The days of tar sands/oil sands megaprojects have ended, some of Canada’s biggest tar sands/oil sands producers concluded this week at an event in Toronto hosted by the Canadian Association of Petroleum Producers (CAPP) and the Bank of Nova Scotia.
And the driving force behind that conclusion is not the lack of pipelines to tidewater, nor the imminent signing of a global agreement to limit carbon pollution, but persistently low oil prices that knock Canadian diluted bitumen out of the global market.
“The years of large, multi-billion-dollar projects are probably gone,” Suncor Chief Financial Officer Alister Cowan told the CAPP Scotiabank Investment Symposium. “We’re more likely into smaller, more modular-type projects.”
With world oil prices still hovering in the US$40 to $45 range, “Producers that envisioned multibillion-dollar expansions when oil was over $100 a barrel are now opting for bite-sized additions after a price crash shook the energy industry,” Bloomberg reports. “While some production growth is still expected in a market rebound as companies cut costs with new technology, massive developments are on hold.”
While many analysts and fossil executives expect global prices to rebound somewhat, “there’s a growing contingent of executives and analysts who believe abundant supplies globally will prevent prices from staying near their previous highs,” writes correspondent Rebecca Penty. But some tar sands/oil sands producers, like Cenovus Energy, say they only need prices in the US$45 to $50 range to break even.
“Canada’s got a huge resource in the oilsands and we think with continued focus on innovation and cutting our costs, we will be a relevant contributor in the global economy,” said CFO Ivor Ruste. “The oilsands are quite competitive and the top-quartile assets we’re in will remain competitive on a global basis.”
In recent weeks, much of the conversation about oil prices has focused on an April 17 meeting in Doha, Qatar, where analysts had hoped major oil-producing countries would agree on a production cap designed to head off a price crash of more than 60% since mid-2014. Prices dropped earlier this week, however, on reports that Russian oil minister Alexander Novak had predicted only a “loosely framed” agreement in Doha, “with few detailed commitments,” Reuters reports.
“We have muted expectations for any meaningful impact on crude fundamentals from the April 17 Doha meeting,” wrote analysts from Macquarie Capital. “We do not believe that anyone is going to cut production to get back into compliance with January levels.”