Canada s Oil Sands: Production Outlook and Economic Impacts

Transcription

1 Canadian Energy Research Institute Canada s Oil Sands: Production Outlook and Economic Impacts Dinara Millington Canadian Energy Research Institute EMD / SEG / DEG Oil Sands and Heavy-Oil Workshop June 19, 2016

2 Canadian Energy Research Institute Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, non-profit research institute specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. Our core supporters include Natural Resources Canada, Alberta Energy, and CAPP, Chemistry Industry Association of Canada (CIAC), Alberta s Industrial Heartland Association (AIHA), and the University of Calgary. In-kind support is also provided by the Alberta Energy Regulator (AER) and Petroleum Services Association of Canada (PSAC). All of CERI s research is placed in the public domain and can be accessed via our website at. 2

3 Agenda Current Oil Sands Production CERI s Oil Sands Production Projections Scenarios for development Production by type of project Current Operating Costs Supply Costs for Greenfield Projects Last year estimates Factors that contribute to production costs Economic Benefits for Alberta and Canada Short-term Comparison between cases 3

4 Current Oil Sands Production ( ) % growth from 2010 to 2016 (MMbpd) Est. Cold Bitumen Mining In Situ Source: CanOils, CERI 4

5 Oil Sands Growth CERI s Projections (August 2015) Case ( 000bpd) %Change 6.0 High Case 2,525 4,885 93% Reference Case 2,525 4,396 74% Low Case 2,525 4,101 62% (MMbpd) (Production, High Case Scenario) (Production, Low Case Scenario) (Production, Reference Case Scenario) Source: CanOils, CERI 5

6 Oil Sands Growth Production by Type 4.0 Total In Situ Volume Total Mining Volume (MMbpd) Source: CanOils, CERI 6

7 Oil Sands Supply Costs Greenfield Development Fixed Capital (Initial & Sustaining) SAGD 10% ROR (a) Mining 10% ROR (a) $22.91 $32.12 Operating Working Capital $0.53 $0.70 Fuel (Natural Gas) $6.90 $3.07 Other Operating Costs (incl. Elec.) $13.74 $16.57 Royalties $10.41 $12.80 Income Taxes $3.80 $4.74 Emissions Compliance Costs $0.31 $0.13 $80 $70 $60 $50 $40 $30 $20 $10 $0 Abandonment Costs $0.04 $0.05 SAGD Mining Total Bitumen/SCO Supply Cost (C$/b) $58.65 $70.18 Blend/Upgraded Hardisty in US$/b Blend/Upg. Product's WTI Edmonton in US$/b Blend/Upg. Product's WTI Cushing in US$/b Real 2014 CDN$/bbl $59.61 $69.51 $74.61 $84.51 $80.06 $

8 Oil Sands Operating Costs CDN$/bbl of Bitumen or SCO Operating Costs are down by 23-25% Y-on-Y in Christina Lake (Cenovus) Cold Lake (Imperial) Firebag & MacKay River (Suncor) Foster Creek (Cenovus) Horizon (CNRL) Syncrude (Syncrude/Suncor) Source: CanOils, CERI 8

9 Planning and Construction Optimize the system design across all parts of the project phase, especially the front end project design. Factors that contribute to capital cost escalation are: Planning and FEED Labour Drilling Largest contributors to capital cost escalation Materials Regulatory process Engineering Environmental (has a potential to become a significant barrier/cost) 9

10 Operation and Maintenance Reduce the resource intensity of operations and maintenance by addressing the energy feedstock required to extract bitumen. These energy inputs vary depending on whether it is an in situ project or a mine or an integrated mine with an upgrader. Key inputs that contribute to increasing operating costs are: In Situ Projects Mining Projects Feedstock costs (gas, electricity, chemicals, diesel, solvents) Labour costs Repairs and maintenance costs In descending order of contribution to total operation cost Labour costs Feedstock costs (water, diesel, electricity, etc.) Repairs and maintenance costs Diluent and transportation costs Environmental management costs Mitigation costs (reclamation of tailings ponds, land) Upgrading costs (if applicable) 10

11 And of course..market Access In Service Proposed Project Source: ARC Financial Corp.

12 Econ. Impacts of Low Crude Prices: Assumptions for Two Scenarios 12

13 Summary of Results: Total Impacts on Canadian Economy (Cumulative ) Unit of Measure Ref.Case Low Case Low vs. Ref. Case % Change GDP Growth Compensation Mln CDN$ Mln CDN$ 830, ,887 ($203,449) -24.5% 384, ,680 ($86,898) -22.6% Employment Federal Taxes Provincial Taxes Thousand person-years Mln CDN$ Mln CDN$ 4,109 3,298 (811) -19.7% 95,063 71,307 ($23,756) -25.0% 58,543 45,457 ($13,087) -22.4% 13

14 Total Annual Impacts: Canadian GDP Case Annual Average (CDN$Mln) Ref. Case $ 118,619 GDP Growth (CDN Mln$) $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $- Low Case $ 89, Ref Case Low Case 14

15 Total Annual Impacts: Employment Case Employment ( Avg) (Jobs/yr) Ref. Case 587,006 Employement ('000 personyears) 800, , , , , , , ,000 - Low Case 471, Ref Case Low Case 15

16 Provincial Impacts for AB and ON Rank Industry % Share of GDP Ref Case Low Case % change AB 1 Oil Sands 39.72% $ 331,018 $ 227, % AB 2 Household 11.71% $ 97,582 $ 67, % AB 3 Finance, Insurance, Real Estate and Rental and Leasing 7.89% $ 65,755 $ 46, % AB 4 Conventional Oil 6.13% $ 51,080 $ 36, % AB 5 Owner occupied dwellings 5.12% $ 42,675 $ 29, % ON 1 Finance, Insurance, Real Estate and Rental and Leasing 23.22% $ 13,491 $ 16, % ON 2 Wholesale Trade 11.08% $ 3,310 $ 7, % ON 3 Household (Labour) 10.79% $ 5,407 $ 7, % ON 4 ON 5 Other Manufacturing Transportation & Warehousing 10.16% $ 5,460 $ 7, % 7.87% $ 2,893 $ 5, % 16

17 Conclusions Canadian oil sands production is expected to grow from 2.5 MMbpd in 2015 to 4.4 MMbpd in The growth in oil sands will come from in situ projects. Project operating costs have come down in recent years, but there is still room to improve them further with technology and innovation. Other factors such as oil prices, market access and environmental regulations will play a role in production costs. As Western Canadian crude oil production continues to grow, the leverage of these resources for economic benefits to the nation will depend on the ability to connect this growing supply with demand. 17

18 Conclusions As a net oil exporter, Canada is and will be affected by the lower prices, operating through several channels. Stronger US growth and a weaker Canadian dollar have boosted non-energy exports. Investment spending and job creation have also begun to pick up in non-energy sectors, although significant slack remains in the labour market. Overall, Canadian economic growth could contract by an average of 23 percent if low oil prices persist over the next seven years. In summary, for the duration of the forecasted time horizon ( ), every dollar gain in the annualized price of WTI, would increase national Canadian GDP by $1.7 billion on average. 18

19 Thank you! 19