Supply Cost of Alberta Oil Sands Farhood Rahnama, PhD Katherine Elliott Alberta Energy and Utilities Board 26th Annual North American Conference of the USAEE/IAEE Ann Arbor, Michigan, September 24-26, 2006 The authors have the sole responsibility for any error or omission in this paper. The Board may or may not agree with the content of this paper.
Regulatory Framework Government sets policy LEGISLATION Other Government Department s Regulators administer policy REGULATIONS Industry develops projects Public
The Alberta Energy and Utilities Board (EUB) is a quasi-judicial independent agency of the Government of Alberta. EUB s mandate is to ensure the discovery, development, and delivery of Alberta's energy resources and utilities services takes place in a manner that is fair, responsible, and in the public interest.. to provide for appraisal of reserves and productive capacity..appraisal of requirements for energy resources and energy in Alberta.
Resource and Energy Appraisal EUB annual report: Alberta s Reserves 2004 and Supply/Demand Outlook 2005-2014 http://www.eub.gov.ab.ca/bbs/products/sts/st98_current.pdf
Where are the Alberta Oil Sands? Source: EUB, Alberta s Energy Reserves 2005 and Supply/Demand Outlook 2006-2015, ST-98 2006
Bitumen Extraction Methods Steam Assisted Gravity Drainage (SAGD) Method
Bitumen Extraction Methods Cyclic Steam Stimulation (CSS) Method
Bitumen Extraction Methods Mining Process Hydrotransport pipeline Truck and shovel Pictures: Syncrude Canada Primary separation vessel
Comparison of Alberta Crude Oil and Bitumen Reserves 150 billions of barrels 100 50 0 In Situ Bitumen Mineable Bitumen Crude oil Initial established reserves Remaining reserves Cumulative production Source: EUB, Alberta s Energy Reserves 2005 and Supply/Demand Outlook 2006-2015, ST-98 2006
The Supply Cost Calculation
Key Economic Assumptions Natural Gas at Alberta plant gate Cdn $7/GJ Electricity pool price Cdn $63/MWh Canadian dollar exchange rate US $0.85 After tax rate of return 10 % Inflation 2 % per year Royalties Alberta oil sand regime Federal and provincial taxes Current rates
Challenges Facing the Oil Sands Labour shortages Energy prices Material costs Project cost overruns $ t
Oil Sands Bitumen Supply Costs by Production Method 30 25 Bitumen Supply Cost (Cdn$/bbl) 20 15 10 5 0-5 Mining Steam Assisted Gravity Drainage Cyclic Steam Stimulation Capital & Abandonment Royalties & Taxes Non-gas Operating Costs Natural Gas Electricity Revenues Source: EUB, Economics Group
In Situ Bitumen Supply Costs Company Project Total Supply Cost Cdn $/m 3 WTI Equivalent (US$/bbl) Athabasca Region Suncor Firebag* $173.86 $39.86 Husky Sunrise $151.70 $34.78 Petro-Canada MacKay * $152.09 $34.87 DeerCreek Joslyn $128.76 $29.52 JACOS Hangingstone $122.69 $28.13 Conoco Surmont $128.35 $29.42 Connacher Great Divide $162.51 $37.25 EnCana Christina Lake $124.45 $28.53 MEG Energy Christina Lake* $152.41 $34.94 Devon Jackfish $141.67 $32.48 EnCana Foster Creek * $109.45 $25.09 Cold Lake Region CNRL PAW * $153.61 $35.21 Imperial Oil Cold Lake * $142.49 $32.67 Blackrock Orion $173.69 $39.82 Husky Tucker $153.66 $35.23 Peace River Region Shell Peace River $130.76 $29.98 * Project includes a co-generation plant Source: EUB, Economics Group
Oil Sands WTI Equivalent Supply Costs Sensitivities: SAGD Project Natural Gas Price -/+ 20% Non-gas Operating Cost -/+ 25% Capital Costs -/+ 10% 28 29 30 31 32 33 34 35 36 37 38 WTI Equivalent Supply Cost (US$/bbl) Source: EUB, Economics Group
Oil Sands WTI Equivalent Supply Costs Sensitivities: CSS Project Natural Gas Price -/+ 20% Non-gas Operating Cost -/+ 25% Capital Costs -/+ 10% 27 28 29 30 31 32 33 34 35 36 37 38 39 40 WTI Equivalent Supply Cost (US$/bbl) Source: EUB, Economics Group
Oil Sands Bitumen Supply Cost: Cogeneration versus Steam Generators 25 20 Bitumen Supply Cost (Cdn$/bbl) 15 10 5 0-5 Cogeneration Facility Steam Generators Capital & Abandonment Royalties & Taxes Non-gas Operating Costs Natural Gas Electricity Revenues Source: EUB, Economics Group
In Situ Bitumen Extraction and Gas Price Limits Blackrock (Orion) Connacher (Great Divide) Suncor (Firebag)* Husky (Tucker) Husky (Sunrise) MEG Energy (Christina)* CNRL (PAW)* Shell (Peace River) Devon (Jackfish) Conoco (Surmont) DeerCreek (Joslyn) Imperial Oil (Cold Lake)* EnCana (Christina Lake) JCOS (Hangingstone) Petro-Canada (MacKay)* EnCana (Foster Creek)* WTI US$40/bbl @ 70% parity $0 $5 $10 $15 $20 Gas Price Limit (Cdn$/GJ) Assumed WTI price at US$40/bbl Source: EUB, Economics Group
Oil Sands WTI Equivalent Supply Costs Sensitivities: Mining Project Natural Gas Price -/+ 20% Non-gas Operating Cost -/+ 25% Capital Costs -/+ 50% 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 WTI Equivalent Supply Cost (US$/bbl) Source: EUB, Economics Group
Oil Sands WTI Equivalent Supply Costs Sensitivities: Mining and Upgrading Project Natural Gas Price -/+ 20% Non-gas Operating Cost -/+ 25% Capital Costs -/+ 50% 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 WTI Equivalent Supply Cost (US$/bbl) Source: EUB, Economics Group
Mining with Upgrading Gas Price Limits WTI US$40/bbl @ 70% parity OPTI/Nexen Shell Syncrude CNRL Suncor $0 $5 $10 $15 $20 $25 $30 $35 Gas Price Limit (Cdn$/GJ) Assumed WTI price at US$40/bbl Source: EUB, Economics Group
Alternative Fuel Comparisons WTI Equivalent Supply Costs and Assumed Gas Price 40 WTI Equivalent Supply Cost (US$/bbl) 35 30 25 20 4 5 6 7 8 9 10 Natural Gas Price (Cdn$GJ) Steam Assisted Gravity Drainage Cyclic Steam Stimulation Mining Mining with Upgrading Alternative Fuel (Case 1) Alternative Fuel (Case 2) Source: EUB, Economics Group
Alberta Crude Bitumen Production and Forecast 3000 actual forecast 2500 Thousand barrels per day 2000 1500 1000 Synthetic Crude Oil Non-Upgraded Bitumen In situ Surface mining 500 0 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Source: EUB, Alberta s Energy Reserves 2005 and Supply/Demand Outlook 2006-2015, ST-98 2006