[ROCKMAN]

Six - I don't spend my precious time working out detailed estimates of oil sands economics. Lots have changed in the last 14 years: different quality of deposits, new techniques such as SAGD, changes in royalty/taxing schemes, etc. And, of course, oil prices. But did you catch the stat that even surprised me: the first 1 million bbls per day of oil sands production was developed during a period of oil prices ranging from $25 to $35 per bbl. So yeah: developments costs are higher. But current production is selling for 2 to 3 times as much.

Granted those are just general factors. OTOH I haven't seen anyone offer DOCUMENTED details that change this general view.

[Graeme]

I don't have time to look at this issue further now but I know that there are other analysts who think same way as CarbonTracker, e.g. IER.

$this->bbcode_second_pass_quote('', 'S')audi Arabia produces approximately one third of OPEC’s oil, approximately 9.7 million bpd. Some believe that the Saudis are agreeing to lower oil prices now to curb new investment and further increases in global supply, particularly from US shale formations and Canadian oil sands, thereby gaining higher revenue in the medium term.

[ROCKMAN]

Just my guess of course. But I suspect the POTUS is hoping for such a bill to pass. He might even green light some vulnerable D senators to help pass a filibuster-proof 61 votes. That way in the spirit of compromise he will RELUCTANTLY (wink-wink) not veto it.

Reuters - Senate Republicans will charge ahead early in 2015 with a bill to approve the long-stalled Keystone XL oil pipeline from Canada, a move that would back President Barack Obama into a corner and set the tone for how the party taking control of Congress will govern the next two years. Legislation earlier this year to approve the pipeline in a proposed end-run around the administration already had an estimated 57 votes in the 100-member Senate, and is now thought to have a filibuster-proof 61 votes after Republican gains in Tuesday's mid-term elections.

In addition, Republican Senator John Hoeven of North Dakota, who has authored several Keystone bills in the past, will propose a new bill for Congress to use the Foreign Commerce Clause of the U.S. Constitution to green light the pipeline without the need for presidential approval. "I've got a bill right now that's got about 56 co-sponsors," Hoeven, who has fought for years in Congress to advance such a bill, told Reuters. "And with the election results, we'll have over 60 who clearly support the legislation." Political observers look for Mitch McConnell, the expected new Senate Majority Leader, to quickly back a Keystone bill because it has bipartisan votes and the support of key constituencies, such as organized labor.

Hoeven's North Dakota counterpart Heidi Heitkamp, said she would do what she did a few months ago when she got 10 Democratic senators to support full approval of the pipeline. "I'll continue to work with both sides to get it done," she told Reuters in a statement, adding that its approval will "allow us to move on and focus on the larger energy picture in this country." Democrats Tom Carper and Chris Coons, both from Delaware, have also indicated previously that they support the pipeline. "If McConnell plays his cards right, he might be able to get the Democratic votes necessary to get a bill out of the Senate. Whether or not the president would sign such a bill is a whole other question," said Jim Manley, a former adviser to current Senator Majority Leader Harry Reid.

[kanon]

$this->bbcode_second_pass_quote('ROCKMAN', 'I') always find it interesting that folks who have no financial connection to the oil sands development argue it's not economic and yet folks with direct access to the data have invested many $billions in transporting production that "can't be sustained".

[yellowcanoe]

Much of the subsidies relate to reducing the taxes and royalties that oil companies pay. However, in the case of unconventional oil such as LTO and Tar sands what is the alternative? The cost of producing oil from these sources is much more expensive than production from conventional oil fields so there isn't the same potential to produce tax and royalty revenue. In regards to writing off capital expenditures, I think the standard rule on that dates back to when a capital expenditure yielded a return for many decades. We're in a period now where for many businesses a capital expenditure has a much shorter lifetime and the oil industry isn't the only industry that are allowed to write off capital expenditures over a shorter period of time.

It will be interesting to see what happens in Alberta. Alberta has the lowest income tax rates of any province, no provincial sales tax and the lowest gasoline taxes in Canada. Low taxes were made possible by the corporate taxes and royalties coming from conventional oil production. The ongoing financial problems of the province even during the recent boom years in the tar sands illustrate that these new sources of oil cannot produce the same tax revenue and royalties that the province had been accustomed to receiving from conventional oil production. Their new NDP government is committed to revisit the tax/royalty issue but I suspect they are going to conclude that they cannot extract enough additional revenue from the oil companies to plug the hole in the provincial budget.

[Outcast_Searcher]

$this->bbcode_second_pass_quote('ralfy', 'M')y guess is that investments will continue because of significant levels of credit available.

[ROCKMAN]

kanon - Folks can debate how much those subs add up to and even how one defines a "subsidy". But before the price collapse Canada was exporting about $100 billion of oil to the US yearly. So if it took a few $billion in subs to assist isn't that a good deal for the Canadian companies, oil patch workers, govt tax collectors, etc. And would those few $billion in subs represents a significant factor in the motivation to develop the oil sands? I think one has a better case arguing that the subs aren't that important to company profits let alone represent a significant portion of their rate of return.

And lastly, in case memories fade: the first 1 million bopd from the oil sands was brought on when the inflation adjusted price of oil was half of the CURRENT new low prices. Lots of folks toss around a whole string of statistical numbers about oil sands production and profitability. And yet no one can tell us exactly what the profit profile of a single oil sands developers actually might be. And those companies put out their own unaudited numbers. And half the folks in our happy tribe here argue they are minimizing those numbers in order to hide obscene profits and the other half say they are exaggerating the numbers and lying to cover up unprofitable investments.

Too bad we don't have some folks here who actually produce oil sands who would tell us the truth about their individual companies.

[ennui2]

It's hard to imagine that an unprofitable industry will keep doing what proves to be uneconomical for very long. Sure, there are ponzi schemes, but they don't last very long. So occam's razor tells me the tar sands (and unconventional in general) is profitable. It may not be as profitable as light sweet crude, but profitable enough.

[kanon]

As I investigate this question, the complexity of the issue becomes more apparent. According to wikipedia, the actual Athabasca production in 2012 was 1.8 MBPD or 657 MB for the year. However, Oil_sands Wikipedia article says that "In 2011 alone they produced over 52 million cubic metres of bitumen" Tailings Report referring to "nine oil sands mining projects in the Athabasca oil sands deposit." (deficient in tailings management, btw) I calculate that 52 million cubic metres of bitumen is approx 3.12 billion barrels. The 1.8 MBPD figure for tar sands production is confirmed at QuickFacts.

This Wikipedia article says that when we "include the cost of upgrading the crude bitumen to synthetic crude oil" the final production costs are C$36 to C$40 per barrel "for a new mining operation." But, in the Oil_sands wikipedia article, the costs are given as "The Canadian Energy Research Institute (CERI) further refined the numbers and estimated that in 2012 the average plant gate costs (including 10% profit margin) of primary recovery was $30.32/bbl, of SAGD was $47.57/bbl, of mining and upgrading was $99.02/bbl, and of mining without upgrading was $68.30/bbl." According to Andrew Leach, "production cost for synthetic crude from the major open pit mine projects is $31 to $39 a barrel, at current exchange rates." Lower Oil Prices Strike at Heart of Canada’s Oil Sands Production However, the Keystone XL Project study seems to assume that a $75/barrel price for WTI equivalent is needed to keep revenues above costs.

The actual selling price is a little hard for me to find, but at $50/barrel simple math gives $32,850 million or $32.85 billion yearly for 1.8 MBPD production. This WSJ article has a graph showing tar sands oil sells for as much as $40/bbl less than WTI (recently approx. $13 less).

According to the Lower Oil Prices Strike NYT article: $this->bbcode_second_pass_quote('', 'C')anada’s oil sands — and the 167 billion barrels of reserves — prompted an unprecedented expansion over the last decade. But the roughly $155 billion spending spree left the industry with unusually high production costs. . . .
The (spending) cuts, though, won’t necessarily translate into lower production. Oil sands production is expected to increase by 25 percent, to 4.8 million barrels a day, according to January estimates by the Canadian Association of Petroleum Producers, partly because of new projects moving into production. The enormous projects are just too difficult to switch off, and the companies must keep pumping crude to cover the sizable debt on their multibillion-dollar investments. They also don’t want to cede market share to producers in other countries. . . .“It really makes no economic sense to bring down production at this point because most of the costs are sunk,” said Stewart Glickman

[Graeme]

New analysis finds 1.6 million bpd of planned tar sands expansion on life support

$this->bbcode_second_pass_quote('', 'N')ew analysis from Oil Change International has found that over 1.6 million barrels per day of planned expansion in tar sands production is currently delayed or ‘on-hold’ as industry struggles to identify a profitable path forward for 39 projects.

“The case for the tar sands is crumbling,” said Hannah McKinnon, Senior Campaigner on Private Finance at Oil Change International. “The tar sands are bad for the climate, the environment, impacted communities, and now the sector itself is struggling to justify many new projects.”

The analysis – based on industry data and Rystad Energy UCube – concludes that for every 1,000 barrels per day of tar sands production capacity approved or under construction, there are over 500 bpd that are delayed or on hold. These projects represent over 1.61 million bpd of proposed production capacity.

“This report is some good news for the climate, but the battle is far from over. Every day of delay for tar sands projects is a good day for our future, but this is an industry determined to dig it up,” said Lorne Stockman, Research Director at Oil Change International. “But while the industry puts its head down and tries to charge ahead, people around the continent are rising up to defend our communities and climate, and their efforts are clearly paying dividends.”

Key findings from the briefing include:

Currently, 39 proposed tar sands projects are delayed or ‘on-hold’.
For every 1,000 barrels per day (bpd) of tar sands production capacity approved or under construction, there are over 500 bpd that are delayed or ‘on- hold’.
Delayed or ‘on-hold’ projects represent over 1.61 million barrels per day of proposed tar sands production capacity.
Delayed or ‘on-hold’ projects contain nearly 13 billion barrels of total resources, which would amount to 7.8 billion metric tons of CO2 if extracted and burned. The emissions are equivalent to 40 years of emissions from 51 average U.S. coal-fired power plants.
An additional 550,000 bpd of production capacity (40,000 bpd currently operating) is owned by companies that have filed for bankruptcy.

The briefing can be found here: http://priceofoil.org/content/uploads/2 ... FINAL+.pdf

[ROCKMAN]

"New analysis from Oil Change International has found that over 1.6 million barrels per day of planned expansion in tar sands production is currently delayed or ‘on-hold’ as industry struggles to identify a profitable path forward for 39 projects." Nothing new about those dynamics: every oil development project requires a minimum price per bbl. If prices go down further more projects will be suspended. And if prices go up projects will be reactivated. In the meantime Canada continues to export more oil sands production to the US then ever before in history. And supplying the US with 22% of its imports even without the northern section of KXL.

Kinda like a ball rolling down hill: sometimes faster...sometimes slower. But always rolling along.

[Graeme]

ROCKMAN, How ironic is this!?

Canadian oil sands investment slides

$this->bbcode_second_pass_quote('', '[')i]After a liberal democrat candidate won a surprise victory in Canada’s oil province, oil shares suffered. However, US fracking might also be to blame for the drop

Considered the bedrock of Prime Minister Stephen Harper’s conservative government, the oilfield province of Alberta has been a safe conservative seat for more than forty years. When New Liberal Democrat (NDP) candidate, Rachel Notley, won a surprise victory in Alberta province this month, energy stocks fell. Large oil companies, such as Imperial Oil, Cenovus, Husks and Suncor all experienced a three to six per cent fall in the value of their stocks. Is this a political backlash? Or does it reflect the sliding trust in the industry’s viability?


The viability of heavy crude processing is being outrun by the influx of fracked oil and gas from the US. ‘The oil produced by fracking,’ explains Mark Barteau, Director of the University of Michigan Energy Institute, ‘for example, in the Bakken region of North Dakota, is generally lighter, easier to process, and closer to refineries and markets, than that from the oil sands.’

The fracked US product is becoming more attractive to investors. Unlike the oil sands, shale fracking reserves are not in remote regions – staff can be paid less and transport is not as much of an environmental and logistical issue. Meanwhile, oil sands extraction has been hindered for years by environmental protests to pipeline constructions, specifically, the Keystone XL which has been trying to get off the ground since 2010.

[ROCKMAN]

"ROCKMAN, How ironic is this!?" Not so much ironic as predictable. Watching the oil patch dynamics for 4 decades makes it easy to see the path we're on. The exact timing varies but everything (in general) happening today has happened before...and will happen again.

[ennui2]

Exactly. There is an implied point being made that any shuttering of drilling is going to be permanent and we'll fall into some sort of EROEI pit. Unconventional has proven to be a buffer for hubbert's curve. It's not an ideal oil source by any means, and environmentally disastrous, but there's a lot of it out there, enough to keep Toecutter and his gang of mutant zombie bikers at bay.

[ROCKMAN]

ennue - Well said. As far as future oil prices are concerned economic activity will have more control on pricing then reserve development IMHO. At least for a while yet. Folks think the oil patch has been crippled by the "low" $55/bbl level we have today. You should have been paying attention to life in the oil patch for the Rockman et al when oil sold for $17/bbl (inflation adjusted, of course) in 1998. We didn't disappear when prices were just 30% of the CURRENT OIL PRICE. Won't happen this time either. Oil is still selling for 2X its historical average. Given the early hints of increased consumption it's just a matter of being patient.

[Graeme]

But this time the situation is different. There are new forces at play now which weren't so prominent in the past. Apart from the falling price of oil, there is also the climate movement which is growing in strength.

Canada must deal with tar sands emissions, says Clinton campaign chief

$this->bbcode_second_pass_quote('', 'C')anada faces a widening rift with America over climate change unless it deals with “excessive emissions” from the Alberta tar sands, according to a trusted adviser to both Barack Obama and Hillary Clinton.

John Podesta told the Guardian that Canada must do more to compensate for its exploitation of the carbon intensive tar sands ahead of a critical conference in Paris aimed at reaching an international agreement to fight climate change.

Canadian prime minister Stephen Harper has championed expansion of the controversial tar sands, one of 14 so-called carbon bombs around the globe.

These are vast reserves of fossil fuels that if extracted and burned would make it virtually impossible to keep the earth’s temperature rise to 2C, the limit beyond which would signal irreversible climate change.

In a sign of growing international dismay, Podesta said Canada’s climate change policies were falling short of what is needed ahead of the United Nations Climate Change Conference in Paris in December.

Podesta, who left the White House earlier this year to run Clinton’s 2016 presidential campaign, told the Guardian: “I think that there is a C02 premium on oil that is coming out of the oil sands and I think that has to be offset through other policies that they need to implement, or else that is a strategy that is likely to result in excessive emissions.”

He had seen no sign that Canada had a plan to compensate for those extra tar sands emissions.

[ennui2]

Only Graeme can say the climate movement is growing in strength... Canada used to be viewed as a liberal country, then it became a petro-state, and suddenly it swung to the right. For the record, I think tar sands are pretty terrible. I'm neither rooting for them. I just think the invisible hand of the market will insure that the world gets its fix of fossil fuels and no amount of protesting will stop it.

[sparky]

.
On the subject of the Alberta elections ,
the recent victor , Rachel Notley , has back pedaled with some alacrity stating with some force that she is in no way going to impede the tar sand industry
declaring that as far as she is concerned , its business as usual ( with some lipstick on the pig )
love politicians , the more you change them the more they are the same
as Stalin said "for people like that , four walls are three too many "

[ROCKMAN]

"Canada must deal with tar sands emissions, says Clinton campaign chief". As the Rockman has pointed out before: How would Hilary respond to the statement that 99% of the GHG generated from the Canadian oil sands comes from Americans burning the products made from that resource? A resource which has been readily imported into the US...imports that neither the R or D parties have spoken against. Yes: some D's have spoken against the KXL permit but haven't had a bad word to say about the 6 existing pipelines crossing the border and delivering all-time record amounts of oil sands productions to the US. It's going to big difficult for her to argue against Canadian production given that there would be virtually no oil sands production today if the US had banned the import of the "dirtiest oil on the planet". Had banned it when her party had complete control of Congress and the White House while she was also a cabinet member.

Pointing a finger at the Canadians for producing the oil sands would immediately blow up in her face IMHO. Though I don't share many of her political views I really don't think she's that stupid. OTOH some folks think they she her showing subtle signs of losing touch with reality. Time will tell.