Updated March 2018
All values for 2017 have been estimated using data reported by industry up until the end of August 2017. Full-year estimates for 2017 were derived using these data, adjusting for seasonality.
The minimum constant dollar price required to recover all capital expenditures, operating costs, royalties, and taxes, as well as to earn a specified return on investment. The supply cost calculation determines a dollar value required per unit of production. For steam-assisted gravity drainage (SAGD) and standalone mining, this calculation gives a bitumen price at the wellhead per barrel. For a more meaningful comparison, the supply cost has been converted to a West Texas Intermediate (WTI) price, which accounts for transportation costs and exchange rates. This price can then be compared with current market prices to assess whether a project or resource is economically attractive. It can also be used to compare projects.
Although each project is unique in its location and the quality of its reserves, the supply cost analysis relies on generic project specifications and capital and operating cost estimates.
The generic projects represent proposed project types, including in situ SAGD (with and without cogeneration) and standalone mining with cogeneration. An integrated mine was not considered for this analysis because there are currently no proposed integrated bitumen projects in Alberta. Although significant production currently comes from cyclic steam stimulation (CSS) projects, few new CSS projects have been proposed; therefore, supply costs have not been determined for this recovery method. SAGD capital costs cover a wide range, with the lower range representing capital costs for additional phases where portions of the infrastructure are already in place and the upper range representing capital costs for greenfield projects.
A major component of operating costs is natural gas purchased for fuel and feedstock. The supply cost analysis uses the forecast for AECO-C over a project’s 30- to 40-year life. For 2017 and beyond, the analysis assumes a nominal discount rate of 10 per cent.
The Province of Alberta presented its Royalty Review Advisory Panel Report in January 2016. The review concluded that the previous royalty framework for oil sands was appropriate for pre- and post-payout allowances. As a result, royalty calculations for oil sands supply costs have not changed for the calculation of supply costs in 2017.
Potential production from existing facilities and supply from future projects are considered in Table S3.4 [HTML]. Production from future mining projects considers the cost of engineering and materials and the substantial amount of skilled labour required to expand existing projects and build new ones. The forecast also recognizes that other key factors, such as the forecast of oil prices and the length of the construction period, will affect project timing. In preparing the forecast, projects that have been approved or applied for are assessed for the likelihood of meeting the on-stream date and anticipated volumes. This involves weighing the risks for each project. Some projects, though considered, will ultimately not be included in the ten-year forecast due to the high level of uncertainty about whether they will come on stream in the next decade.
In Situ Bitumen
Similar to surface mining, the supply forecast of in situ bitumen includes production from existing projects, expansions to existing projects, and new projects. All approved and applied for projects have been considered, as listed in Table S3.5 [HTML], and the forecast assumes that all existing projects will continue producing at their current production levels over the forecast period. Projects considered for the forecast are assessed for the likelihood of meeting the on-stream date and volumes. This involves weighing the risks for each project. Some projects, though considered, will ultimately not be included in the ten-year forecast due to the high level of uncertainty about whether they will come on stream in the next decade.
The production forecast for future crude bitumen projects takes into account past performance of similar schemes, project modifications, crude oil prices and natural gas prices, light crude and bitumen price differentials, and the ability of North American markets to absorb increased volumes. The production forecast does not consider future export pipeline capacity since the AER does not have authority over approving pipelines that cross provincial or international borders. Factors that may affect the pace of development, such as the availability of labour and equipment, were considered in the forecast.
Table S3.6 [HTML] lists all future projects in the forecast. Production from future upgrading projects considers the cost of engineering and materials and the substantial amount of skilled labour required to expand existing projects and build new ones. The forecast also accounts for other key factors, such as crude oil price forecasts, the price differential between light crude oil and bitumen, the length of the construction period, and the market penetration of new upgraded volumes, which will affect project timing.
The AER uses crude bitumen production volumes submitted by operators to Petrinex in the forecasts. Petrinex is a secure, centralized information network used to exchange petroleum-related information.