Key Economic Challenges Facing the Canadian Oil Sands Industry

Transcription

1 Key Economic Challenges Facing the Canadian Oil Sands Industry 5 th Annual Canadian Oil Sands Summit Insight Information January 16-17, 28 Calgary, Alberta Bob Dunbar Strategy West Inc. 1 Photo Source: Syncrude Canada Limited Presentation Outline Industry Challenges Overview Project Costs and Economics Energy and Hydrogen Supply Options Oil Sands Production Outlook Unadjusted Case Adjusted Case Conclusions 2 Key Economic Challenges Facing the Canadian Oil Sands Industry 1

2 Oil Sands Industry Challenges and Industry Sustainability The Triple Bottom Line Healthy Environment Planet Sustainable Development Strong Economy Profit Social Well-Being People 3 Oil Sands Industry Environmental Challenges Air Emissions Greenhouse Gases Criteria Air Contaminants (SOx, NOx, PM, VOCs, CO, NH 3 ) Water Use Consumption Recycle Liquid Waste Disposal Solid Waste Disposal Tailings Other Solid Wastes Reclamation and Abandonment Cumulative Effects 4 Key Economic Challenges Facing the Canadian Oil Sands Industry 2

3 Oil Sands Industry Societal Challenges Public Services Health Education Other Public Infrastructure Road Water & Sewer Rail Other Regulatory Agencies Staffing & Expertise Workload Funding Pace of Development First Nations Project Legacies 5 Oil Sands Industry Economic Challenges Capital Costs Labour Availability and Productivity Services and Materials Project Execution Operating Costs Purchased External Energy Non-Energy Operating Costs Energy and Hydrogen Supply Options Fiscal and Regulatory Uncertainties Provincial Royalties Corporate Income Taxes Greenhouse Gas Emissions Markets Integration/Final Product (Bitumen, SCO, RPPs, or Petrochemicals)? Market Access Product Prices Light Sweet Crude (WTI/MSW) Heavy-Light Differentials 6 Key Economic Challenges Facing the Canadian Oil Sands Industry 3

4 Integrated Project Capital Costs $12, AOSP Expansion Initial Capital Cost Intensity (C$ per b/d) $1, $8, $6, $4, $2, Suncor Millennium Fort Hills Phase 1 Nexen/OPTI Long Lake Synenco N Lights Syncrude Stage 3/UE1 CNRL Horizon Phase 1 AOSP Phase 1 $ Startup Year Sources: Company Announcements; Strategy West Inc. Non-Integrated Project Capital Costs $6, Mining & Extraction Project Initial Capital Cost Intensity (C$ per b/d) $5, $4, $3, $2, $1, Firebag 1 Great Divide 1 Tucker 1 Firebag 2 N Lights High N Lights Low MacKay River 2 High MacKay River 2 Low MacKay River 1 SAGD Projects $ Startup Year 8 Sources: Company Announcements; Strategy West Inc. Key Economic Challenges Facing the Canadian Oil Sands Industry 4

5 Hypothetical Oil Sands Projects Cost Assumptions SAGD Mining & Extraction Upgrading (Coker) Product Dilbit Dilbit Synthetic Crude Oil Initial CAPEX (Real 27 C$ per b/d) $3, (Bitumen) $4, (Bitumen) $5, (SCO) Non-energy OPEX (Real 27 C$/b) $7. $9. $7. Purchased Natural Gas (GJ/b) SCO Yield % GHG Emission Penalty ($/t) Hypothetical Oil Sands Projects - Illustrative Investment Returns IRR (%) 1 8 IRR (%) Oil Sands Royalty Regulation, New Royalty Framework, 27 Reduced Federal Tax Rate $5 $6 $7 $8 $9 Cushing (US$/b, 26) $5 $6 $7 $8 $9 Cushing (US$/b, 26) SAGD M&E Upgrader ME&U SAGD M&E Upgrader ME&U 1 Key Economic Challenges Facing the Canadian Oil Sands Industry 5

6 Value Chain Strategic Considerations Product Price Retail RPPs (ex-tax Pump Price) Wholesale RPPs (Rack Price) Synthetic Crude Oil Blend Bitumen Bitumen Distribution & Bitumen Bitumen Refining Distribution Production Upgrading Refining Marketing Production Upgrading Marketing Not to Scale Technical Complexity and Cost 11 Upgrading Technology Options Product Price Sweet Premium SCO Sweet SCO Sour SCO Primary Upgrading Primary Upgrading + Hydrotreating Primary Upgrading + Fixed-bed Hydrocracking Not to Scale Technical Complexity and Cost 12 Key Economic Challenges Facing the Canadian Oil Sands Industry 6

7 Alberta Price Realizations (Jan 25 to Dec 27) $16 $14 Ex Tax Pump Price (Regular Unleaded) Price Realizations (C$/Barrel) $12 $1 $8 $6 $4 Marketing Margin Refining Margin Light Heavy Differential Blending (Diluent) Cost Estimated Bitumen Value $2 $ Jan-5 Mar-5 May-5 Jul-5 Sep-5 Nov-5 Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 13 Sources: Canadian Association of Petroleum Producers; EnCana; Petro-Canada; Strategy West Inc. Average Alberta Price Realizations (Jan 25 to Dec 27) Estimated Bitumen Value Average Price (C$/b) $31.34 Average Price Relative to MSW (C$/b) 43% Hardisty $ % Edmonton $72.1 1% Rack Price (Regular Edmonton) $ % Ex-tax Pump Price (Regular Edmonton) $ % 14 Sources: Canadian Association of Petroleum Producers; EnCana; Petro-Canada; Strategy West Inc. Key Economic Challenges Facing the Canadian Oil Sands Industry 7

8 Current Sources of Thermal Energy, Hydrogen and Electricity Thermal Energy Purchased natural gas Produced gases (in situ projects) Process gases (upgraders) Liquid hydrocarbon fuels Crude bitumen Coke and other bitumen residues (upgraders) Hydrogen Steam Methane Reforming (natural gas) Electricity On-site generation Purchased electricity 15 Conventional Marketable Gas and CBM Production in Alberta 6 5 actual forecast Billion Standard Cubic Feet Conventional marketable gas Coalbed methane 16 Source: Alberta EUB; Report ST98-27; June 27 Key Economic Challenges Facing the Canadian Oil Sands Industry 8

9 Industry Options to Reduce Purchased Gas Requirements Conservation/Energy Efficiency Improvements New Bitumen Recovery Technologies In Situ Mining and Extraction Alternative Sources of Thermal Energy, Electricity and Hydrogen Gasification of Bitumen Residues Combustion of Bitumen/Bitumen Residues Nuclear 17 Oil Sands Gasification Projects Project OPTI/Nexen Long Lake Phases 1-4 North West Upgrading Phases 1-3 Northern Lights Phases 1 & 2 Shell Scotford Upgrader 2 Phases 1-4 Suncor Voyageur Phase 2 Fort Hills Sturgeon Phases 2 & 3 CNRL Horizon Phases 4 & 5 CNRL Primrose Phases 1 & 2 NAOSC Upgrader Phase 2 Gasification Status Construction (Phase 1) Approved Application Application Being Evaluated Being Evaluated Being Evaluated Being Evaluated Being Evaluated 18 Source: Project Applications and Company Announcements Key Economic Challenges Facing the Canadian Oil Sands Industry 9

10 Combustion of Bitumen/ Bitumen Residues Coke Burning Suncor power plant Syncrude Fluid Cokers Multiphase Superfine Atomized Residue (MSAR) Asphaltenes Mining project cogeneration facilities Issues SO 2 and particulate emissions require flue-gas scrubbing CO 2 emissions exceed those from combustion of natural gas Opportunities O 2 firing CO 2 capture 19 The Nuclear Option Potential Benefits Reduced Greenhouse Gas Emissions Competitive Thermal Energy and Electricity Cost Long-Term Price Stability Issues Public Concerns Safety Terrorist threats Nuclear waste disposal Capital Cost Reactor Size/ Technology Reliability/ Refurbishment Timing Alberta nuclear by 217? All technologies must be certified by the CNSC 2 Key Economic Challenges Facing the Canadian Oil Sands Industry 1

11 Projected Oil Sands Industry Purchased Natural Gas Consumption 1,4 1,2 Does not include gas used for production of electricity at oil sands cogeneration facilities Annual Natural Gas Use (Bcf) 1, CAPP Pipeline Planning Case, Existing Technologies CAPP Moderate Growth Case, Existing Technologies CAPP Pipeline Planning Case, New Technologies CAPP Moderate Growth Case, New Technologies Sources: Canadian Association of Petroleum Producers; Strategy West Inc. Projected Oil Sands Industry Purchased Natural Gas Intensities.9 Purchased Natural Gas Intensity (Mcf/b) Does not include gas used for production of electricity at oil sands cogeneration facilities Pipeline Planning Case, Existing Technologies Moderate Growth Case, Existing Technologies Pipeline Planning Case, New Technologies Moderate Growth Case, New Technologies Sources: Canadian Association of Petroleum Producers; Strategy West Inc. Key Economic Challenges Facing the Canadian Oil Sands Industry 11

12 Oil Sands Industry Outlooks Comprehensive Project Database Used to develop aggregated industry outlooks Unadjusted Outlook Assumes all existing and proposed projects are developed and meet their announced startup dates Adjusted Outlook Project-by-project timing adjustments Project-by-project probability assessment 23 Bitumen Production Outlook - Unadjusted Case Unadjusted Bitumen Production (kb/d) 7, 6, 5, 4, 3, 2, 1, Primary & Experimental Peace River In Situ Cold Lake In Situ South Athabasca In Situ North Athabasca In Situ Athabasca Mining Key Economic Challenges Facing the Canadian Oil Sands Industry 12

13 SCO and Non-Upgraded Bitumen Supply Outlook - Unadjusted Case Unadjusted SCO and Non-Upgraded Bitumen (kb/d) 6, 5, 4, 3, 2, 1, Non-Upgraded Bitumen Synthetic Crude Oil CAPEX Unadjusted Case Production Increase (million b/d) Initial CAPEX (27 C$ per b/d) Average Annual Initial CAPEX (27 C$ billions) Mining & Extraction 2.2 $4, (Bitumen) $6.7 In Situ 2.5 $1,-$35, (Bitumen) $5.7 Incremental Production 4.7 $12.4 Upgrading 2.8 $5, (SCO) $1.9 Total CAPEX $23.3 Note: does not include sustaining capital 26 Key Economic Challenges Facing the Canadian Oil Sands Industry 13

14 Oil Sands Historical CAPEX Capital Spending ($ billions) $16 $14 $12 $1 $8 $6 $4 $2 $ Includes Includes Sustaining Sustaining Capital Capital Source: Canadian Association of Petroleum Producers Adjusted Industry Outlook - Project-by-Project Assessment Project Timing Lease evaluation Disclosure Application preparation and EIA Application review and approval Detailed engineering Internal approval Construction Phasing Project Probabilities Project status Owners Operating experience Financial capacity Technical capability Other factors Technology Existing operations Integration Timing 28 Key Economic Challenges Facing the Canadian Oil Sands Industry 14

15 Bitumen Production Outlook - Adjusted Case Adjusted Bitumen Production (kb/d) 4,5 4, 3,5 3, 2,5 2, 1,5 1, Primary & Experimental Peace River In Situ Cold Lake In Situ South Athabasca In Situ North Athabasca In Situ Athabasca Mining SCO and Non-Upgraded Bitumen Supply Outlook - Adjusted Case Adjusted SCO and Non-Upgraded Bitumen (kb/d) 4, 3,5 3, 2,5 2, 1,5 1, 5 Non-Upgraded Bitumen Synthetic Crude Oil Key Economic Challenges Facing the Canadian Oil Sands Industry 15

16 CAPEX Adjusted Case Production Increase (million b/d) Initial CAPEX (27 C$ per b/d) Average Annual Initial CAPEX (27 C$ billions) Mining & Extraction 1.3 $4, (Bitumen) $4. In Situ 1.4 $1,-$35, (Bitumen) $3.1 Incremental Production 2.7 $7.1 Upgrading 1.6 $5, (SCO) $6. Total CAPEX $13.1 Note: does not include sustaining capital 31 Comparative Industry Outlooks 5, SCO and Non-Upgraded Bitumen Supply (kb/d) 4,5 4, 3,5 3, 2,5 2, 1,5 CAPP 27 6 Pipeline Planning 1, CAPP 27 6 Moderate Growth EUB NEB Reference Strategy West Sources: Canadian Association of Petroleum Producers; Energy and Utilities Board; National Energy Board; Strategy West Inc. Key Economic Challenges Facing the Canadian Oil Sands Industry 16

17 Conclusions Oil sands projects are experiencing cost pressures but provide economically attractive investment opportunities at oil prices of US$6-7/b Cushing, OK). The oil sands industry is aggressively taking action to reduce its consumption of purchased natural gas. The many challenges facing the industry will cause some project delays and cancellations. These challenges are being addressed and the industry will continue to grow. 33 Thank You Questions? Please visit for oil sands project lists and other detailed oil sands industry information 34 Key Economic Challenges Facing the Canadian Oil Sands Industry 17