Reliance on natural gas is a steadily escalating source of financial pain for oilsands complexes. Alberta’s three oilsands mining and bitumen upgrading complexes spent a total of C$692 million (US$520 million) on gas in 2003, or five times what they spent in 1999, according to the Calgary energy investment firm of Peters & Co. Ltd.

The mining complexes in turn account for only part of an undisclosed total oilsands industry bill for natural gas, the Peters report said. Output by the mines of about 600,000 barrels per day is about 60% of production. The rest of the Alberta oilsands total of about one million b/d comes from “in-situ” or underground extraction operations that also rely on gas as fuel for heat processes used in separating bitumen from sand.

The in-situ plants are hit about three times harder by high gas prices than the mining complexes, Syncrude partner Canadian Oil Sands Trust told an oilsands investment symposium. “The mining approach is much less energy intensive,” trust president Marcel Coutu said. The firm posted the text of his address on its Internet website. “In-situ operations typically require about one thousand cubic feet of gas for every barrel of bitumen produced compared to three-tenths of a thousand cubic feet consumed at Syncrude.”

Operating costs at Suncor Energy Inc.’s Fort McMurray complex are climbing by as much as 16% this year with much of the cash going to pay for gas used in its synthetic oil mining and manufacturing process.

In a situation report to stockholders, Suncor predicted its plant’s 2004 cash expenses will average C$12.00-12.50 (US$9.00-9.38) per barrel of production. Before gas rose into a price range that Suncor forecasts to average US$6.30/Mcf this year from initial expectations of US$5.50, the 2004 oilsands costs were expected to be C$10.75 to $11.75 (US$8.00-8.80) per barrel.

Suncor was the second oilsands complex to report being squeezed by tight gas markets. Syncrude Canada earlier reported its energy costs averaged C$4.44 (US$3.33) per barrel of production in 2003 or one-fifth of total production costs of C$21.07 (US$15.80), which was a 24% increase compared to the plant’s 2002 average of C$17.05 (US$12.80) a barrel.

Syncrude alone consumes about 150 MMcf/d. Suncor and Syncrude both say they are working on alternatives to buying gas, such as adding processes to extract the fuel from their own bitumen or the charcoal-like coke byproduct of synthetic oil upgrading. Suncor added it expects a separate natural gas drilling program to increase its own production and offset the drain on its overall results caused by its oilsands operation’s purchases of the fuel.

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