CNPC builds house on oil sands with Alberta project

Jun 12, 2014 12:00 AM

The nearly 4 billion Canadian dollars (US$3.7 billion) invested by China National Petroleum Corporation (CNPC) in oil sands in Canada has been described as a gamble given the unclear outlook for the project, the Beijing-based Century Weekly reports.

It took state-owned oil giant CNPC four years to complete the acquisition of two oil sand fields in Alberta after the company first obtained a 60% stake in 2009, the magazine said.

The acquisition is part of the CNPC's plan to establish overseas oil reserves that could match its Daqing field in northeastern China, and push overseas output to between 40-50 million tonnes, according to the magazine.

CNPC's other state-owned rivals – Sinopec and China National Offshore Oil Corporation – have also invested in oil sand projects in Canada, but these projects have already started production, unlike those acquired by CNPC.

Over 100 exploratory wheels have been each built by the company that sold the projects in MacKay River and Dover to CNPC, with no proved reserves having been established at both sites, the weekly stated.

An energy sector expert told the Caixin-run magazine that only small oil companies tended to buy sites that were yet to report output, and CNPC's purchases projected the image of the company being a gambler.

It is estimated that CNPC will have to spend over 30 billion Canadian dollars (US$27.5 billion) on the two projects during the next decade, since excavation of oil sands costs more than crude oil.

Drilling for the first production wheel at the MacKay River project, which uses steam-assisted gravity drainage technology, began in September 2012, and the plan is to achieve daily production of 35,000 barrels by 2015, the magazine stated.

At the Dover project, the original plan was to begin construction this year, with the target of daily production of 50,000 barrels by 2018, it added.

The oil sands business is not necessarily profitable, however, since a company needs to sell the output at US$80 per barrel to earn a profit, which is higher than the pricing for American tight oil and Gulf of Mexico crude oil, according to a report published by market researcher IHS CERA last October.

Another factor pressuring sand oil prices, is the lag in rail transportation capacity in western Canada, the newspaper said.

There are currently two pipelines being proposed, Keystone XL, which will link oil sand fields in Canada to the American Midwest, and another pipeline for Enbridge, which will end at Kitimat on the coast of western Canada.

A review of the Keystone XL pipeline has been delayed by the US government due to pressure from environmental groups, while the Enbridge project is also being opposed by the indigenous people and environmental groups in Canada, the magazine said.

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