Canadian crude faces volatility

Prices for bitumen from the Alberta oil sands are expected to remain volatile over the next decade as production starts to build from sanctioned projects, but the majority of operations set to come on stream by 2015 will be economically attractive, says a report by research firm Wood Mackenzie.

The report forecasts that non-upgraded bitumen volumes will grow by 540,000 barrels per day by the end of 2015, with 72 percent coming from 29 projects already under way that target an economic threshold of US$60 per barrel.

“While temporary pipeline issues have recently eased the sharp decline of Canadian crude prices” the volatility will persist, said Mark Oberstoetter, upstream research analyst with Wood Mackenzie.

At times Western Canada Select, WCS, the widely quoted bitumen blend price, has trailed West Texas Intermediate by US$40 per barrel, although that gap has narrowed to under US$20.

“What our analysis shows is that point-forward economics for the vast majority of oil sands projects planned to start between now and 2015 are attractive,” Oberstoetter said.

Unsanctioned projects ‘at risk’

Its list of projects that are most likely to be delayed include the Fort Hills mine by the joint venture of Suncor Energy and France’s Total.

Oberstoetter said thermal-recovery projects “typically have better breakevens than their mining counterparts.”

If the assumed bitumen price differential were to widen to 50 percent from 40 percent of WTI, Wood Mackenzie said a larger number of projects would become marginal.

“Even so, 26 projects would continue to break even at a WTI price below US$70 per barrel under this scenario,” Oberstoetter said.

The report estimates that rapid growth in Bakken production is underpinned by strong economics, with the Parshall and Sanish fields breaking even below US$50 per barrel.

—Gary Park