TMX spurs oil sands to find ways to boost output

Access to Asia-Pacific markets has driven oils sands production higher, but more pipeline capacity will be needed for further growth, writes Brett Holmes

Canada's oil sands are growing again as producers increase output, incentivised by new market opportunities created by the start-up in May of the 590,000 b/d Trans Mountain Expansion (TMX) pipeline to the country's Pacific coast.

Output from the big four producers in Alberta's oil sands — Canadian Natural Resources (CNRL), Cenovus, Suncor and Imperial Oil — rose by 8pc in the second quarter compared with a year earlier to a combined 3.26mn b/d of oil equivalent (boe/d). Key to this improvement was an aggressive approach to maintenance aimed at minimising operational downtime and maximising productivity gains.

Suncor, CNRL and Imperial each trimmed the number of days that major assets were off line during the quarter. Imperial completed the now annual turnaround at its Kearl mine in just 19 days, down from 35 days and a previous annual programme of two 35-day stoppages, while Suncor cut downtime at its Base Plant and Syncrude upgraders by a combined 12 days, partly through reducing the scope of work and partly through innovations such as using drones to carry out inspections that would have previously needed scaffolding.

Operators will see the biggest productivity benefits "if we can just simply extend the intervals on entire turnarounds", Suncor chief executive Rich Kruger says. CNRL is taking that approach at its Horizon upgrader, shifting turnarounds from annually to once every two years, in a move it believes will add 14,000 b/d to its synthetic oil output. Imperial sees its maintenance rescheduling at Kearl boosting the mine's output by 20,000 b/d to 300,000 b/d.

Oil sands producers now have an extra incentive to boost output, given the enhanced access to lucrative Asia-Pacific markets provided by TMX, which is having some impact on prices and differentials, executives say. Heavy sour Western Canadian Select in Alberta averaged about $67/bl in the second quarter, up from about $59/bl in the same period a year earlier.

The improved market access has boosted profits and sentiment for Canadian producers, and further infrastructure expansion may be coming. Canadian midstream firm Enbridge is considering a further expansion of its 3.1mn b/d Mainline system running from Edmonton to the US midcontinent, which it could optimise to accommodate another 150,000 b/d of throughput by the end of 2027.

Appetite for construction

There is likely to be demand for this additional capacity. The Alberta Energy Regulator says it expects oil sands production to increase by 500,000 b/d over the next 10 years from 3.41mn b/d last year. And further additions may emerge if progress can be made on the issue of carbon capture and storage (CCS) to deal with associated emissions.

CNRL is looking at a massive 195,000 b/d expansion of its 250,000 b/d Horizon project, but has said that an attractive fiscal and regulatory climate is "absolutely key" before it commits to any expansion of that size. That specifically means government support for the Pathways Alliance, a consortium of CNRL and five other oil sands producers which is proposing a C$16.5bn ($12bn) CCS project that would initially connect 14 oil sands facilities, with the aim of cutting CO2 emissions by 10mn-22mn t/yr by 2030.

A green light for Pathways and other CCS schemes would be likely to act as a trigger for further investment in Alberta's oil sands. Shell and Strathcona have already announced that they are advancing separate CCS projects after they secured new investment tax credits, but the industry's focus will be heavily on a final investment decision for Pathways, which the Alberta government says is expected next year.