasing crude oil supply and increasing oil prices. Few instances are as follows:
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In July 2006, state-run Korea National Oil Corporation (KNOC) purchased the BlackGold bitumen deposit from Newmont for $250 million.
- China’s Sinopec purchased a 40% stake in the Syneco’s Northern Lights oil sands project.
- The China National Offshore Oil Corporation (CNOOC) purchased a stake in MEG Energy, a subsidiary of EnCana that operates the Christina Lake project
- In 2007, the Chinese National Petroleum company (CNPC) won exploration rights for a 260-acre tract in Alberta.
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The following figure represents the increase in investment in Alberta’s oil sands.
Canada has three oil projects off its Atlantic coastline, all of which are located in the Jeanne d’Arc Basin. These are Hibernia (135,000 bbl/d, PetroCanada), Terra Nova (116,000 bbl/d, PetroCanada), and White Rose (117,000 bbl/d, Husky). White Rose and Hibernia have recently announced plans to expand production by incorporating satellite fields. However, harsh natural conditions, including rough seas, seasonal icebergs, and extreme temperatures make operations difficult in Atlantic oil fields, thus increasing the cost of production in this region.
Industry experts believe that there could be sizable oil and natural gas reserves off the Pacific coast. However, to date there has been no production due to the federal ban on offshore oil activities in the Pacific Ocean.