Lower demand, prices may trim near-term oil sands spending, CERI says

Lower crude oil prices and reduced demand resulting from a global economic downturn could reduce Canadian oil sands capital expenditures through 2017, the Canadian Energy Research Institute said. Production and capital outlays still are expected to increase well into the future, it emphasized in its latest Oil Sands Supply Update.

Production from Canada’s oil sands reached 2.34 million b/d in 2014, 11% higher than 2013’s 2.08 million b/d, CERI’s 10th annual oil sands update said. “Production from oil sands includes an increasing share of Alberta’s and Canada’s crude oil production,” it noted. “In 2014, non-upgraded bitumen and [synthetic crude oil] production made up 58% of total Canadian crude production and 74% of Alberta’s total production.”

CERI expects oil sands production to reach 3 million b/d by 2020, despite increased production and what it termed “market access challenges.” In addition to several in-situ projects or phases currently under way or expected to get necessary approvals in the near term, at least three mining projects that are being considered could contribute to major growth, it said.

The study calculated that plant gate costs for crude bitumen, excluding transportation and blending expenses, are $58.65/bbl (Can.) for a steam-assisted gravity drainage (SAGD) project and $70.18 (Can.) for a standalone mine. After adjusting for blending and transportation, it said that West Texas Intermediate equivalent supply costs at Cushing are $80.06/bbl for a SAGD project and $89.71/bbl (USD) for a standalone mine.

“At current WTI prices of just above $50/bbl (USD), one can assume that green-field projects are not economic or have to accept a lower rate of return,” the report said. “However, as observed in the industry, the relative position of oil sands projects has not suffered that much, nor is this the most difficult period for oil sands pricing in recent history.”

It said that Canada’s total oil sands outlays peaked at $55 billion (Can.) in 2013 before beginning to decline as crude oil prices started to fall. CERI forecast that they will begin to recover and eventually reach a new $56 billion (Can.) full-year peak in 2022 before flattening out to an average $50 billion/year (Can.).

Contact Nick Snow at nicks@pennwell.com.

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