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Page added on December 12, 2014
Canada Heavy Oil Nearing $40 Threatens Oil Sands Projects
Canadian heavy crude fell to near $40 a barrel, threatening projects under construction as producers boosted output and space on a pipeline was rationed.
Imperial Oil Ltd. (IMO) is increasing output at its Kearl oil sands project to 110,000 barrels a day after a shutdown last month, Pius Rolheiser, a Calgary-based spokesman, said by phone yesterday. Enbridge Inc. apportioned space on the Spearhead pipeline, which carries Canadian crude south to Cushing, Oklahoma, after demand to ship on the line exceeded capacity, according to a company statement.
Heavy West Canadian Select rose 82 cents to $43.01 a barrel after falling to $42.19 a barrel yesterday, the lowest since April 2009, data compiled by Bloomberg showed. Crude has fallen into a bear market as U.S. output surges to the highest in more than three decades. Calgary-based Cenovus Energy Inc. (CVE) said today it “substantially” slowed development plans at the Narrows Lake oil sands project. Canadian Natural Resources Ltd. has said it may scale back investment plans if oil prices remain near current levels.
“Any production that’s currently under construction is at risk, absolutely,” Dinara Millington, the vice president of research at Canadian Energy Research Institute in Calgary, said by phone. “Any production that’s currently existing can produce at $40 to $50.”
West Texas Intermediate futures fell 99 cents to $59.95 a barrel on the New York Mercantile Exchange, the lowest settlement since July 2009.
Expensive Crude
WCS trades at a discount to WTI due to higher production costs and a shortage of pipelines to move supplies to refineries. Some of the oil from Alberta’s oil sands must be dug out of the ground and upgraded into a lighter synthetic crude before it can be processed by refineries, increasing costs.
The lowest-cost oil sands producers use steam to loosen and pull bitumen from the ground and extract the fuel for about $51 a barrel, a July report by the Canadian Energy Research Institute showed.
Last week, Baker Hughes Inc. reported Canadian drillers cut the number of rigs used to the least for this time of year since 2009 as margins were cut by the price decline.
The last time WCS traded below $50 a barrel was in December 2012.
“We saw prices a couple of years ago that were similar to this,” Jackie Forrest, a vice president at ARC Financial Corp. in Calgary, said by phone. “For existing operations, you need to cover your operating costs. We’re still above those thresholds.”
10 Comments on "Canada Heavy Oil Nearing $40 Threatens Oil Sands Projects"
rockman on Fri, 12th Dec 2014 7:45 am
I wish we had someone here actually working the oil sands to fill in some blanks in reports such as this. It would be great to see the change in the quality and yield of deposits being developed today compared to 10 to 15 years ago. OTOH we could assume that the more viable deposits were developed early on but you can’t always take that for granted for a number of reasons. There’s also been a significant change in extraction methods with the SAGD approach that uses wells to produce instead of surface mining. As this report says: “The lowest-cost oil sands producers use steam to loosen and pull bitumen from the ground”.
So the question remains: is it that much more expensive to produce much of the remaining oil sands deposits as it was back around 2000? Most folks don’t realize that the first 1 MILLION BOPD production from the oil sands was developed when the inflation adjusted price of oil was between less than $40/bbl. And at that time the Canadians didn’t have nearly as much infrastructure and export capacity as they do today. And how difficult is it now to get that production to Gulf Coast refineries? Last month Canada exported more oil (most of it from the oil sands) to the US than ever before in history. And that choke point in Cushing forcing that discount some time ago? Since pipeline capacity has been expanded from OK to Texas the amount of oil stored at Cushing has fallen from over 50 million bbls to about than 25 million bbls. And more pipeline capacity is on the way.
And despite all the stories to the contrary Gulf Coast refineries are just fine with cracking a lot of Canadian production. I’m sure it’s just a coincidence that Canada is exporting about 3 million bopd to the US at the same time that US refineries ae cracking about 3 million bopd and exporting all the products overseas. And good to remember that any Canadian oil that makes it to Texas can be exported to any other country since the US “oil export ban” does not apply to oil imported from Canada.
But have no doubt: the current oil price will certainly stall a number of oil sands projects…just as it will unconventional and conventional drilling prospects in the US. Only time will tell to what extent.
Davy on Fri, 12th Dec 2014 7:54 am
I wonder if the big key-stoned-dead pipeline will still be pushed.
shortonoil on Fri, 12th Dec 2014 7:57 am
As we have been saying for almost a year, the long term price of oil is going down:
http://www.thehillsgroup.org/depletion2_022.htm
The high cost producers: shale, bitumen, arctic, ultra deep water, and high sulfur extra heavy will be the first to be phased out in this price environment. The price of oil is responding as the Petroleum Production System (PPS) approaches its thermodynamic equilibrium state. Our 2015 projection for the price of petroleum is WTI at $76/barrel. Therefore, it appears that the market has over shot for the short term to the down side, and so we expect a small uptick in prices this coming year.
The long term effects will be much more severe. The ongoing low price environment will reduce the needed E&D for new field development. As existing fields are depleted they will not be replaced. As a result we expect that by 2016 world consumption of petroleum, and its products will be falling by 1.6 mb/d per year.
http://www.thehillsgroup.org/
coffeeguyzz on Fri, 12th Dec 2014 8:34 am
Hey, Rock, I recently came across a report that some outfit came up with a way to use citrus-based solvent (such as Fast Orange hand cleaner) to greatly enhance recovery in the SAGD process. I thought it was a joke, but apparently not as they are moving to implement it in the field.
What will these Cornucopians think up next?
Davy on Fri, 12th Dec 2014 9:07 am
Short, if you put the 1.6 mb/d decline in percentage terms I wonder if it would have more doom juice. Corns like percentages and graphs. It reminds them of their high school days in pre-Econ 101.
shortonoil on Fri, 12th Dec 2014 10:39 am
Short, if you put the 1.6 mb/d decline in percentage terms I wonder if it would have more doom juice. Corns like percentages and graphs. It reminds them of their high school days in pre-Econ 101.
lol. That’s about 2%, for corns that like percentages.
Kenz300 on Fri, 12th Dec 2014 12:42 pm
and the reason there needs to be a new pipeline from Canada to the Gulf coast is………….
Why is the Keystone pipeline needed?
Apneaman on Fri, 12th Dec 2014 2:25 pm
That steam-assisted extraction doesn’t always work so well.
Regulator approves more steaming at leaking oilsands site
http://thetyee.ca/Blogs/TheHook/2014/04/23/CNRL-Steam-Resumes/
Feeling the heat over steam; Critics want a review of oilsands extraction process after Cold Lake leaks
http://www.edmontonjournal.com/Feeling+heat+over+steam+Critics+want+review+oilsands+extraction+process+after+Cold+Lake+leaks/9619354/story.html
Nor do tailings ponds. Sooner or later they all leak. That goes for everyone that ever existed anywhere in the world.
Oilsands study confirms tailings found in groundwater, river
Federal study shows water from tailings ponds leaching into Athabasca River
http://www.cbc.ca/news/canada/edmonton/oilsands-study-confirms-tailings-found-in-groundwater-river-1.2545089
11 Million Litres a Day: The Tar Sands’ Leaking Legacy
http://environmentaldefence.ca/reports/11-million-litres-day-tar-sands-leaking-legacy
Do a Google image search for tar sands or oil sands, take a good look and tell me that it’s a good thing.
Makati1 on Fri, 12th Dec 2014 7:55 pm
The sooner the tar sands fiasco is shut down the better for all of us who still live on planet Earth. The additional shutdown of fraking would be another positive step in the right direction. I hope oil stays in the price basement and shuts out ALL of the alternate sources. But then, that’s only my opinion and is not likely to happen.
Kenz300 on Sun, 14th Dec 2014 10:05 am
Risky and expensive shale, tar sands and deep water projects are being reevaluated and many will be shelved…………. impacting future production…