Threat to the oil sands

October 23, 2013

No not environmentalists, nor greenhouse gas emissions. No not lack of pipeline capacity. No not lack of tanker routes to China. Not First Nations. Not politicians. Try falling oil prices.

According to Sober Look.com there are three main reasons for this:

• 1. Iran seems to be getting ready to enter the market as it prepares for sanctions to be lifted. “New Iranian President Hassam Rouhani’s “charm offensive” at the United Nations last month, coupled with a historic phone call with U.S. President Barak Obama, revived market hopes that Iranian barrels could return…”.
• 2.The US economy is weak. Yesterday’s US employment report points to weak economic growth, tapering demand expectations for crude. In particular, private payrolls growth came in way below expectations.
• 3.US oil inventories continue to build. The expectation of 3 million barrels increase in inventories was too low. The actual number this morning was 5.2 million barrels. Some of this is related to dramatically increased production from shale deposits and tight formations, ie. technology has changed to increase production.

BMO Capital Markets has estimated the ‘break-even’ price of WTI oil to be $50-90 per barrel for most oil sands operations. Interestingly this is lower than some of the shale oil plays in places like the Bakken.

IHS Cera believes the break even price for in situ oil sands plants is $75 while for the large oil sands mines it is $100 per barrel.

 

Commentary

The oil sands break-even costs have been declining with improved technology, better management, and cost effective practices. Yet the falling price of oil puts pressure on producers to cut expenses and to curtail projects. Low oil prices are the biggest threat to oil sands production.

Sources

• a)"Reasons behind the sell off" in http://soberlook.com/ 23-Oct-2013.



• b)http://business.financialpost.com/2013/08/19/oil-sands-crude-not-as-expensive-to-produce-as-it-used-to-be/?__lsa=ef9d-0827