Five reasons in situ oil sands growth could stall
Labor constraints, production costs and reliability will challenge producers
The exact numbers vary, but no one who covers the Canadian oil and gas industry for a living thinks oil sands production is going anywhere but up. That includes Calgary investment bank Peters & Co. In a recent research note, Peters forecasts oil sands production will reach three million barrels per day (bpd) by the end of the decade – up from 1.65 million bpd currently being produced in northern Alberta.
The majority of that growth is going to come not from strip mines but in situ operations – like Suncor Energy’s Firebag project (pictured above). In situ extraction methods like steam assisted gravity drainage (SAGD) use steam to heat and loosen up bitumen that’s too deep to mine. But producers pursuing these projects are facing challenges in the field. Here are five of them.
As more in situ projects come online, it’s clear resource quality matters. Reservoirs with high bitumen saturation, high porosity and thickness impact capital costs, operating costs, production utilization rates and steam-oil ratios, “all of which materially impact the economics [of projects],” Peters says.
Surprise! The shortage of able bodies to fill technical positions is affecting producers with in situ projects just as much as oil sands mining operations. “This, in combination with less certainty on takeaway capacity restrictions, could result in lower spending on new projects over the next five years,” Peters says. And that would mean less production growth than is currently forecast, too.
Significant capital investment in new wells is needed to sustain production levels. Higher well pair costs and higher infrastructure related costs are other factors leading to SAGD sustaining capital costs increasing from $2 per barrel in 2006 to between $8 and $20 per barrel in 2012, the Calgary investment bank says.
Peters notes that production reliability from in situ projects “remains a challenge for the average operator.” The current median utilization level for in situ projects is below 70 per cent of design capacity and many operators still don’t have a handle on how to sustain peak production levels on their wells.
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Companies new to the in situ game often struggle with getting the most out of these projects. Take start-up periods: Peters notes that a typical Fort McMurray operator needs 12 to 24 months to ramp up production to peak rates. But the investment bank says “as operators and the industry gain more experience, the length of the start-up periods should improve.”