Oil sands producers set to become more competitive

Next-generation solvent technology is lowering costs, and the long-term impact could be immense.

Joe Gemino 11 January, 2017 | 6:00PM

Oil sands projects have long been characterized by high capital requirements and production costs. Even though production costs have drastically decreased over the past two years, most expansion projects still aren't economic at US$55 per barrel of West Texas Intermediate (our mid-cycle forecast) and struggle to compete economically with other global supply sources. And there is little room to reduce costs further with current extraction methods.

In the search for lower costs, producers have spent considerable time and resources on testing new technology. For oil sands producers, that research has paid off in the form of solvents. Solvent-assisted technology should provide producers with the cost savings needed to be competitive with other marginal supply sources (deep water and higher-cost U.S. shale, for example). However, commercial implementation of solvent-assisted technology is not expected for at least a few more years as low oil prices continue to constrain expansion investment decisions and project development timelines are lengthy.

Oil sands basics

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cenovus Energy Inc5.56 CAD-1.59
Husky Energy Inc3.45 CAD-1.99
Imperial Oil Ltd14.01 USD-2.23
Suncor Energy Inc17.64 CAD-1.18

About Author

Joe Gemino

Joe Gemino  Joe Gemino, CPA, is an equity analyst for Morningstar covering Canadian oil and Gas companies.

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