| CALGARY, Alberta
CALGARY, Alberta Nov 30 Canada's oil sands
producers are getting a long-awaited boost in export capacity,
but the two pipeline projects approved this week will not be a
silver bullet for the industry's woes unless crude prices pick
up or companies improve their operating efficiency.
The Canadian government approved Kinder Morgan's
plan to triple volumes on its Trans Mountain pipeline to 890,000
barrels per day, and cleared Enbridge Inc's Line 3
replacement project, which will roughly double capacity to
760,000 bpd. Enbridge's Northern Gateway pipeline was rejected.
The two approvals were welcomed by the oil industry, which
has pushed for years for new capacity to solve congestion on
export pipelines that in the past has sent the discount on
Canadian heavy crude to more than $40 a barrel.
Producers said delays in new pipeline construction cost them
millions in revenue, hurt Canada's economy and meant the
industry was too reliant on one customer - the United States -
when it should be trying to diversify into Asian markets.
But without a sustained improvement in the crude price,
Canada's oil sands, which hold the world's third-largest crude
reserves and produce about 2.4 million bpd, will struggle to
expand significantly beyond the new projects already under
Oil sands production is expected to grow on average by
128,000 bpd annually until 2021, after which growth will more
than halve to just 59,000 bpd, according to forecasts from the
Canadian Association of Petroleum Producers.
U.S. crude prices surged above $49 a barrel on
Wednesday on a deal by international producer group OPEC to
tackle global oversupply, but that is still below the $55-$60-a-
barrel range analysts estimate new oil sands thermal projects
require to break even.
"Let's say the price of crude never corrects itself, then
pipelines would be a moot point," said Dirk Lever, an energy
infrastructure analyst at AltaCorp Capital in Calgary. "The
(Canadian) energy industry had two huge issues to face - egress
and price. Price is still in front of us."
ENVIRONMENTAL, REGULATORY HURDLES
Suncor Energy, the country's biggest oil and gas
producer, said both the long-term crude price environment and
market access played a part in its decisions on new projects.
Several factors other than price may also blunt the positive
impact of federal government pipeline approval.
Line 3 is facing stiff opposition on the U.S. side of the
border and awaiting regulatory approval from the Minnesota
Public Utilities Commission, while Trans Mountain needs an
environmental assessment from the province of British Columbia
and is fiercely opposed by environmental groups vowing civil
Vessel size limits in the Port of Vancouver, where crude
from Trans Mountain will be loaded on tankers for export, mean
it may not always be economic to ship barrels to Asia.
If the pipeline expansions can get built, they will remove
at least one major barrier deterring investment in the oil
sands, which carry some of the world's highest operating costs
and have seen investment shrink rapidly since 2014.
Capital investment in the energy sector is expected to total
C$30 million ($22.34 million) in 2016, half of what it was in
2014, according to the Alberta government, while companies have
laid off tens of thousands of oil industry workers.
About 20 oil sands projects have been deferred since oil
prices began their slide two years ago, with two companies,
Royal Dutch Shell and Statoil ASA, citing lack
of energy infrastructure as part of the reason.
($1 = 1.3426 Canadian dollars)
(Reporting by Nia Williams; Editing by Peter Cooney)