A new report by business information provider IHS Markit says the cost of building and operating oil sands projects has fallen dramatically in recent years and total oil production is expected to rise by another 1 million barrels per day (mbd) by 2030. Entitled Four Years of Change, the report also found that external factors, such as price uncertainty caused by pipeline constraints, are contributing to a more moderate pace of production growth than in years past.
The cost to construct a new oil sands project is anywhere between 25 percent and a full one-third cheaper than in 2014, with deflation in capital costs and reengineering playing major roles. Operating costs for both oil sands mining operations with an upgrader and steam-assisted gravity drainage (SAGD) facilities fell by more than 40 percent on average from 2014 to 2018. Increased reliability was the biggest factor in the cost savings, which went as high as 50 percent in some cases.
Cost improvements have lowered the breakeven oil price for new oil sands projects. In the report, IHS Markit estimated that the lowest-cost oil sands project (expansion of an existing SAGD facility) required a more than USD $65 per barrel price for West Texas Intermediate (WTI) crude to break even in 2014. Today, the breakeven price has fallen to the mid-$40 per barrel range. Likewise, an oil sands mining project without an upgrader required a near-USD $100 per barrel breakeven price in 2014 compared to around USD $65 per barrel in 2018.
The report said the western Canadian oil market continues to move through a period of price uncertainty due to significant delays for advancing pipeline projects and noted the lack of transport capacity forced many producers to take deep discounts for their barrels late in 2018. Growth in the Canadian oil sands will continue, albeit at a slower pace, and IHS Markit expects year-on-year oil sands production additions over the coming decade will average beneath 100,000 barrels per day (b/d) per year—down from average annual rate of 160,000 b/d or more during 2009-2018. The reduced production outlook will nevertheless be sufficient for oil sands to top 4 mbd by 2030, a million barrel per day increase from 2018.