U.S. Shale Gas' successor, Canada's 'oil sand [oil sand]' pours out

■ U.S. Shale Gas' successor, Canada's 'oil sand [oil sand]' pours out

● Oil sand company that experienced trial and error
●Yields rise steeply and production increases
●NOC's Harvest is also an oil sand company


Canada's oil sand crude oil production, which was considered one of the two most non-traditional oil resources along with the U.S. shale gas, is expected to increase rapidly. U.S. oil companies have improved shale gas production by innovating hydraulic fracturing methods, but Canadian companies have had difficulty developing oil extraction technologies. Harvest, a Canadian oil company acquired by the Korea National Oil Corporation in 2009 for a cost of $4 billion, is also considered one of the companies that failed to produce oil sand crude oil.

Some companies have recently succeeded in lowering costs and are rapidly increasing their oil production. Canada is the world's fifth-largest oil producer, and 3.3 million barrels of crude oil, or about two-thirds of its 4.9 million barrels per day production, comes from oil sands. It has also become easier to send oil from northern Alberta, inland from the midwestern part of Canada, where the oil sands oil field is concentrated, to the Pacific export port. The Trans Mountain Pipeline, which crosses the Rocky Mountains, opened in May after completing a project to more than double the existing capacity of 300,000 barrels per day to 890,000 barrels per day.

>> ■ Canada's Big Four Oil Sands Company Stock Jumps 37% in 1 Year

The Wall Street Journal (WSJ) reported last week that the stock prices of Canada's four major oil sands, including Imperial Oil (IMO), Cenobus (CVE), Canadian Natural Resources (CNQ) and Suncor Energy (SU), rose by 37 percent on average from a year ago. The increase rate is much higher than that of major U.S. oil companies. During the same period, the Dow Jones Indices rose by only 12.43 percent.

The surge in stock prices was attributed to steep improvements in profitability by cutting costs through technological innovation. Oil sand is a resource that is sticky with sand and oil. Canada has the largest oil sands reserves at 173.6 billion barrels, followed by Kazakhstan (42 billion barrels) and Russia (28.4 billion barrels). It far exceeds the U.S. shale oil reserves of 58 billion barrels. While the U.S. exploded to more than 8 million barrels a day, more than double that of a decade ago, oil sands production only increased by 1.3 million barrels during the same period.

Oil sand is buried tens of meters underground, making it easier to mine than shale gas that is 3,000 meters underground. However, it is difficult to separate oil from sand. Oil sand is sand or sandstone that contains more than 10 percent of heavy oil such as asphalt and has a high viscosity that is close to a solid. Separating bitumen into a low-viscosity liquid using steam is used. Companies have been successfully optimizing steam and solvent for several years now. Recently, they have been cutting costs further by automating facilities using information technology. "We can lower our break-even price by 10 dollars per barrel by the end of 2026," Sunco Energy said in a phone call with an analyst last month.

Currently, Canadian oil sand companies can maintain financial costs and basic dividends if the oil price is more than $43.5 per barrel (based on WTI price), the WSJ analyzed. Oil sand companies are buying back their own shares and having a dividend party thanks to the relatively high oil prices due to Russia's invasion of Ukraine and the Israel-Hamas war. Canadian Natural Resources returned all of its surplus cash to treasury stock purchases and dividends last year, and Sunco Energy began to buy back its own shares using 75% of its surplus cash after dividends.

>> ■ Canadian crude oil can be shipped to Korea

The oil pipeline infrastructure will increase its profitability further. Until now, Canadian oil companies had no choice but to export crude oil to the U.S. in a desperate attempt. Canadian oil refineries are set up for light oil such as West Texas Intermediate (WTI) and North Sea Brandt oil, which are not capable of handling heavy crude oil sand oil. Due to lack of infrastructure for oil pipelines that extend to the coast, oil exports through oil tankers were not carried out properly. As a result, Canadian crude oil was traded at 18 to 19 dollars per barrel lower than U.S. West Texas Intermediate (WTI).

However, the expansion of the oil pipeline to the Pacific Ocean in May opened up markets in East Asia, including Korea and Japan. Korean refineries' petrochemical plants are geared toward Middle East crude oil, a heavy oil, allowing them to import Canadian crude with similar properties. Recently, the price gap between Canadian crude and WTI has narrowed to $12.

Canadian oil sand companies are also growing at a faster pace. In its May report, S&P Global raised its forecast for Canadian oil sand production by 100,000 barrels per day. Canada's oil sand production is expected to reach 3.8 million barrels, about 500,000 barrels more than now. Considering that Korea's daily crude oil consumption is around 2.85 million barrels per day (as of 2022), the increase is considerable. "[Oil] producers are maximizing the value of their existing assets through optimization and efficiency," Selina Hwang, director of S&P Global's North American crude oil market, said in a report.

Image 1) Alberta, Canada: Oil sand largest producer

Image 2) "Trans Mountain Pipeline" Route Map

Image 3) Vancouver 港 Kinder Morgan Terminal