Dec. 14 (Bloomberg) -- Japan Petroleum Exploration Co., the nation’s second-biggest oil explorer, plans to more than quadruple output at its Canadian oil sands project to meet U.S. demand for the fuel.
Capacity at Hangingstone, in northeastern Alberta, will increase to 30,000 barrels of heavy crude oil, known as bitumen, a day from about 6,000 to 7,000 barrels, the Tokyo-based company said today in a statement. The expanded area will be developed in two stages, cost C$1.4 billion ($1.4 billion) and begin production in 2016, the company said.
Japex, as Japan Petroleum is also known, is targeting U.S. refineries as the main buyers of bitumen from the project as it seeks to build on experience of pumping oil from non-traditional sources. Japex will look at other oil sand leases and wants this segment of the oil market to be one of its main areas of focus, according to the statement.
“The refineries that have the ability to process thicker crudes and the capacity to do so are on the Gulf Coast of the U.S.,” said David Elmes, a Warwick Business School professor, who’s researched and worked in the industry for more than 20 years. “There’s large capacity there and it’s not particularly utilized at the moment.”
The project, in which Nexen Inc. owns 25 percent and Japan Petroleum the rest, won regulatory approval to expand capacity last month, about two years after applying. China’s Cnooc Ltd. this month won permission to buy Calgary-based Nexen for $15.1 billion, making it the biggest Chinese takeover in Canada.
Japex plans to finance its C1.1 billion part of the investment with own funds and bank loans. Nexen will take a final decision on the investment in the first three months of 2013, according to the statement.
“If you already have oil sands coke that is of good quality, it is a good investment,” Kiyoshi Ogino, managing director of the Canada project for Japex, said in an interview in Tokyo. “We already have vast land” that has proved to have good production potential and reserves, he said.
To pump oil from fields such as Hangingstone steam is used to separate the fuel from tar. Development of non-conventional oil and gas deposits is increasing in line with high oil prices and improved technology.
In the U.S., a technology that allows extraction of oil and gas from shale rock, known as hydraulic fracturing, has helped the country become the world’s top gas producer. The oil from Canadian tar sands and U.S. shale are of different grades, and do not compete directly, Japex’s Ogino said.
For companies from nations without rich hydrocarbon reserves it’s important to secure sources of the fuel abroad, and that means getting involved in the new oil and gas pumping technologies, Elmes of Warwick Business School said.
“In a reversal of where we were 20 years ago, most of the world’s conventional future oil and gas resources are owned by national companies in major producing nations,” Elmes said. “When Japex is going round the world trying to find something to invest in, the options are really quite limited.”
Specializing in “new and different” technologies would help Japex access more available sources abroad and also give Japan “soft influence” in other countries, Elmes said. The investment does not need to be about securing oil to bring back to one’s own country as much as giving nations such as Japan a “footprint” abroad, he said.
Japex may look at exporting some of the oil from its Canadian projects to eastern Asia in the future should prices rise and justify shipping costs, Ogino said. The company is also focusing on developments in Indonesia and Iraq, he said.
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