BUSINESS

Oilsands Could Lose $121 Billion If Prices Stay Low: Analyst

02/24/2015 02:30 EST | Updated 02/25/2015 01:59 EST

The amount of money flowing into Canada’s oilsands will drop by nearly two-thirds in the next few years, but prices are just high enough to keep production rolling, says a new analysis from Wood Mackenzie.

The U.K.-based energy research firm estimates that the 32 commercial oilsands projects it surveyed will see $23 billion less in cash flow over the next two years than they otherwise would have seen. That’s a 62-per-cent decrease from last year’s levels.

Many recent forecasts have predicted oil will stay in the $60-a-barrel range for a prolonged period, and at those prices, those projects will bring in $121 billion less over their lifetime than than earlier forecast, Wood Mackenzie principal analyst Callan McMahon said in a statement.

But McMahon doesn’t see reduced production in the oilsands, thanks to oil prices that are just barely high enough for oilsands operators to eke out a profit.

"Even if projects temporarily operate at a loss, shut-ins are not expected; and with the costs sunk, projects totalling 458,000 [barrels per day] of bitumen are set to start production in 2015-2016," he said.

Oil production in Canada is forecast to grow 3.5 per cent this year, according to the Canadian Energy Research Institute.

Going forward, McMahon sees the costs of production in those oilsands projects at $41 to $47 per barrel. The price for Western Canadian Select oil closed at $45.85 on Monday.

(Planned future projects have much higher per-barrel cost estimates, hovering around somewhere around $80, which is why so many planned projects have been shelved.)

Alberta's finance ministry estimated on Tuesday the oil price rout will cost the province 31,800 jobs through the end of this year. However, it would take a loss of 80,000 jobs to send Alberta's job growth into negative territory, and the province still expects employment to grow by about 1 per cent this year.

McMahon suggested companies in the oilsands will stick it out, though the large players (Imperial, CNRL, Suncor and others) are in a much stronger position to weather hard times.

Other market observers have also noted that production is not falling, as prices have stabilized at levels where even the most expensive fields (Canada’s oilsands, U.S. shale oil fields) can continue to extract oil.

That has some analysts worried about an oil glut in the U.S., and the prospect of a prolonged period of relatively low oil prices.

The “new normal” of low oil prices has some insiders more worried than Wood Mackenzie seems to be. The president and principal executive officer of Canadian Natural Resources Ltd. (CNRL) recently warned the oilsands face a “death spiral” if producers don’t figure out how to cut costs.

Steve Laut said costs have spiralled out of control to the point where oil exporters were making three times as much profit in 2004, with $40 oil, than they were last year, with oil above $100 a barrel.

Laut’s own forecast has oil prices trading at between $60 and $75 in the near term, well above the US$46 per barrel Canadian oil exporters were getting Monday, and above the US$59 per barrel for brent crude, the global benchmark.

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