March 6, 2015
Canadian oil sands have a relatively high cost of supply compared to other sources of production and are hence more sensitive to lower oil prices. The cost curve shows the cumulative production in 2015 from Canadian oil sands and the corresponding marginal costs (operating unit cost including royalties and adjusted to account for the price differential between realized prices and the Brent oil price). For instance, Husky Energy’s Sunrise phase 1 has an estimated marginal cost of 55.6 USD/bbl (with an after-royalty operating cost of 27.3 USD/bbl and a price differential factor of bitumen to Brent of ~2, assuming an average Brent price of 60 USD/bbl in 2015 and a realized price of 29 USD/bbl).
Around 250 thousand bbl/d (or ~10% of total 2015 supply) are estimated to have marginal cost of supply over 60 USD/bbl. This includes new projects coming online in 2015, such as Surmont phase 2 (ConocoPhillips) and Kearl expansion phase (Imperial Oil). Therefore, with the Brent oil price around 60 USD/bbl, these fields are marginal and in some cases operators can be faced with negative netbacks in the short run. However, the flexibility to shut in production is limited due to long lead time. At Brent oil price of ~50 USD/bbl, average netbacks of fields contributing to the 2015 supply are close to zero.
Canada oil sands is one of the topics that will be discussed at our Calgary information session on Monday the 9th of March 2015. More info here.