| CALGARY, Alberta
CALGARY, Alberta May 11 Even as the world's
largest energy companies exit Canada's high-cost oil sands the
country's top producer Suncor Energy is lining up its
next phase of growth in the world's third largest crude
The preliminary plans for new projects in remote northern
Alberta follow a stream of multi-billion dollar deals in which
international oil majors sold off oil sands assets to Canadian
producers, who are betting technology and economies of scale
will make the region competitive with other plays globally.
Suncor said on Monday it will file a regulatory application
for its 160,000 barrel-per-day Lewis project later this year,
and in March received approval for the 80,000 bpd Meadow Creek
East plant. It also plans to file an application for the 40,000
bpd Meadow Creek West project later this year.
The company has not yet taken a final investment decision on
any of the projects but if sanctioned they would boost the
company's current output of 680,000-720,000 bpd by more than a
third. In total, Canada produces around 4 million bpd.
Calgary-based Suncor cemented its position as the largest
oil sands operator last year when it bought Canadian Oil Sands
Ltd and Murphy Oil's stake in the giant Syncrude mining
and upgrading project in two deals worth over C$5 billion
Its strategy for future growth relies on building identical
smaller thermal plants to help cut costs. This is how future
development across the industry is expected to look, as the exit
of the majors has drawn a line for now under the megaprojects
that drove the industry's rapid expansion over the past 15
Suncor will add new plants able to produce between
30,000-40,000 barrels per day every 12-18 months, chief
executive Steve Williams said on a quarterly earnings call last
"We're working with contractors about how do we design this
once and build it many times so we get that benefit of
replication ... almost like a manufacturing plant," Williams
While it is encouraging to see companies thinking about
future projects, it is still not a given that the economics will
necessarily work or that Suncor will build them to full
capacity, said Wood Mackenzie analyst Mark Oberstoetter.
The modular approach is a far cry from Suncor's giant Fort
Hills mining plant, due to be finished later this year, which
will produce 194,000 bpd at a capital intensity of C$84,000 per
flowing barrel of bitumen, or around C$16.5 billion in total.
Thermal projects usually cost around C$45,000-C$50,000 per
flowing barrel and using the replication strategy should bring
costs at Lewis and Meadow Creek East even lower, AltaCorp
Capital analyst Nick Lupick said.
"They are effectively designing and building one version of
a plant, and using it like a cookie-cutter," he said. "It shows
how they are focused on changing strategy to lower costs."
Suncor has not released cost estimates for the projects and
does not plan to start building until the 2020s, but estimates
it could squeeze up to 400,000 bpd of additional capacity
through this kind of expansion.
Oil sands producer MEG Energy also has plans to
grow its 80,000 bpd Christina Lake plant by adding a series of
10,000-20,000 bpd projects that will cost C$20,000-C$30,000 per
flowing barrel, eventually hitting output of 210,000 bpd.
Lower costs and smaller projects are crucial for oil sands
producers as they struggle to remain competitive with cheaper
and faster U.S. shale plays.
In addition to replicating thermal plants a number of
companies including Suncor, MEG, Cenovus Energy and
Imperial Oil are looking at new ways to improve bitumen
extraction by using solvents as well as steam.
Typically, thermal projects involve drilling a pair of wells
into an oil sands reservoir and pumping steam through the upper
well to liquefy bitumen so it can flow out of the lower well.
The industry is only now is a position where plant
replications will work, said Doug Hollies, an engineer with
consultancy Codeco Oilsands Engineering in Calgary, who was
involved with drilling thermal projects in the early 2000s.
"Back then we did not know what was going to come out of
these wells, in every different area (of the oil sands) there
would be different product," he said.
"Now that every project virtually has been piloted it's a
lot easier to make good engineering decisions and standardise
($1 = 1.3661 Canadian dollars)
(Editing by Phil Berlowitz)