Delays in Pipeline Projects Won't Halt Development of Canadian Oil Sands, a "Navigating the Currents of Change" Webcast on Industrialinfo.com

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Development of Canada's massive oil sands deposits will continue despite delays in plans to construct two pipelines--Keystone XL and Northern Gateway--that would bring the oil to market, Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Transmission and Terminals industries, said in an exclusive "Navigating the Currents of Change" interview. "I don't expect any (pipeline) delays will affect project spending on oil sands crude oil production; the crude will still come down to the U.S. via existing pipelines or other proposed pipelines," said Davis.

Development of Alberta's oil sands continues to grow rapidly: Davis said the province's oil sands-related project spending is scheduled to exceed $20 billion in 2012, though he doesn't expect all of that spending to occur as planned. Indeed, he said, some of this year's scheduled spending includes some projects that were delayed from 2010 and 2011. For more on the development of Alberta's of its oil sands resource, see December 28, 2011, article - Development of Alberta's $192 Billion Oil Sands Projects Continues to Intensify.

The proposed Keystone XL pipeline has become a bargaining chip in the ongoing legislative battle between Democrats and Republicans in Washington, D.C. Nine weeks ago, President Barack Obama postponed a decision on Keystone XL until after the presidential elections of 2012. For more on that decision, see November 14, 2011, article - Decision on Keystone XL Crude-Oil Pipeline Delayed Until After 2012 Presidential Elections. However, in December Republicans attached a measure forcing the president to decide on the pipeline's fate by the end of February as part of the extension of tax credits and unemployment insurance. The Obama administration said that, if forced to decide on Keystone XL's fate within 60 days, it would most likely reject it. The proposed pipeline has been under environmental review for about three years.

Keystone XL is a $7 billion, 1,700-mile crude oil pipeline that would transport up to 700,000 barrels of oil per day (BBL/d) from Hardisty, Alberta, to Cushing, Oklahoma, and on to refineries along the Texas Gulf Coast. It would expand and extend the existing Keystone pipeline that brings oil sands-derived crude oil from Alberta to Cushing and St. Louis, Missouri. Keystone XL is owned by TransCanada Corporation (NYSE:TRP) (Calgary, Alberta). The project, strongly backed by the Canadian government, has strong supporters and opponents in the U.S. For more on the project's allies and opponents, see October 19, 2011, article - Keystone Crude Oil Pipeline Expansion Draws Strong Support, Fierce Opposition.

Click on map for an image of the existing Keystone Pipeline and the proposed Keystone XL pipeline.

Canada also is considering constructing a pipeline to transport the oil sands crude oil from Alberta to British Columbia, where it could be exported to Asia by tanker. A $5.5 billion, 2,000-mile crude-oil pipeline, Northern Gateway, is being developed for that purpose. But the project has aroused its own considerable controversy lately, causing owner Enbridge Incorporated (NYSE:ENB) (Calgary) to push back the start of construction for the project, citing the large number of people that want to participate in public hearings on the proposed project.

But in his "Navigating" interview, Davis said another proposed pipeline project, Wrangler, could move some of the Canadian oil sands crude oil from Cushing to refiners along the Texas Gulf Coast. Existing pipelines, including the original Keystone pipeline, could get the crude oil from Alberta to Cushing. "The Canadian oil won't be stranded--it will just get here a little slower than if we had the Keystone XL online."

"2012 will be the first time in a long time that we will see significant spending on U.S. crude oil pipelines," Davis continued. "In previous years, all pipeline project spending was for facilities to transport either natural gas or natural gas liquids (NGLs). We'll see more outbound pipeline capacity from Cushing this year, which will alleviate the bottlenecks that have kept crude-oil storage levels high there.

"In Texas," Davis continued, "some companies are considering reversing the flow of crude oil in their pipelines to take advantage of high production levels in the Eagle Ford Shale. In prior years, crude oil was transported from Louisiana to refineries in Texas. But now, several companies are looking to reverse the flow in those pipelines: They want to send crude oil from Eagle Ford Shale to refineries in Louisiana."

Turning to other segments of the Oil & Gas Industry, Davis sees continued rapid development of the Eagle Ford and Bakken shales in 2012, perhaps at a rate that exceeds their near-frenzied pace reached in 2011. "There was explosive growth in the Eagle Ford and Bakken shales last year, and we see that continuing in 2012," Davis said. "We saw a lot of development in all U.S. shale formations in 2011, but the Eagle Ford and Bakken really took off because they contain crude oil, NGLs and natural gas. A lot of recent shale development has been focused on natural gas, but with low gas prices and high crude oil and NGL prices, areas with higher proportions of oil and NGLs will draw very high levels of developer interest."

In 2012, development of other, "drier" shale formations, such as theBarnett, Haynesville and Fayetteville shales, will continue at the same pace as 2011, Davis predicted. Though development there will not be as rapid as at the "wetter" shales like Eagle Ford and Bakken, these drier shales will nonetheless draw a lot of developer interest this year, he said.

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