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U.S. Needs Oil Sands as Shale Bonanza Seen Overdone

Peters & Co. Ltd. Chairman Mike Tims
Mike Tims, chairman of Peters & Co. Ltd. Photographer: Chris Bolin/Bloomberg

The U.S. will continue to need crude from Canada’s oil sands because rising production from its shale formations is too expensive to maintain.

Increased crude output from U.S. shale isn’t “sustainable production,” Mike Tims, chairman of Canadian investment bank Peters & Co., said yesterday at a Bloomberg energy forum in Calgary. Producers need to invest too much to sustain production from wells in the Bakken and Permian basins, which falls as much as 70 percent in the first year, Tims said.

“The optimism about additions to the U.S. oil production needs to be tempered a little bit,” Tims said.

Oil-sands capital spending fell 10 percent last year to C$20.4 billion ($20 billion), as some Canadian producers cut budgets amid competition from lower-cost oil supplies in U.S. shale basins, Alberta energy regulators said in a report last month. Production from the Bakken Shale in North Dakota has more than doubled from 2011 through April to 727,150 barrels a day, according to the North Dakota Industrial Commission.

The U.S., the world’s largest economy, will probably never be able to meet its own supply needs, said Chris Seasons, president of Devon Energy Corp.’s Canadian division. Devon produced 8.5 million barrels of crude from Canada in the first quarter, including from its Jackfish oil-sands project.

“They’re still importing a lot of oil and my view is I don’t see U.S. oil self-sufficiency, perhaps, ever,” Seasons said on the panel.

Price Discount

Canadian oil producers are being paid less for their crude than global prices, as proposed pipelines to the continent’s coasts are delayed amid rising North American supplies. Canada’s crude output will more than double to 6.7 million barrels a day by 2030, provided new export conduits are built, according to the Canadian Association of Petroleum Producers.

Seasons put U.S. approval at 90 percent for TransCanada Corp.’s proposed $5.3 billion Keystone XL pipeline that would deliver oil-sands crude to Gulf Coast refineries. Tims also said the project will probably proceed, though he estimated the risk of rejection is higher because it’s a political decision.

Beyond the next five years, challenging economics will threaten oil-sands spending more than lack of transportation as costs rise, Seasons said.

“While oil prices have gone from that $18 to $19 range where they sat for decades to today’s price of $98 a barrel, the economics haven’t really changed” since 1998, Seasons said.

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