Introduction

Investment in the Canadian oil sands has increased rapidly since the resource was first commercialized by Great Canadian Oil Sands (now Suncor) in the 1960s. This growth is forecast to continue, despite fluctuations in the economy and new energy technologies, because of the world demand for oil and the unique advantages of the oil sands.

The latest wave of oil sands development is gathering momentum, with previously shelved expansions now being reactivated and new expansions being initiated. It is believed this latest wave will entail a more disciplined approach to development by both industry and government occupied by continuing scrutiny from non-governmental organizations and non-industry stakeholders. The rapid increase in world oil price, uniquely accompanied by stagnating North American natural gas prices has accelerated development. Construction and operating costs are lower than they have been in several years and all observers wonder whether this trend will be short-lived. The Conference Board of Canada forecasts that while industry costs for Alberta’s oil sands projects will climb at a very rapid pace over the next three years, buoyant oil prices should ensure that profits return to pre-recession highs by the end of 2014.

Geography and Reserves

Alberta’s oil sands underlie a vast area of the province, located primarily in the regions of Peace River, Athabasca (the Fort McMurray area), Cold Lake (north of Lloydminster) and stretching into Saskatchewan. These areas contain an estimated 1.7 trillion barrels (initial volume in place) of crude bitumen. Of this amount, 171.3 billion barrels are considered to be proven reserves (169.9 billion barrels of bitumen and 1.4 billion barrels of conventional oil).[1] Based on these figures, Alberta has the third-largest proven crude oil reserve in the world, accounting for about 13 percent of total global oil reserves.[2] With new and emerging technologies, this reserve estimate could be increased to as much as 315 billion barrels.[3] Companies have barely scratched the surface of the resource, extracting only about four percent of the initial established crude bitumen reserves to date.[4]

Production

A report from the International Energy Agency (IEA) states that “unconventional oil is set to play an increasingly important role in world oil supply through to 2035, regardless of what governments do to curb demand…output rises from 2.3 mb/d in 2009 to 9.5 mb/d in 2035” with specific mention of the contribution of Alberta’s oil sands, which is approximately 1.5 million barrels per day (bbl/d).[5] Alberta’s Energy Resource Conservation Board (ERCB) forecasts that Alberta’s annual bitumen production will total 3.2 million bbl/d for a total of 1.2 billion barrels per year by 2019 and the U.S. EIA estimates that Canadian oil sands operators could reach production levels of 4.5 million bbl/d by 2035.[6] Alberta’s current upgrading capacity is approximately 1.2 million bbl/d, with output of approximately 1.04 million bbl/d.[7]

Since 1999, Canada has been the largest supplier of natural gas and crude oil to the United States.[8] Statistics released by Alberta Energy indicate that Alberta exports about 1.4 million bbl/d of crude oil to the United States, supplying 15 percent of U.S. crude oil imports, or seven percent of U.S. oil demand.[9]

Investment

Investment in the oil sands gives companies a unique opportunity to add reportable reserves at relatively low risk. Business opportunities also exist in ancillary industries such as construction, engineering, petrochemicals, electricity generation, metals, housing, and transportation.

In recent years, investment in Alberta’s oil sands has been robust. From 1999 to 2010, an estimated $101 billion was invested in oil sands projects.[10] The peak of oil sands investment was in 2008 when annual investment reached $20.7 billion.[11] However, entering the latest wave of development, oil sands investment is increasing at a modest pace with an estimated $170 billion in oil sands-related projects currently underway or proposed.[12]

Employment

About 136,000 Albertans are directly employed in the oil and gas extraction and mining sectors, which accounts for one out of every 15 jobs in the province. While job creation was hindered by the onset of the global recession in 2008, the Canadian Energy Research Institute forecasts that between 2000 and 2020 development in the oil sands industry will generate 42,000 full-time positions.[13]