The oil sands are producing more than two million barrels per day from long-term projects that are very difficult to shut in. The transport network is like a game of whack-a-mole: One access point is knocked down, others pop up.
There is some soul searching going on in the oilpatch this week in the aftermath of the U.S. rejection of Keystone XL. Would a carbon tax have changed things? A gentler hand with the politics? How much of the U.S. decision was connected to increases in their own domestic production?
What they aren't asking is how to get oilsands product to market. Because it's getting there, in ways both obvious and unexpected. The oilsands have lots of problems, like low prices and high costs. But right now, market access is pretty far down the list.
A slow boat down the Mississippi
"There is sufficient capacity to move all our production," said Greg Stringham, vice-president of oilsands and markets with Canadian Association of Petroleum Producers (CAPP). "There hasn't been any production that has been shut in because of pipeline capacity."
In the years since Keystone XL was first proposed in 2008, Canadian oil exports to the U.S. have increased by more than a million barrels a day. Rail has picked up some of that slack, maxing out at 165,000 barrels a day in 2014. It was around half that in the most recent quarter.
Other pipelines have been built, expanded, reversed or converted from natural gas. Between 2010 and 2014, the U.S., built more than 12,000 kilometres of oil pipelines, according to data from the Association of Oil Pipe Lines.
And then there are the boats. Stringham said oilsands oil makes its way to the Mississippi River by rail or other pipelines, and is then loaded onto a barge.
The U.S. railway system is well connected to the barge stations along the river. There is one such transfer station in St Louis, owned by Gateway Terminals, that has a direct connection to CN Rail's network. It recently upgraded its boilers to heat bitumen when it arrives by train, so that it can be transferred into tanks and eventually make its way to refineries along the Gulf Coast.
It's like a game of whack-a-mole: One access point is knocked down, others pop up.
Lower for longer
The real problem with the oilsands is the price environment.
In late October, Shell announced that it is abandoning its Carmon Creek oilsands project in Alberta's Peace River region. It made news because Shell said the decision was made partly because of a lack of pipelines.
The larger story with Carmon was the cost of producing a barrel of oil. Shell's chief executive Ben Van Beurden told reporters last week that most of Shell's production in the oilsands costs $25 a barrel to produce. Carmon's Creek costs were rumoured to be much higher than that.
According to CAPP, Carmon Creek is one of roughly 20 oilsands projects, expansions or additions that have been delayed, postponed or cancelled since May 2014 as investment seized up.
"World oil prices do not allow for really a lot of brand new projects," Stringham said. "It only allows for some of the incremental projects."
For the next four years, growth in the oilsands will persist, but after that comes an inflection point, where there are no big new projects waiting in the queue. The 20 or so paused projects and expansions are entirely dependent on a recovery in the price of oil that could be happen in 2016, or be years away.
On two separate days this week, OPEC and the International Energy Agency forecast quite different outlooks for oil demand, with OPEC saying the market could be in balance next year and the IEA suggested that won't happen until 2020.
2015 a time of change
One of the reasons the IEA expects the oil recovery to go slowly is because of looming climate change action around the world. It's become clear that 2015 is a time of change for global energy. In less than three weeks, the Paris climate change talks begin, with more than 150 countries pledging to reduce their greenhouse gas emissions. As Canada's largest emitter, Alberta is coming up with its own plan.
This has raised questions about whether the oilsands have a place as a future supplier. Some environmentalists fervently hope not, but pragmatists suggest they will have a place. The oilsands are already producing more than two million barrels per day out of long-term projects that are very difficult to shut in. The IEA expects global oil demand to continue to grow, albeit slowly, until 2040.
"And that's the opportunity for Canada," said Carmen Velasquez, director on energy programs at the University of Alberta. "We're a long term producer, our projects last 40 years plus, so we're in it for the long haul and I think we'll still be in, as other countries deplete their resource."