While tar sands/oil sands production in Alberta is on track to increase by nearly a million barrels per day by 2025, the industry will be slowed down by low global oil prices and most of its new output will come from existing facilities, rather than new projects, analyst Kevin Birn of IHS Energy predicts in a blog post earlier this week.
The cost of building and operating a new tar sands/oil sands operation has fallen by about C$10 per barrel since 2014, Birn writes, so that the least expensive form of new development—expansion of an existing in situ drilling operation—can break even at about $50 per barrel, around the level where global prices have recently landed.
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But while today’s prices represent a 50% increase since oil markets hit bottom in January, “the pace of future recovery is likely to be more moderate than the preceding six months,” he cautions. “An abundance of oil in storage, the prospect that U.S. tight oil activity will respond to higher prices, and the possibility that key OPEC members will opt to maximize production instead of managing supply will all weigh on the pace of price recovery.”
Delayed pipeline projects may also “slow the pace of price recovery in Western Canada, affecting timing of future investments and subsequent growth expectations.”
The upshot is that “oil sands investors will focus their investments onto the most economic projects: expansions of existing facilities,” Birn says. “IHS expects that over 80% of future activity in our outlook will be underpinned by expansions of existing facilities—these being well understood, quicker to first oil, and cheaper to construct. This all equates to less risk at a lower cost.” (h/t to The Energy Mix subscriber Shelley Kath for pointing us to this story)
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