Oil sands production growth to continue despite oil price slump, IHS says

ENGLEWOOD, Colorado -- IHS expects continued oil sands production growth through 2020, albeit lower than what would be expected had prices remained higher, according to a new production forecast by the Englewood, Colorado-based organization.

Oil sands production is forecast to grow by 800,000 bpd by 2020, a level that will keep Canada among the largest sources of growth in global oil supply throughout that period. Canada will remain the third largest source of supply growth in the world, a position it has held since 2005.

The updated production forecast from IHS is 280,000 bpd less than a previous outlook prior to the collapse in crude oil prices, which now stand at roughly half the level of a year ago. However, despite the lower crude prices, oil sands production is still expected to register strong growth through 2020 because:

• Projects that are already up and running are expected to continue to operate. IHS estimates that, on an operating (or cash) cost basis, existing oil sands mining and steam-assisted gravity drainage (SAGD) in situ facilities would have required on average a WTI breakeven price of $42/bbl and $30/bbl, respectively.
   
• A sizeable amount of projects already under construction (where significant capital has already been spent) will continue through to completion. Nearly 1 MMbpd of oil sands production capacity existed in various stages of construction at the end of first-quarter 2015.

“There is plenty of momentum—via projects already under construction—to support oil sands production growth through 2020 even in this new lower oil price environment,” Birn said. “Beyond 2020, we expect oil sands growth will continue but the trajectory of growth depends on projects that have yet to come forward.”

Among the factors Birn said that could influence the timing and nature of fresh investment in new oil sands projects include: the pace of the recovery of global oil prices, the impact of lower prices on the cost structure of competitive sources of supply, and the ability of governments and industry to maintain the relative competitive position of the oil sands.  

Competitive pressures such as project costs, timing of non-rail transportation to new markets, and shifting fiscal terms in Alberta (from higher corporate taxes, carbon prices, and potential increases in royalties) will help shape the longer-term growth of the Canadian oil sands.