New pipelines needed to hit oil sands growth targets: CIBC

'Substantial' capacity required post-2016

By Jeff Lewis

September 21, 2012

The boom in American oil production could continue to hamper oil sands producers without access to new markets, CIBC World Markets Inc. says.

Pipeline expansions designed to reach Canada’s west and east coasts, as well as the northern leg of TransCanada Corp.’s Keystone XL line, face “escalating political risk,” the bank says, amid a surge in American oil production that has clogged the Midwest trading hub of Cushing, Oklahoma, and weighed on prices for Canadian output.

“Beyond 2016, Canada needs substantial capacity if producers want to capitalize on planned expansions,” CIBC analyst Andrew Potter says today in a report.

Production from the U.S. portion of the Bakken, as well as the Eagle Ford and Permian plays in Texas, has led to “massive” growth in U.S. onshore oil output, the report says. Year-over-year, Lower 48 onshore production has grown by 870,000 barrels per day, it notes.

The trajectory could get steeper as industry majors with “huge” research and development budgets invest in and improve technology pioneered to tap the new plays, Andrew Swiger, a senior vice-president at ExxonMobil Corp., told attendees yesterday at the Global Business Forum in Banff.

“That’s going to unleash a huge, powerful wave I think will travel around the world,” Swiger said.

Exxon yesterday agreed to buy Bakken acreage owned by Denbury Resources Inc. for $1.6 billion, raising the amount of land held by the Irving, Texas-based giant in the North Dakota formation by 50 per cent, according to the Wall Street Journal.

The purchase, expected to close in the fourth quarter, gives Exxon assets expected to produce 15,000 barrels per day of oil equivalent in the second half of 2012, according to the Journal report.

Exxon-controlled Imperial Oil Ltd. plans to start pumping 110,000 barrels per day from the first stage of its $10.9-billion Kearl oil sands mine later this year.

Swiger, who declined an interview through a spokesman following prepared remarks at the annual business retreat, said it is in Canada’s interest to “develop a number of export outlets” to new markets.