The Oil Sands and the World Energy Outlook
Source: KCI Investing, Roger Conrad (11/17/09)
"Is there another 'demand shock' looming that will force the shut-in of development projects?"
This analysis also concluded that, if more efficient methods of production can be implemented on a large scale, Canada's carbon-intensive oil sands will prove critical to satisfying global energy demand in coming decades.
Now, oil sands production of 3.2 million barrels a day by 2020 seems more inevitable than a U.N.-brokered agreement on climate change.
The IEA report echoes a Canadian Energy Research Institute report on the potential economic benefits of oil sands development for N.A. The CERI report concludes that oil sands development would add USD40 billion to the US economy by 2020. The IEA notes that USD150 billion in new projects that would have added 1.7 million barrels of daily production were suspended or cancelled because of the global recession.
Global upstream oil expenditures—spending by exploration and production companies—is forecast to fall by nearly 20 in 2009 alone. This is the first such decline in a decade.
How fast—or even whether—E&Ps should resume normal capital investment is a difficult question, and the variables facing these companies right now are many.
The question for E&P companies is when is it time to ramp up production? Is there another "demand shock" looming that will force the shut-in of development projects?
E&P managers downshifted in 2008 as demand slackened. Although recent data suggest a broad recovery for the global economy—particularly in China, which is on track to deliver 8%-plus growth, again—management must appreciate the short-, medium- and long-term consequences of decisions about ramping up production.