A Current Outlook for Oil Sands Development

Transcription

1 Canadian Energy Research Institute A Current Outlook for Oil Sands Development Dinara Millington VP, Research Canadian Energy Research Institute October 1,

2 Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, notfor-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 in energy and related environmental issues. A central goal of CERI is to bring the insights of scientific research, economic analysis, and practical experience to the attention of government policy-makers, business sector decision-makers, the media, and citizens in Canada and abroad. Our core supporters include the Government of Canada (Natural Resources Canada), the Government of Alberta (Alberta Energy), and the Canadian Association of Petroleum Producers (CAPP). In-kind support is also provided by the Alberta Energy Regulator (AER) and the University of Calgary. All of CERI s research is publically available on our website at 2

3 Canadian Energy Research Institute Agenda Canadian Oil Industry CERI s crude oil production forecast Costs of bitumen production for greenfield oil sands projects Employment Impacts of low crude prices on the oil and gas sector 3

4 Canadian Oil Industry 4

5 Oil Proved Reserves by Country (Billion Barrels and % of total at end of 2014) (bln barrels) World Oil Proved Reserves - 1,700 Billion barrels (at end of 2014) 80% are state-owned or controlled 20.0% % 18.0% % % 96% (167.1 billion barrels) of Canadian reserves are in the 96% (166.3 billion barrels) oil sands of Canadian reserves are in the oil sands 9.3% 8.8% 16.0% 14.0% 12.0% 10.0% 8.0% % 6.0% 5.8% 6.0% 4.0% % 0.0 Venezuela Saudi Arabia Canada Iran Iraq Russian Federation Kuwait United Arab Emirates 0.0% Source: BP Statistical Review of World Energy, June 2015, AER ST-98, June

6 World Oil Production by Country (Million barrels per day and % of total world crude production) (MMbpd) 14.0 World Oil Production Million barrels per day (at end of 2014) 14.0% % 12.9% 12.7% 12.0% 10.0 Canada is the 4th largest global oil producer 10.0% % % 5.0% 6.0% % 4.0% 3.2% 3.3% % % Source: BP Statistical Review of World Energy, June

7 Canada s Oil and Gas Industry 2014 Expenditures: $78.75 billion 2014 Expenditures: $64.02 billion Royalties Royalties Wages Wages Production Production Operation and Maintenance Operation and Maintenance Completion and Tie in Construction Conventional Drilling Land Acquisition Crown Land Sales Evaluation Land Acquisition Crown Land Sales Oil and Gas Projects Oil Sands Projects 7

8 Western Canadian Crude Production Outlook 8

9 CERI s WCSB Oil Production Forecast Crude Oil Production (excl Oil Sands) bbls/day 1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000, , , , , , , , , ,000 0 Pentanes Plus BC Oil Forecast SK Oil Forecast Oil from Gas Wells MB Oil Forecast NWT Oil Forecast AB Oil Forecast (Conv) CAPP-June 2015 WCSB Conv (L/M/H) 1,600,000 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000, , , , , , , , , ,

10 CERI s Oil Sands Production Forecast: 3 Scenarios ('000bpd) 6,000 5,000 4,000 3,000 (Production, High Case Scenario) 2,000 (Production, Low Case Scenario) (Production, Reference Case Scenario) 1,

11 CERI s Oil Sands Production Forecast: Reference Case ('000 bpd) 4,000 Total In Situ Volume Total Mining Volume 3,500 3,000 2,500 2,000 1,500 1,

12 CERI s Oil Sands Capital Investment Forecast ( ) (Million CDN$) $200,000 $175,000 $150,000 $125, ,756 $100,000 $75, ,841 19,410 6,927 Total In situ Thermal & Solvent Total Primary and EOR projects Total Mining Total Upgrading $50,000 $25,000 $0 12

13 Oil Sands Supply Costs 13

14 CERI s Oil Sands Supply Costs Supply Cost is the constant dollar price needed to recover all capital expenditures, operating costs (incl. compliance costs), royalties, and taxes to earn a specified return on investment. Supply costs have been calculated using cash flow models similar to those used in industry to determine investment profitability. Supply costs have been calculated for the raw crude bitumen produced (at either in situ or a mining operation) and, where appropriate, for the upgraded product at the source field location. To place these values in a market context, supply costs have been calculated in terms of equivalent prices for marketable crude oil (i.e., blended bitumen or SCO) at Edmonton and Hardisty, and in terms of the corresponding equivalent market price of WTI crude at Cushing, OK. 14

15 CERI s Oil Sands Supply Costs: Assumptions Measurement Units SAGD Mining and Extraction Project Design Parameters Stream day capacity bbl of bitumen per day 30, ,000 Production Life years Average Capacity Factor (over production life) percent 75.00% 89.00% Capital Expenditures (2014 CDN$) Initial Millions of dollars 1, ,051.7 Initial Dollars per bbl of capacity 36, ,517.4 Sustaining (Annual Average) Millions of dollars Operating Working Capital Days payment Operating Costs (2014 CDN$) Fixed (Annual Average) Millions of dollars Dollars per bbl of capacity Energy Requirements Natural Gas Royalty Applicable GJ per day 35,910 54,000 Non-Royalty Applicable GJ per day Electricity Purchased Royalty Applicable MWh/d Non-Royalty Applicable MWh/d Electricity Sold MWh/d 0 0 Other Project Assumptions Abandonment and Reclamation percent of total capital 2% 2% 15

16 CERI s Oil Sands Supply Costs $80 $70.18 $70 $58.65 $60 $50 $40 $30 Real 2014 CDN$/bbl $20 SAGD 10% ROR (a) Mining 10% ROR (a) $10 $0 Total Bitumen/SCO Supply Cost (CDN$/b) $58.65 $70.18 Fixed Capital (Initial & Sustaining) $22.91 $32.12 Operating Working Capital $0.53 $0.70 Fuel (Natural Gas) $6.90 $3.07 Blend/Upg. Product's WTI Edmonton in US$/b $74.61 $84.51 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 $0.13 Blend/Upg. Product's WTI Cushing in US$/b $80.06 $89.96 Abandonment Costs $0.04 $

17 Labour Impacts 17

18 Capital Investment and Labour In 2015 an anticipated $31 billion reduction in capital and operating expenditures is expected to have a significant impact on the oil and gas industry and its associated labour force. Based on the latest work from Enform: As many as 185,000 direct and indirect jobs related to the oil and gas industry could be lost, a decline of 25 percent from 2014 statistics. Impacts are larger in magnitude but comparable to the scale of decline in

19 Employment Impacts by Sector,

20 CERI s forthcoming study Oil is a key input into many economic sectors across Canada. The most recent drop in crude prices have directly impacted the energy sector and reverberated throughout the economy in other industries. This study utilizes the CERI s Input/output model to assess the impact on the Canadian economy resulting from lower oil prices on province-byprovince basis. The low price assessment is performed by shocking Canadian economy with low oil prices within the oil sands and measuring what impact did the change have on major sectors of national and provincial economies. Two scenarios for oil prices were evaluated against the Reference Case. Caveat: The results in this presentation only show isolated impacts from shocking one sector of the economy. Other sectors that are positively impacted from low crude prices are not shown here. 20

21 Assumptions for Two Scenarios Parameter Unit of Measurement Reference Case Scenario 1 Scenario 2 WTI price 2014US$/bbl EIA AEO 2015 forecast US$/CDN$ ex. rate First Year of Forecast US$/CDN$ Year Time Frame Years Inflation Rate % Oil Sands Production Capital Investment bbl/d Ref. Case Ref. Case Low Case Mln CDN$ Ref. Case Ref. Case 20% lower than Ref. Case 21

22 Oil Price Forecast Scenarios US$/bbl Reference Case Scenario 1 Scenario 2 22

23 Total Annual Impacts: Canadian GDP $300,000 $250,000 Case GDP ( Avg) (CDN$Mln) Ref. Case $ 193,226 Scenario 1 $ 107,044 Scenario 2 $ 81,991 GDP Growth (CDN Mln$) $200,000 $150,000 $100,000 $50,000 $ Ref Case Scenario 1 Scenario 2 23

24 Total Annual Impacts: Employment 1,400,000 Case Employment ( Avg) (Jobs/yr) Ref. Case 942,968 Scenario 1 536,477 Scenario 2 413,046 1,200,000 Employment (jobs/year) 1,000, , , , , Ref Case Scenario 1 Scenario 2 24

25 The Impact of Low Crude Prices over : Isolated Impacts of Oil Sands Sector Decline Variable Unit of Measurement Ref. Case vs. Scenario 1 Ref. Case vs. Scenario 2 Scenario 1 vs. Scenario 2 GDP % Change -45% -58% -23% Compensation % Change -43% -56% -23% Employment % Change -32% -48% -23% Federal Taxes % Change -45% -58% -23% Provincial Taxes % Change -44% -57% -23% 25

26 Key Challenges for Canadian Oil/Oil Sands Low crude oil prices, driven by global over-supply in the market Lack of export pipeline capacity and market diversification further devalues Canadian crudes Environmental impacts of oil sands development Rising oil sands costs Canadian crudes are undervalued against other crude oils in the world. The key challenges revolve around increasing margins, but most importantly, reducing costs of oil sands projects. 26

27 Key Opportunities Canada s proved oil reserves are third only to Venezuela and Saudi Arabia and marketable gas resources are within the top 5. Canada has transparent regulatory and legal regimes and a stable economy with a long-term potential for energy development Canadian energy resources are not state-controlled Pipeline expansions and new pipelines will allow Canadian crude to penetrate existing and new markets in the US Potential markets for Canadian crude exist outside of the US Recent downturn in the market should decrease project costs as competition for labour and materials subsides. 27

28 Conclusion The Canadian oil and gas industry continues to be an important driver of economic growth in Canada. Overall crude production is forecasted to grow in the near to medium term. Costs of greenfield projects is prohibitive. Current downturn poses different challenges than the global crisis in Oil and gas companies and other impacted sectors are facing challenges with managing labour costs in response to declining revenues against maintaining capacity and growth potential for the long term. Creative recruitment practices, such as up-skilling the current labour force and effective management and retention of skilled and experienced workers will become more critical in the near future. 28

29 Thank you! 29