London 11 November 2009 

A new study by the CGES and Geopolitics: Although Canada’s oil sands rush came to an abrupt end with the Global Recession and the collapse in crude oil prices in the second half of 2008, the development of the industry will continue in the future. 

Based on the two scenarios in “Canada’s Oil Sands”, a joint study by the Centre for Global Energy Studies and Geopolitics Central, oil sands production should increase between 1.19 and 1.99 million barrels per day in the 2008 to 2020 period. However, the USA, the traditional market for Canada’s oil exports, will receive no more than 590,000 bpd of new exports from Canada under either scenario.

In Love Thy Neighbour, economic and environmental co‐operation among the major powers dominates through 2020 (and beyond). The major countries co‐operate and adopt the necessary policies to make the Global Recession relatively short and ensure that economic growth is strong and lasting thereafter. In this scenario, relatively high crude oil prices allow oil sands production to increase from 1.21 million bpd in 2008 to 3.2 million bpd in 2020, despite supply costs being quite high due to a strong Alberta economy and rising environmental mitigation costs.

In Beggar Thy Neighbour, geopolitical competition among the major powers dominates instead. A breakdown in major power co‐operation prolongs the Global Recession and leads China and Russia to challenge the Western powers for dominance. In this scenario, the Global Recession is longer and deeper, with a second dip in 2010, and subsequent sustainable growth is substantially slower than in the recent past. Due to relatively low oil prices, oil sands production increases from 1.21 million bpd in 2008 to 2.4 million bpd in 2020. The doubling of production is supported by projects under construction prior to the Global Recession, substantially lower supply costs due to a weak Alberta economy, and gradually rising oil prices.

In both scenarios, operators of proposed oil sands projects show a strong preference to have their bitumen production upgraded downstream of Alberta partly due to substantially lower costs for out‐of‐province upgrading. In Love Thy Neighbour, the Alberta government legislates that all new oil sands projects as of 2015 must upgrade 100% of their bitumen within the province. This is not an option for the Alberta government in Beggar Thy Neighbour because light‐heavy price differentials are simply too narrow. As a result, 82% of new bitumen production is upgraded into synthetic crude oil in Alberta in Love Thy Neighbour, but only about half this amount in Beggar Thy Neighbour.

“The political mood in Alberta is changing,” according to Vincent Lauerman, president of Calgary‐based Geopolitics Central. “The Alberta economy, treasury and people have been hit hard by the Global Recession. An increasing number of Albertans are upset about the export of economic activity and jobs instead of the export of synthetic crude oil.”

In Love Thy Neighbour, the main market for incremental oil sands supply through 2020 is Northeast Asia because its refineries tend to be configured to process lighter grades of crude oil.

Although the main market for incremental oil sands supply is the USA in Beggar Thy Neighbour, new volumes of Canadian oil are limited due to a relatively small increase in oil sands production and a relatively large decline in Canada’s conventional oil production. The eastern part of the Midwest is the primary market for Canada’s new oil exports to the USA in Beggar Thy Neighbour, not the Gulf Coast region.

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Centre for Global Energy Studies

www.cges.co.uk