Alberta’s oil sands hold the world’s third-largest oil reserves but also have some of the highest breakeven costs globally because of energy-intensive production methods, both in mining or in-situ recovery, processing and transportation.
The November oil sands production number represents 60% of Canada’s total oil production of 4.1MMbopd.
Overall expenditures to build or expand major oil sands projects in 2015 are expected to be $15 billion, down more than 30% from 2014, and more than 700,000bopd worth of new production has been cancelled or deferred, such as Shell’s decision in October to cancel the 80,000bopd Carmon Creek SAGD (steam-assisted gravity drainage) project despite the fact it was already under construction.
The NEB expects SAGD will be responsible for the majority of the increases over the next five years, although the ramp-up of Phase 2 of Imperial Oil’s 220,000bopd Kearl mine as well and the 2017 start-up of Suncor Energy’s 160,000bopd Fort Hills project will mean truck and shovel mining operations will still play some role.
Imperial has also deferred a debottlenecking project for Kearl that could have added 100,000bopd.
In all, 11 projects have been put on ice.
Oil sands production has grown rapidly since 2000, when it production was just 700,000bopd.
In addition to project deferrals and cancellations, many companies have made revisions to their oil sands capital spending because, once the $13.75/bbl differential to WTI is taken into account, the average price of Canadian heavy crude is around $22 a barrel, near a decade low.
That means projects are now losing up to $3/bbl, but they are unlikely to shut down because of the sunk costs.
The continued increase in output is likely to do the global oil price no favours.
In August, when prices for Canadian heavy crude were also around $22, TD Securities estimated in a report that more than three-quarters of Canada’s then 2.2MMbopd were losing money.
There is still life in oil sands, with Suncor Energy doggedly pursuing control of TSX-listed rival Canadian Oil Sands in order to scale up its interest in the Syncrude JV, one of the largest undertakings in Canada. Suncor wants to increase its interest from 12% to 49%, and bring in efficiencies it believes can see Syncrude’s production costs fall to a sustainable $27/bbl or more.
A review of Alberta’s energy royalty regime is expected to be released this year, which could also change the cost structure.
