Hart Energy Research 2012

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Roderick Stokes
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1 TABLE OF CONTENTS LIST OF TABLES... v LIST OF FIGURES... viii LIST OF COMPANIES... xi Executive Summary... 1 I. Global Summary: Impact on Liquid Supplies, Disposition and Exports... 5 I.1 Heavy Oil Costs and Comparison with Other Crude Sources... 6 I.2 Global Outlook and Impact on Supplies I.3 Global Crude Disposition Summary II. Introduction and Global Context II.1 Definitions II.2 Resources and Reserves II.3 Recoveries and Production Techniques III. North America III.1 Canada III.1.1 History and Description of the Resource III.1.2 Companies and Projects III.1.3 Upgrading and Synthetic Crude Oil III.1.4 Costs and Economics III.1.5 Outlook III.1.6 Environmental Impacts III.2 Mexico III.3 United States III.3.1 Companies, Projects and Costs III.3.2 U.S. Bitumen Potential III.3.3 Outlook III.4 North American Crude Oil Pipelines and Other Infrastructure III.4.1 U.S. Market Opportunity Requires Increased Takeaway III.4.2 Crude Oil Pipelines II.4.3 Diluent Supply Logistics III.4.4 Petroleum-by-Rail or Tanker Logistics ii

2 III.5 North America Heavy Oil Disposition IV. South and Central America IV.1 Brazil IV.1.1 Projects, Companies and Costs IV.1.2 Outlook IV.1.3: Infrastructure and Exports IV.2 Venezuela IV.2.1 Projects, Companies and Costs IV.2.2 Outlook IV.2.3 Infrastructure, Exports and Consumption IV.3 Colombia, Ecuador and Peru IV.3.1 Colombia IV.3.2 Ecuador IV.3.3 Peru IV.4 Disposition V. Middle East V.1 Oman V.1.1 Companies, Projects and Costs V.1.2 Outlook V.1.3 Exports and Consumption V.2 Iran V.2.1 Companies, Projects and Costs V.2.2 Outlook V.2.3 Exports and Consumption V.3 Iraq V.3.1 Companies, Projects and Costs V.3.2 Outlook V.3.3 Exports and Consumption V.4 Kuwait V.4.1 Companies, Projects and Costs V.4.2 Outlook iii

3 V.5 Saudi Arabia and Bahrain V.5.1 Companies, Projects and Costs V.5.2 Outlook V.5.3 Exports and Consumption V.6 Syria V.6.1 Companies, Projects and Costs V.6.2 Outlook V.6.3 Exports and Consumption V.7 Infrastructure and Disposition VI Asia Pacific VI.1 China VI.1.1 Companies and Projects VI.1.2 Outlook VI.1.3 Consumption, Refining, Infrastructure and Storage VI.2 Indonesia VI.2.1 Companies and Projects VI.2.2 Infrastructure and Consumption VI.3 India VI.4 Asia Pacific Heavy Oil Disposition VII. Africa VII.1 Angola VII.1.1 Companies and Projects VII.2 Chad and Cameroon VII.2.1 Companies and Projects VII.3 Congo VII.4 Egypt VII.4.1 Companies and Projects VII.5 Madagascar VII.6 Nigeria VII.7 Other Countries VII.8 Outlook iv

4 VII.9 Consumption, Exports and Infrastructure VII.10 Africa Heavy Oil Disposition VIII. Europe, Russia and Central Asia VIII.1 North Sea VIII.1.1 Companies, Projects and Costs VIII.1.2 Other Heavy Oil Prospects VIII.1.3 Outlook VIII.1.4 Infrastructure, Consumption and Exports VIII.2 Continental Europe VIII.3 Russia VIII.3.1 Companies and Projects VIII.3.2 Outlook VIII.4 Kazakhstan VIII.4.1 Companies and Projects VIII.4.2 Outlook VIII.5 Europe, Russia and Central Asia Infrastructure and Disposition IX. Heavy Crude Value and Pricing IX.1 Valuation of Crudes in the Refining Market IX.2 Heavy Crude Oil Process and Commercial Implications for the Refining Industry IX.3 Heavy Crude Oil Prices and Differentials IX.4 Pricing Outlook LIST OF TABLES Table I.1: Initial Capital Intensity in US$ per B/D and Investment Costs in US$ per Bbl of Initial Reserves Developed for Venezuelan Orinoco Belt and Canadian Oil Sands Projects... 7 Table I.2: Initial Capital$/Bbl of Reserves for Heavy Oil Projects Outside of Canada and Venezuela... 8 Table I.3: Capital Costs $US per Barrel of Reserves for Brazil Pre-salt Development and Shale Oil Wells... 9 Table I.4: Global Liquid Supply Outlook by Type Table I.5: Global and Regional Heavy Crude Oil Disposition Table I.6: Global Heavy Crude Export Balance Table I.1: Global Real GDP Growth by Region v

5 Table II.2: Production of Heavy Crude Oils < 23 o API Gravity Table II.3: Heavy Oil OOIP by Region... Error! Bookmark not defined. Table II.4: Bitumen Reserves and OOIP by Region... Error! Bookmark not defined. Table II.5: Average Properties of Crude Oils and Natural Bitumen Table III.1: Reserves and Cumulative Production from the Oil Sands in Alberta, Table III.2: Mining Projects in the Athabasca Region of Alberta Table III.3: Producing In-Situ Projects in the Athabasca Region Table III.4 Current and Planned Pilot Projects in the Alberta Oil Sands Table III.5: Future In-Situ Projects in the Athabasca Region Table III.6: Announced Athabasca Oil Sands In-Situ Projects Table III.7: Cold Lake Region Oil Sands Projects Table III.9: Current and Planned Heavy Oil and Oil Sands Upgraders Table III.10: Upgrader Synthetic Crude Properties (Five-Year Average to May 2012) Table III.11: Oil Sands Field Operating Costs Table III.12: Properties of Canadian Oil Sands Blends (One-Year Average as of March 2012) Table III.13: Sustaining Capital Costs in Cdn$ per Barrel for Canadian Oil Sands Projects Table III.14: Royalties Paid in 2010 and 2011 in Cdn$ per Barrel for Various Oil Sands Projects Table III.15: Outlook for Heavy Crude Oil and Light SCO Production from Western Canada Table III.16: Diluent Requirements and Sources Table III.17: Mexico Heavy Oil Production Forecast Table III.18: Top Heavy Oil Operating Companies in California Table III.21: Southward Pipeline Capacity and Expansion Opportunities for Canadian Crude Oil Table III.22: Westward Pipeline Capacity and Expansion Opportunities for Canadian Crude Oil Table III.23: Eastward Pipeline Capacity and Expansion Opportunities for Canadian Crude Oil Table III.24: Diluent Import Pipeline Capacity and Expansion Opportunities Table III.26: North American Heavy Crude Disposition Table IV.1: Oil Production of Brazil s Campos Basin Heavy Oil Fields Table IV.2: Undeveloped Heavy Oil Fields in the Campos Basin Table IV.3 Brazil Heavy Oil Production Forecast Table IV.4: New Refineries in Brazil Table IV.5: Orinoco Projects as of December vi

6 Table IV.6: Initial Investments & 2010 Operating Costs of Orinoco Extra-Heavy Oil Projects Table IV.7: New Projects in the Orinoco Belt Table IV.8: Venezuela Heavy Crude Oil Outlook Table IV.9 Venezuela Refining Capacity Table IV.10: Crude Oil and Product Exports from Venezuela in Table IV.11: Blocks Awarded in the 2008 Heavy Oil Bid Round Table IV.12: Colombia Heavy Oil Outlook Table IV.13: Terms of New Service Contracts Signed Under new Ecuadorean Oil and Gas Framework Table IV.14: Operators Declining to Renew Contracts Table IV.15: Ecuador Heavy Oil Outlook Table IV.16 Peru Heavy Oil Outlook Table IV.17: South America Heavy Crude Disposition Table V.1: Oman Heavy Oil Production Forecast Table V.2: Iran Heavy Oil Production Forecast Table V.3: Iraqi Big Six Oil Fields Table V.4: Iraqi Phase 2 Contracts Table V.5: Iraq Heavy Oil Production Forecast Table V.6: Heavy and Medium Heavy Oil Outlook for Kuwait Table V.7: Saudi Arabia and Bahrain Medium-Heavy and Heavy Oil Production Forecast Table V.8: Syria Heavy Oil Production Forecast Table V.12: Middle East Heavy Oil Disposition Table VI.1: China Heavy Oil Production Outlook Table VI.2: Duri Field Production Forecast Table VI.3: Asia Pacific Heavy Oil Disposition Table VI.4: Asia Pacific Heavy Oil Disposition with Long Term Bitumen Production in China Table VII.2: Africa Heavy Oil Production and Forecast Table VII.3: Long-Term Potential Heavy and Bitumen Outlook Table VII.4: Africa Heavy Oil Production Summary Table VII.5: Africa Heavy Oil Disposition Table VII.6: Africa Heavy Oil Disposition with Long Term Production Table VIII.1 Heavy Oil Fields in the North Sea vii

7 Table VIII.2: North Sea Heavy Oil Production and Forecast Table VIII.4: Heavy Oil and Bitumen Outlook for Russia Table VIII.5: Heavy Oil Outlook for Kazakhstan Table VIII.6: Europe, Russia and Central Asia Heavy Oil Outlook Table VIII.7: Europe, Russia and Central Asia Heavy Oil Disposition Table IX.1: Heavy Crude Oil Quality Table IX.2: Heavy Crude Oil Historical Prices and Discounts Table IX.3: Heavy Crude Oil Prices and Discounts Outlook LIST OF FIGURES Figure I.1: Global Liquid Production Outlook by Type Figure I.2 Regional Heavy Oil Production Trend Figure I.3: Global Heavy Crude Export Balance, Illustrating the Share to Asia and Africa Figure X.3: Heavy Crude Export Balance Without Long-Term Heavy Oil Development in Asia and Africa 16 Figure II.1: Classification of Heavy Oils Figure III.1 Heavy Oil-Producing Basins in North America Figure III.2: Location of Western Canadian Heavy Oil Fields Figure III.3: Location of Oil Sands in Alberta and Saskatchewan Figure III.4: Alberta Oil Sands Raw Bitumen Production History Figure III.5 Crude Price Differential WTI Minus WCS Figure III.6: Capital Cost Intensity Range in Barrels per Day of Capacity for 18 In-Situ Oil Sands Projects 44 Figure III.7: Capital Intensity in Canadian dollars per Barrel per Day Capacity for Recent Oil Sands Mine Projects Figure III.8: Oil Sands In-Situ Capital Costs in Canadian dollars per Barrel of Oil Reserves Developed Figure III.9: Seasonal Variation in WCS Crude Blend API Gravity Figure III.10: Recent Price History of Edmonton Light Crude and Condensate at Edmonton Figure III.11: Production Costs for a Mature SAGD Project Figure III.13: Bitumen Netback Price as a Function of WCS Price and Diluent (Condensate) Cos Figure III.14: Oil Sands Outlook if All Projects Begin Producing According to Operators Plans Figure III.15: Raw Bitumen Outlook in Thousand b/ Figure III.16: Canadian Oil Sands and Heavy Crude Oil Yearly Outlook to Figure III.17: Dilbit and Condensate in Diluent Outlook viii

8 Figure III.18: Mexico Heavy Oil Production Outlook through Figure III.19: U.S. Heavy Oil Resources (>10 o API and <20 o API) in Billion Barrels Figure III.20: Illustrative Cross Section of Producing Reservoirs in the Alaska North Slope Figure III.21: Bitumen Resources by State in the U.S Figure III.22: United States Production Forecast for Developed Heavy Oil fields Figure III.23 U.S. Heavy Crude Oil Imports Figure III.24 Intermediate Crude Oil Imports Figure III.25 PADD 3 Heavy Crude Import Sources Figure III.26: Crude Oil Pipelines in North America Figure III.27: Estimated Canadian Crude-by-Rail Offtake from Carload Disclosures by CN and CP Figure III.28: Canadian Heavy Oil Processed in North America in Figure IV.1: Heavy Oil and Bitumen Basins in South America Figure IV.2: Brazil Heavy Oil Production Forecast (thousand bpd) Figure IV.3: Orinoco Location and Development Schematic Figure IV.4: PDVSA Planned vs. Actual ( ) Investments, US$ billion Figure IV.5: Venezuela Heavy Oil Outlook (yearly)(thousand b/d) Figure IV.6: Crude Oil Pipelines Colombia and Venezuela Figure IV.7: Distribution of Oil Fields by API Gravity in the Putumayo, Oriente and Marañon Basins (Colombia, Ecuador and Peru) Figure IV.8: Llanos Basin HCO Blocks 2008 Bid Round Figure IV.9: Colombia Heavy Oil Outlook (thousand bpd) Figure IV.10: Pungarayacu Field Location and Near-Term Development Plans Figure IV.11: Ecuador Heavy Oil Outlook (thousand b/d) Figure IV.12: Crude Oil Pipelines in Ecuador and Peru Figure IV.13: Peru Heavy Oil Outlook (thousand b/d) Figure V.1: Middle East Heavy Oil Basin Figure V.2: Oman Heavy Oil Production Forecast Figure V.3: Heavy and Medium Heavy Oil Outlook for Iran Figure V.4: Heavy Oil Production Forecast for Iraq Figure V.5: Heavy and Medium Heavy Crude Oil Outlook for Kuwait Figure V.6: Medium Heavy and Heavy Oil Production Forecast for Saudi Arabia ix

9 Figure V.7: Yearly Heavy Oil Production Forecast for Syria Figure V.8: Middle East Crude Oil Pipelines Figure VI.1: Asia Pacific Heavy Oil and Bitumen Deposits Figure VI.2: CNOOC Offshore Branch Responsibilities Figure VI.3: CNOOC s Key Heavy Oil Blocks in Bohai Bay Figure VI.4: Yearly Heavy Oil Outlook in China Figure VI.5: China s Refining, Infrastructure and Storage Figure VI.6: Indonesian Production by Company Figure VII.1: Africa Heavy Oil and Bitumen Deposits Figure VII.2: Africa Angola - Kwanza Basin Map Figure VII.3: Africa Angola Block 15/06 Map Figure VII.4: Cameroon fields Figure VII.5: Congo Fields Figure VII.6: Issaran Field Figure VII.7: Madagascar Oil Field Map Figure VIII.8: Production Forecast for African Heavy Oil Producing Countries through Figure VII.8: Chad-Cameroon Pipeline Figure VIII.1 Heavy Oil Basins in Europe Figure VIII.2: Location of Heavy Oil Fields in U.K. North Sea Figure VIII.3: Location of the Bentley, Bressay and Kraken Heavy Oil Fields in the U.K. North Sea Figure VIII.4: North Sea Production by Country Figure VIII.5: North Sea Company Production Forecast Figure VIII.6: U.K. Refining and Product Terminals Figure VIII.7: Geologic Basins in Russia Containing Heavy Oil and/or Bitumen Figure VIII.8: Russia Company Production Forecast Figure VIII.9: Kazakhstan Company Production Forecast Figure IX.1: Cash Margin Component of Price Figure IX.2: Crude Processing in Different Configurations Isthmus Crude Figure IX.3: Marginal Configuration Figure IX.4: Economic Cycle of the Marginal Refiner Figure IX.5: Heavy Crude Oil Quality x

10 Figure IX.6: Heavy Crude Oil Quality LIST OF COMPANIES Addax Petroleum Cameroon Co. (Cameroon) Aera Energy Athabasca Oil Sands Project (AOSP) Berry Petroleum Company BP... 85, 116, 240 BP Migas Burlington Resources Canadian Natural Resources Limited (CNRL) Chevron... 82, 115, 174, 213, 238 Chevron Indonesia China National Petroleum Corp. (CNPC) China National Petroleum Corporation (CNPC) China National Petroleum Corporation (CNPC) and Lukoil Chinese National Offshore Oil Co. (CNOOC) CITIC Resources Holdings Ltd CNPC CNPC and Sinopec CNPC/BP ConocoPhillips ConocoPhillips and CNOOC Ecopetrol Eni Eni Petroleum ENI S.p.A Eni SpA ERHC (Chad) ExxonMobil , 216 ExxonMobil (Chad) Future Mines GlassPoint Solar Energy for Steam Generation xi

11 Gran Tierra Gulf Keystone Petroleum Ltd Imperial Oil Inpex Iraq Ministry of Oil Ivanhoe Energy Japan Oil, Gas and Metals National Corporation (JOGMEC) Kuwait Petroleum Corp. and Kuwait Oil Co Lukoil , 250 Madagascar Oil Maersk Oil UK Ltd MedcoEnergi National Iranian Oil Company (NIOC) National Petroleum Co. of Egypt/Scimitar Nautical Petroleum OAO Tatneft Occidental (Oxy) Occidental/ Bahrain Petroleum Company Perenco , 219 Perenco (Cameroon) Petrobras , 214 Petroecuador and Affiliates Petroiran (a subsidiary of NIOC) Petroleum Development Oman (PDO) Petrominerales Pioneer Natural Resources Plains Exploration and Production Company Pluspetrol PlusPetrol Repsol YPF , 151 ROC Oil Co. Ltd Saudi Aramco xii

12 Saudi Aramco/Chevron Seneca Resources Shell , 181, 239 Sinochem and Canacol Sinopec Sinopec/ Shengli Oilfield Co SIPC Sonangol , 216 Sonoro Iraq/Berkeley Petroleum Statoil , 240 Suncor Syncrude Syrian Petroleum Company (SPC) The Egyptian General Petroleum Corporation (EGPC) Total , 211, 219 Uzma Xcite Energy xiii

13 Executive Summary Executive Summary The market volatility and economic uncertainty in the global economy that lasted throughout 2011 continued to affect oil prices and GDP growth projections in While 2010 global economic output recovered nicely from the negative growth (-1.8%) experienced in 2009, the ensuing years (2011 and 2012) experienced slow and uneven growth across several regions. The fiscal and monetary stimuli utilized by governments to jump-start growth in 2010 were not maintained or, in some cases, were withdrawn. Consequently, the world entered a period of choppy growth; expectations for 2013 are only slightly better than those for Oil demand growth continues to be tepid and will remain so over the short term: In the September Oil Market Report International Energy Agency (IEA) Demand, projections for 2012 and 2013 were raised by 100,000 b/d based on data revisions for 2011, to 89.8 million b/d and 90.6 million b/d, respectively, though demand growth forecasts are little changed at around 800,000 b/d for both years. These are similar to the U.S. Energy Information Administration (EIA) demand forecasts. The IEA noted continued mixed signals in the oil market as demand grew by 1,200 b/d from the first quarter to second quarter of Over the medium and long term oil demand growth will resume: On the upside, the economies of Asia Pacific, Middle East, Latin America, Africa and the Commonwealth of Independent States (CIS) will continue to have higher growth rates than Europe and North America. These economies utilize more barrels of oil per unit of GDP growth than the advanced OECD economies of Western Europe, Canada, the United States and Japan. Global demand for liquid fuels is expected to rise annually by an average of 1.2% to 2030 while U.S. and Canadian demand is expected to decline at an annual rate of 0.2%, according to Hart Energy s World Refining & Fuels Service. Europe will experience marginal growth in oil demand at 0.3% per annum. After 2030, as non-oecd countries become more energy-efficient, demand growth from 2030 to 2035 will fall to 0.8% per annum. In this highly interconnected global energy system, many factors will have an impact on heavy crude oil production. Will Canadian oil sands growth accelerate as the large number of new projects that have been announced would suggest? If so, where will the oil be sold? Will shale oil become such a large source of new oil supplies that heavy oil development will slow, at least in the medium term? Will Venezuela be able to carry out its ambitious plans to increase Orinoco Belt extra-heavy oil production even under the delay scenario that was assumed in preparing the 2012 HCO forecast? How might large volumes of low-cost oil from Iraq affect supplies from higher-cost sources? Will global climate change legislation find traction again or will fiscal problems in the developed world remain the point of focus, thereby reducing the chances of carbon-based taxes inhibiting heavy crude oil production? Will oil demand grow as projected or will it slow? These issues are addressed explicitly in HCO

Heavy Crude Oil: A Global Analysis and Outlook to 2030

Heavy Crude Oil: A Global Analysis and Outlook to 2030 November 2010 Prepared by: Hart Energy Consulting Hart Energy Consulting 1616 S. Voss, Suite 1000 Houston, Texas 77057, USA All rights reserved Hart