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Low oil prices not an issue, yet

Despite slumps in global oil prices, predictions for southeast Saskatchewan remain relatively positive when it comes to the oil industry landscape.
Warren Waldegger
Warren Waldegger (Mercury file photo)

Despite slumps in global oil prices, predictions for southeast Saskatchewan remain relatively positive when it comes to the oil industry landscape.

“Going forward I don’t think that the situation will persist,” said Estevan lawyer Barry Bridges, who specializes in oil and gas law with McDougall Gauley LLP. “I think we’ll see a rebound of the price sometime next year and I don’t really know if it’ll really come back to where it was by next year, but I think it will climb up to some extent.”

Currently hovering around $85 US dollars a barrel, but also dropping to as low as $82 US dollars a barrel during the month of October, the price of oil has reached its lowest point since April 2013.

“I think the price of oil is down right now because of the large amount of oil, particularly from the Bakken, and other shale plays in the U.S., which obviously results in a glut in the market and low prices,” Bridges said.

The chair of the Saskatchewan Headquartered Small Oil Producers and president of FireSky Energy, Warren Waldegger, said the lower prices are something to keep an eye on, but a strengthening U.S. dollar, the currency in which Canada sells its barrels in, provides companies with some breathing room.

“The price isn’t as bad as it may look because the US dollar is growing stronger at the same time,” he said.

Waldegger noted, however, that if the trend continues and oil prices remain low or drop even further, it will be something to be concerned about. Right now, the oil industry in southeast Saskatchewan, he said, is operating admirably.

“Obviously we like the $100 oil, but I think we’re still in pretty good shape.”

Another issue is the debate surrounding the transport of oil using rail and pipelines, a topic that has gained traction following several train derailments in the province this year, including one in Estevan during the month of May. Bridges said the controversy surrounding rail transport is growing.

“Shipping by rail has its limitations,” he said. “My thought is that pipelines are the safest way to ship oil.”

He acknowledged the occasional pipeline leak that has received media attention, but said ultimately, keeping the transport of oil underground is an environmentally friendlier option. Methods for transporting oil are slim, and road transport, which is occasionally used, is the only other option.

“You can also transport oil by truck, but that’s more expensive and in some cases it’s prohibitive,” Bridges explained. “There’s a fair amount of risk involved with transporting long distances in that fashion, especially when you factor in road accidents and contamination resulting from those accidents.”

He said short distance transport with trucks is feasible and done all the time, however.

The argument has been made that the large quantities of oil produced is often too much for pipelines to handle, but Waldegger said he thinks oil is still largely transported by rail as a result of a cemented cultural process in Canada that requires a makeover, so pipelines can get more approvals. He noted there’s no safer way of transporting oil than by pipeline, but said rail transport “isn’t going away as an option.”

“(Pipelines) are an engineered system that has many advantages over rail,” he said. “The same investments we put into rail need to be put into pipelines.”

He added much of North America’s infrastructure in the oil industry is aging and rather than continually repairing equipment, improving the equipment and seeking alternative options may prove beneficial.

The big leap in coal power generation, which led to the world’s first commercial-sized clean coal power generating and carbon capture unit at Boundary Dam Power Station in October, a project that hopes to spearhead the future of energy-based coal, still has an unclear effect on the oil industry. The CO2 that’s being captured, however, will prove highly beneficial for the oil reservoirs when injected back into the formations.

“We have light medium quality crude oil in our reservoirs, so the CO2 will lighten the mixture and make it less viscous,” Waldegger said, which ultimately means more oil will make its way out of the wells.

Bridges said companies using CO2 floods to clear their reservoirs will largely use the same wells they use now for extraction and therefore obtain more profits from their existing assets.

“It’ll be a benefit to the oil industry and a benefit for everyone because I’m a believer that we’re going to be using oil as a significant form of energy for a long time,” he said.