Crude Bitumen Supply Cost

 

Crude Bitumen Supply Cost

ST98

Updated March 2017

Supply cost calculations include revised carbon prices and emission limits leading up to 2030, as presented in the Climate Leadership Plan released by the Government of Alberta in November 2015. The Specified Gas Emitters Regulation (SGER) requires oil sands producers who produce more than 100 000 tonnes of greenhouse gases per year to reduce their emissions. One of the four methods of compliance with the SGER is a carbon levy, which had previously been earmarked at $15 per tonne over the emission allowance. Under the Climate Leadership Plan, the carbon levy increased to $20 per tonne on January 1, 2016, and $30 per tonne on January 1, 2017.

The province estimates that oil sands operations presently emit around 70 megatonnes (Mt) of greenhouse gases per year. Under Bill 25, Oil Sands Emissions Limit Act, a maximum of 100 Mt will be permitted from the oil sands sector in any given year. As producers approach this threshold, they may see their costs rise as they move to adopt equipment and technology to reduce or capture emissions. However, these higher costs have not been included in the current supply cost calculations as there is insufficient information available on potential technical advancements and their rates of adoption.

The legislation includes a 10 Mt allowance for new and expanded upgrading facilities (completing their first year of commercial operation after December 31, 2015) and excludes emissions from experimental schemes, primary production, enhanced recovery, and electricity cogeneration.

In October 2016, the federal government announced a pan-Canadian carbon pricing policy that would require all provinces and territories to have in place by 2018 a price-based or cap-and-trade system to reduce carbon dioxide (CO2) emissions by at least 30 per cent below 2005 levels by 2030. The policy sets a floor price of $10 per tonne of CO2 starting in 2018. That floor price will escalate by $10 per year, up to $50 per tonne in 2022. Revenue collected by the federal government would be refunded to the originating jurisdictions. Alberta has already implemented its own carbon pricing scheme, as outlined above, which will exceed the minimum federal requirements through to the end of 2020. Provincial and federal carbon pricing have been incorporated into the supply costs for 2016.

Results

The results of the AER’s supply cost analysis for crude bitumen projects are shown in Table 1.4 [HTML]. Input cost data are based in 2016 Canadian dollars, while the resultant supply cost outputs are converted to 2016 U.S. dollars based on a West Texas Intermediate equivalent per barrel. For in situ supply costs, results range between US$30 per barrel for brownfield projects to US$50 per barrel for higher-cost greenfield operations. Supply costs for greenfield mining projects range between US$65 and US$80 per barrel. The supply costs in 2016 for in situ and mining projects were lower than in 2015 primarily due to lower operating costs as a result of decreased prices for natural gas and electricity and a depreciated Canadian/U.S. dollar exchange rate.

Table 1.4