Oil sands in cooling down mode

A steadier, more gradual approach to development of the oil sands because of the credit crunch could help stabilize costs, says a new study by the Canadian Energy Research Institute.

Co-author David McColl forecasts the recent “mad rush” will slow and capital costs will ease over the next two or three years, followed by a recovery and return to growth.

Basing its research on possible oil sands investments of C$317 million between now and 2030, the study targets gross crude bitumen production of 5 million barrels per day by 2030 from the current 1.5 million bpd, with 3.4 million bpd of marketable bitumen being upgraded to synthetic crude.

CERI concludes a sustained West Texas Intermediate price of C$101 per barrel is needed to maintain a return of 10 percent for a new integrated mining-extraction-upgrading facility with a 2011 startup, while an in-situ project needs a sustained price of C$80 per barrel.

McColl said that what has “huge implications” for Alberta is CERI’s projection that purchases of natural gas could reach 6 billion cubic feet per day by 2030, about 3.5 times current Alberta non-oil-sands consumption.

He said that could put the brakes on gas export volumes and could affect feedstock supplies for the petrochemical sector.

Using information from average announced projects, CERI estimates initial capital outlays for a 100,000 bpd project at more than C$140,000 per barrel of synthetic crude oil capacity, a C$90 per barrel initial costs for a standalone mine and a price tag of C$58,000 per barrel of synthetic crude for a standalone upgrader.

McColl said a continued global economic downturn could drag operating costs lower than they are today, including a reduction in the benefits offered to workers, such as daily living and travel allowances, while equipment costs could start to fall as engineering, procurements and construction firms find less work is available.

—Gary Park