Why the Oilsands sector is doing just fine, thank you
Former Dome Petroleum executive Gordon Kelly went into this media-ized heart of darkness and came away with a personal perspective on why the outlook for the industry appears very encouraging
After 40 years and $30 billion of investment, the Alberta oilsands industry is now well into its second wave growth target of two million bpd output by 2010. And there’s no shortage of media and public commentary on how the industry, and Alberta, is mismanaging the project. So, what about the so-called third wave of development – the really big pulse that is expected to create at least another 32,000 direct jobs, draw upwards of $100 billion in additional investment and apply even more pressure to produce the resource in a socially and environmentally responsible way as it shoots for five million bpd by 2030? With labour shortages, rising material costs, increasingly skeptical stakeholder interventions and a media gorging itself on as much negative news it can find or create, can the industry realistically make these targets?
It practically became the national sport this summer for people outside of the industry to proclaim that the “boom” is over, that a labour shortage and “skyrocketing” cost over-runs mean many oilsands projects will be cancelled or postponed, and that the industry is a run-away water management and environmental disaster. Even Al Gore went after us. The facts are that the industry is in good shape to tackle these challenges and is taking collective action to control costs, improve the recovery processes and reduce environmental impact. Senior managers I talked to this summer are very upbeat about the way they are operating and are looking forward to even better days in the future. In any case, with a trillion barrels of oil in the ground, and only three per cent of the accessible bitumen recovered in 38 years, it’s safe to say the oilsands industry is just getting started.
Modularization
Few senior oil executives are losing sleep at night. Labour shortages, lack of good bidders, making changes and insufficient planning are all causes of cost overruns – some of them undeniably dramatic, as in the case of Shell Canada revising the cost of its proposed Albian sands upgrader to $10 billion from $7 billion. But for the most part, companies have or should have already allowed for such increases in project planning – especially for projects being done on a certain scale or at a level of complexity for the first time. Further, while project costs may have risen 10 to 15 per cent recently, the value of oil has increased 20 per cent at the same time with few expecting prices to come down significantly or any time soon – no doubt a key factor in Shell’s decision in July to proceed with planning regardless of the cost increase. In any case, careful planning is making the difference – particularly when it comes to working in modules, whereby large processing plant components are built elsewhere and shipped on site.
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