Oil sands output could rise to 6.3-million barrels a day: U.S. report

Peter Koven, Financial Post Published: Monday, May 18, 2009

TORONTO -- Output from Canada's oil sands could rise to as much as 6.3-million barrels a day by 2035, a nearly five-fold increase above current levels, according to a landmark U.S. report released Monday.

It was one of the findings by energy consultancy IHS Cambridge Energy Research Associates (CERA) in a study called Growth in the Canadian Oil Sands: Finding a New Balance. The study, which took eight months to research and was produced in consultation with many different stakeholders, looks at how the oil sands have morphed "from the fringe to the centre" of global energy supply and the resulting economic and environmental implications.

"The length and depth of the current economic recession, the pace of technological innovation as well as government regulation, particularly in addressing concerns about climate change, will all shape the growth of oil sands," Daniel Yergin, chairman of Cambridge, Mass.-based IHS CERA, said in a statement.

To reach the theoretical level of 6.3 million barrels a day, the study assumes strong economic growth and robust oil prices over the long-term. If the global economy stagnates and oil prices remain weak, it is projecting daily production of 2.3 million barrels a day by 2035. That is still about one million barrels a day above current levels.

The numbers show just how important Canada's oil will become to the United States, as the study predicts that Canada would account for 37% of U.S. oil imports if production is ramped up to 6.3 million barrels a day. It was just 19% in 2008, CERA said.

The report comes at a difficult time for the once-booming oil sands, as major development projects are being curtailed or downsized because of the crash in global oil prices, which are down 60% from their peak last summer.

The environmental impact of oil sands mining has become a major political concern as well, as Canadian officials fear that the United States will push harder to block imports of "dirty oil." U.S. legislators are debating a climate-change bill that would introduce new environmental compliance costs and make oil sands crude even more expensive to produce.

Oil sands companies have fought back by pointing out the importance of their resources to global supply. Last week, Imperial Oil Ltd. chief executive Bruce March said it is unrealistic to exclude oil sands crude from North America's future energy mix.

CERA said that Canada and the U.S. should create a joint framework for regulating greenhouse gas emissions to reduce market distortions and prevent any trade conflicts. It also pointed to technological innovation to address environmental challenges.

When it comes to the environmental damage from oil sands operations, the study suggests that the impact on global warming may not be as extreme as some opponents to the oil sands suggest.

CERA said that extracting crude from the oil sands emits far more greenhouse gases compared to the average barrel consumed in the United States. However, it said that when a "well-to-wheels" analysis is used, which measures emissions from extraction all the way to consumption, oil sands emissions are only 5% to 15% higher than the average barrel processed in the U.S. That is because 70% to 80% of total carbon emissions from crude oil come from burning refined products like gasoline, CERA claims.