Like the puppets that swivel out in sequence whenever old Swiss clocks chime the hours, one of two standard predictions emanate from commentators whenever world oil prices change significantly.
When prices rise, it’s gloom for the global economy and criticism of oil producers for greed and over-investment. When prices fall (as now), it’s cheer for the global economy and gloom for oil producers and Canada’s economy (to which the energy sector is a sizable contributor).
Some mainstream media and other casual observers offer sound-bite friendly but simplistic “winners” and “losers” narratives. The oil sands industry typically winds up on the “losers” list when world benchmark oil prices fall. This is because it’s commonly assumed that unconventional oil, such as shale and oil sands, needs relatively high benchmark crude prices to remain profitable.
Such generalizations about the oil sands industry and its economic viability are misleading. That’s why Suncor’s Investor Relations team has put together a handy slide showing how oil sands stacks up against other North American oil plays, such as tight oil (Bakken) and offshore oil (Newfoundland) in terms of economics and customer value.
Oil plays compared
Slide 15 in this presentation (PDF) takes into account initial capital investment (the outlay needed to get a project up and running before first oil is produced) as well as operating costs (funds needed to sustain ongoing production) and the decline rate (expected rate of decrease of oil production over time as a play is worked out).
Also included are the quality and characteristics of the oil produced, which determines what price it will fetch in the market (as some crudes require more processing than others and produce different values of end-products when refined, whether its gasoline, lubricants, or something else).
What this slide shows is that while different plays have different strengths and weaknesses, oil sands plays can be economically competitive compared to other North American sources.
This is especially apparent when the oil sands plays in question are developed by established operators well beyond initial capital phase and have experience, time horizon and production volumes to keep operating costs low.
Despite recent oil price changes, many remain confident the long-term future for oil sands development is bright. It is why new projects (PDF), in various phases of development, remain in play (including Fort Hills, Suncor’s newest oil sands mining project).
While future oil prices are uncertain, two things probably are: Oil price commentary will continue to flow and so will barrels of bitumen from Canada’s oil sands.