Skip to comments.Report: Most Canada Oil Sands Crude Produced At A Loss
Posted on 08/23/2015 12:29:40 PM PDT by thackney
More than three-quarters of Canada's daily output of 2.2 million barrels of crude from oil sands is being produced at a loss at current prices, research from analysts at TD Securities shows, although producers are unlikely to halt operations.
Only two mining and upgrading projects - Canadian Natural Resources Ltd's Horizon project and Suncor Energy's Millennium mine - are producing synthetic crude for less than its current outright price around $36 a barrel, analyst Menno Hulshof said on Thursday.
Every thermal oil sands player is bleeding cash on every barrel produced with U.S. crude around $41 and the Canadian heavy benchmark, Western Canada Select (WCS), around $24 a barrel, according to a report released by the bank on Wednesday.
That means only around 450,000 barrels per day of oil sands production is in the black, a bleak picture for the region which holds the world's third-largest oil reserves but is also saddled with high operating costs.
There are two types of oil sands projects: thermal projects, in which steam is pumped underground to heat reservoirs so tarry bitumen can flow to the surface, and strip-mining projects. Most mining projects upgrade the bitumen into refinery-ready synthetic crude, while thermal projects tend to blend the bitumen into lower-priced heavy crude such as WCS.
(Excerpt) Read more at rigzone.com ...
“...being produced at a loss...”
How does this make any sense for them?
Because it would cost them more to shutdown in the long run.
I can understand that reasoning in the short term.
Two questions for you.
1. At what point do they break even (CPB)
2. Are we going back to the $90 to $100 dollar CPB anytime soon?
the price wont stay there because that is well below the marginal cost of production at the current level of world demand....
U.S. crude oil production is now falling...
investments into shale oil production dried up as the price of crude oil fell below $60/bbl. Companies arent interested in putting new capital to work, and because these oil fields deplete, that means crude production is falling....
Over just the past decade global oil consumption increased by an average of 900,000 bpd each year, and consumption has risen in 18 of the past 20 years. If we look back 30 years, global oil consumption increased by an average of 1.1 million bpd annually....
Global demand growth for crude oil is projected to continue....
This week Algeria wrote a letter to OPEC questioning the wisdom of their current strategy. The letter asked OPEC to consider taking some form of action to bolster oil prices, as many OPEC countries need oil prices to be at least $100/bbl to balance their budgets. CNN recently reported that this year Saudi Arabia alone has burned through $62 billion of its cash reserves. By my calculations, the steep slide in the price of oil has cost Saudi Arabia around $200 billion in the past year....
Longer term, irrational markets return to pricing based on fundamental factors like the cost to produce something and make a profit. In the long run, $40/bbl oil is not a price sufficient to entice enough oil producers to produce at a level that can satisfy global demand. Hence, prices will rise.
The price of Western Canada Select, the country’s benchmark crude grade, is trading for around C$55 ($45) per barrel, up nearly C$20 per barrel from its mid-March lows thanks to improved market access and U.S. refinery demand ramping up after seasonal maintenance.
The price rise is balm for an oil sands sector that not long ago was preoccupied with cutting spending and lowering costs.
Though no one is yet forecasting a return to fat profits that producers enjoyed when oil rose above $100, current prices are robust enough to cover costs and push netbacks, an industry term for gross profits per barrel, into the black.
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If I could predict the price of oil, I would have to work for a living. Way too many factors effect the price of oil beyond the oil industry.
How much do exchange rates come into play when these Canadian producers figure out their price points? At $41/barrel I can see why a producer in Texas would be hurting, but the Canadian dollar has declined considerably over the last year and is now trading at $1.32 CDN to $1.00 US. Even though oil is priced on the spot market in U.S. dollars, most of the production costs are paid in the local currency ... which means the real issue is whether Canadian producers are making or losing money at a price of $52.80 CDN per barrel. Isn’t this the case?
see post 7
Canadian oil isn’t worth as much as US oil. It’s closer to a solid than a liquid, and it requires more money and work to make it into something useful, so it usually sells at a discount to the WTI benchmark. (Brent has been selling at a premium to WTI, but in recent months the margin has narrowed as pipeline capacity in the US has improved).
Thank you. I appreciate the response.
You know I believe you are “the man” about all of these things.
If I sell hamburgers for a buck when it costs me a buck fifty to make them,
I should just keep doing that because I think I can sell them for 2 bucks soon?
Economics make my brain hurt.
I’m guessing it doesn’t take a decade to set up a burger joint along with several billion dollars.
If you invested several billion dollars in your burger joint a couple years ago, and have a few years to go to break even if the prices climb back up a bit, what would it do to you to shut down now?
Oil Sands facilities, like offshore platforms, are very long term projects with long term economics. Oil will not stay below the price to produce in the long term.
If I could predict the price of oil, I would NOT have to work for a living.
That actually made sense to me!
While they are not shutting down existing oil sands production, many are putting on hold the planned expansions.
“Make it up in volume” - sure.
Volume only means you bleed out faster.
Something shall have to be done to make the per-unit production cost LOWER, and nothing creates greater incentive for that than steadily losing ground.
Can the steam be generated for a lower cost? Can the injection system be modified to make more efficient use of the steam generated? How about modifying the injection system to use emulsifying solutions that can be recycled and re-injected time after time?
I am sure that there are plenty of chemical engineers on site that are trying these kinds of solutions and many more. Can they get the improvements into the process on a timely and cost-effect manner?
That’s funny because I didn’t know your current situation. I didn’t pay much attention to that part.
I really have to proof read myself carefully these days. I can’t believe some of the typing errors I make.
I should have added, they are not just going along business as usual waiting for the price to climb. Cost cutting measures, job layoffs, etc have been extensive.
Will someone buy them out right before the price shoots back up to profitable levels?
I’ve become jaded by the economic manipulations over the last decade or so. It seems like everything that is getting tanked is for the benefit of some oligarch.
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