| | | oil sands production costs and trends: rising short-term, falling long-term
Currently:
Labor costs are rising because many producers are expanding capacity (in oil sands and tight oil), so there is a shortage of the skills necessary. Time will solve this, as the high wages attract more people to the needed locations, and they get the needed education and training. I consider this to be a temporary problem, like the pipeline issues.
In recent years, there have been a series of cost overruns in oil sands construction projects, mainly by the Oil Majors.
In the future:
Higher gas prices would hurt oil sands, as gas is the biggest component of operating costs for in-situ extraction.
Future environmental compliance costs are a big unknown. If they are high enough, they could make oil sands uneconomic. The environmental movement is working hard to make oil sands go the way of nuclear.
The industry is gradually shifting to more in-situ extraction (=SAGD), and less open-pit surface mining. This eliminates the movement of huge amounts of material, and greatly decreases initial capital costs (the biggest cost). It also greatly reduces surface acreage affected, and reduces site remediation costs. Therefore, in-situ should be more acceptable to environmentalists. Most of Suncor's planned expansion for the next 5 years is in-situ. Existing open-pit oil sands production will be continued, but not expanded. These cost reductions are permanent, and future cost reductions can be expected.
The closing of differentials between WCS, WTI, and Brent has helped oil sands economics a lot.
Info:
production costs + 10% real discount rate (in Canadian real 2010 dollars/b):
in-situ: 48$
open-pit mining: 68$
Of total recoverable bitumin resources, 80% will be extracted by in-situ, and 20% by mining. Currently, production is split equally between the two.
CERI Canadian Oil Sands Supply Costs and Development Projects (2012-2046) Released May 2013
excellent 174-page report: ceri.ca
...break-even costs for building new steam-driven [in-situ] projects is in the $65 – $70 a barrel range. Mining projects, and upgraders, cost more. oilprice.com |
|
