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A retired dragline once used to dig oil sand from the deposit sits in front of the Syncrude facility in the northern Alberta oil sand fields in Fort McMurray, Alta. (DAVID BOILY)
A retired dragline once used to dig oil sand from the deposit sits in front of the Syncrude facility in the northern Alberta oil sand fields in Fort McMurray, Alta. (DAVID BOILY)

Hidden oil sands growth bodes ill for crude Add to ...

Those expectations of meteoric growth in the oil sands? Too modest, according to a new analysis by CIBC World Markets Inc., which says the official industry projections may be conservative by 500,000 to a million barrels a day.

In other words, where the Canadian Association of Petroleum Producers suggests oil sands output could surge by 1.4-million a day between 2011 and 2020, CIBC’s read of the numbers suggests it could be more like two-million to 2.5-million – an analysis that portends financial difficulties for an oil patch that sees prices nosedive when there’s too much oil and not enough pipe.

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It’s a bold call because history has shown that industry forecasts are routinely too optimistic – by a lot. An analysis by Raymond James pointed out that in recent years CAPP’s numbers have proven too high by roughly a third. Numerous problems, from engineering and planning errors to price overruns, have conspired to deflate some corporate growth ambitions.

That said, the CIBC number, published by analyst Andrew Potter, is conservative relative to those from individual companies. Tally up the projections they’ve made public, and Alberta’s energy players themselves expect a staggering 3.5-million barrels a day of growth.

That’s just oil sands. CAPP has forecast that the other stuff, called “conventional” crude, will decline by nearly 100,000 barrels a day over the course of the decade. CIBC, pointing to the explosion in output in new light and tight oil plays like the Bakken in the U.S., suggests similar plays in Canada could actually yield a growth of 50,000 barrels a day a year “for the foreseeable future.”

Add that expectation in, and CIBC sees western Canada’s oil output exceeding 5.5-million barrels a day by 2020, nearly 20 per cent higher than CAPP’s forecast. That’s an 85 per cent increase over today’s level, and enough to place Canada in fourth place among global crude oil producers, judging by current output. Only Saudi Arabia, Russia and the U.S. currently put more crude into markets.

(The current forecast among companies is even higher: Canadian energy producers expect output to leap to near seven-million barrels a day.)

As good as that sounds, remember that a surge in oil production has real, potentially negative, consequences for the oil sands, which is led by players like Suncor Energy Inc. , Imperial Oil Ltd. , BP plc , Royal Dutch Shell plc , Canadian Natural Resources Ltd. , Cenovus Energy Inc. and Syncrude Canada Ltd. All of that oil may exceed the pipelines needed to take it away, and that, in turn, could lead to lower oil prices, as companies compete to get their crude on existing pipes.

“Most major forecasters have determined that pipelines out of Canada reach a pinch-point by roughly the 2015–2016 time frame. However, most forecasters are relying on that same 2011 CAPP production outlook, which, following our analysis, appears to be quite conservative,” Mr. Potter wrote.

“This analysis does raise the risk that the pinch-point on exports could actually come sooner than the 2015–2016 time frame commonly cited.”

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