[ROCKMAN]

" You don't want to be the 'leaf floating downstream' as events propel us forward." Great point and epitomizes my career as a petroleum geologist. I decided to major in geology because it was interesting and I was just f*cking happy to be alive in 1970. LOL. Obviously far from being the best choice to avoid being a floating leaf. But if your job is an important part of the economy (and thus justifying your wages) what career won't involve some degree of floating if it's dependent upon a health economy? Some better... some worse. But unless you can significantly separate yourself from the economy you're stuck in the stream with everyone else.

It's not like the joke about two friends running from a hungry bear: your friend's speed is more important the bear's. More like the two of you running from a pack of hungry wolves: one of you will be taken down first. But you're both lunch eventually. LOL.

[joyfulbozo]

That's great article. I actually had no idea what was it all about. Thank you. Have a nice day.. !!!

[ROCKMAN]

Interesting. So at current prices the oil sands aren't economical. In that case companies must have lost billions back when the first 1 million bbl per day of production was brought on line. LOL:

As far as the prices needed to continue developing the oil sands I let others continue to beat that dead horse. But I will offer one simple statistic that can’t be denied: By 2004 oil sands production had reached 1 million bbl/day. During the previous 10 years when that production was developed the inflation adjusted price of oil ranged from a low of $11.91/bbl to a high, in 2014, to $37.66/bbl. Granted operations may be a good bit more expensive today but even with the latest price slide oil is currently selling for twice what it was in 2004 and 6X what is was during the lowest price during that period. A tad difficult IMHO to argue the oil sands developers have been doing their thing at a loss for the last 20 or so years given they've more than double production in the last 10 years.

So the idea is that they loose money on every bbl but make it up on volume? LOL.

[kuidaskassikaeb]

Oil sands have a very poor EROEI (Energy Return Over Energy Invested). The EROEI is only 5:1 to 2.9:1. Basically you are expending almost as much energy to produce it as you get from using it as an energy source. You want the proof? Here it is.

I think that the EROI of tar sands is kind of besides the point. What Hughes doesn't point out is that most of the energy input comes from stranded natural gas not from the market. They are basically taking 2 things nobody wants gas that's not worth the pipeline and something like a hockey puck and making something people want. It really gas to liquids economics, the EROI could be less than 1 and they wouldn't care.

Still I think it's really hard to tell if they are or are not making money. If governments want to do something it doesn't have to make money, look at the Iraq war. Brian Harper is basically an oil industry lobbyist, and almost all of the tar sands are on public land, and it looks like the government has decided to take equity stakes rather than royalties, and take on a lot of the risk. It appears that they are even selling bonds to finance refineries. The government has other costs, and that doesn't even start to take into account final cleanup costs and environmental costs that can't be put into the market place. The fact that with record production Alberta went broke, suggests that the province at least, is not doing well, but in the end you could make a lot of assumptions and come up with a number, but nobody who didn't already agree with you would believe it.

[Graeme]

Material Risks: How Public Accountability Is Slowing Tar Sands Development

A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) and Oil Change International quantifies for the first time the financial and carbon impact of public opposition to pipelines and other expanded investment in tar sands production.

The report, “Material Risks: How Public Accountability Is Slowing Tar Sands Development,” presents market analysis and industry data to support its estimates on lost sales revenue to the tar sands industry as public opposition creates delays and project cancellations. The report also describes other market forces that are putting tar sand developers at a growing disadvantage.

The report puts tar sands development lost revenue at $30.9 billion from 2010 through 2013, in part due to the changing North American oil market but largely because of a fierce grassroots movement against tar sands development. The report attributes 55% of the lost revenue, or $17 billion, to the diverse citizen protests against pipelines and the tar sands.

A significant segment of opposition, the report notes, is from First Nations in Canada who are raising sovereignty claims and other environmental challenges.

Among the report’s findings:

Market forces and public opposition have played a significant role in the cancellation of three major tar sands projects in 2014 alone: Shell’s Pierre River, Total’s Joslyn North, and Statoil’s Corner Project. Combined, these projects would have produced 4.7 billion barrels of bitumen that would in turn have released 2.8 billion metric tonnes of carbon dioxide (CO2) into the atmosphere. This is equivalent to the emissions of building 18 new coal plants that would last 40 years each.

Tar sands producers lost $30.9 billion from 2010 through 2013 due to transportation bottlenecks and the flood of crude coming from shale-oil fields. Of that, $17.1 billion, or 55 percent, can be attributed to the impact of public-accountability campaigns.

The combination of risks facing the industry has the potential for canceling most or even all of the planned expansion of the industry in Canada.

Rather than seeing more than a doubling of output from 2 million barrels of oil per day to 4.8 million barrels per days — as the industry predicts — the report projects flat production levels.

Tar sands producers have lagged, with 9 of 10 leading tar sands producers in Canada underperforming the broader stock market in the last five years.

Analysts have recently downgraded their outlook for tar sands production.

priceofoil

[rockdoc123]

when talking about heavy oil there has to be a distinction between the price at which new developments will take place versus the price at which current production will continue. The latter is much lower of course. This article makes the case that current prices aren't a problem for producers even with the large discount in place against WTI. Get rid of more bottlenecks and some of that discount disappears as well.

http://www.mining.com/canadas-oil-sands ... ces-37783/

Publicly traded companies are not going to operate at a loss for any length of time, the major Canadian shale producers are still churning out decent profits (eg: Suncor)

Suncor's second quarter press release:

Suncor Energy Inc. delivered solid financial results in the second quarter of 2014, including operating earnings of $1.135 billion ($0.77 per common share) and cash flow from operations of $2.406 billion ($1.64 per common share), compared to $934 million ($0.62 per common share) and $2.250 billion ($1.49 per common share), respectively, in the prior year quarter. Current quarter results were led by increased production at Oil Sands and strong upstream price realizations, partially offset by lower production volumes in Exploration and Production, as well as higher share-based compensation expense and natural gas input costs. For the twelve months ended June 30, 2014, free cash flow increased to $3.599 billion, compared to $2.167 billion for the twelve months ended June 30, 2013.

Net earnings were $211 million ($0.14 per common share) for the second quarter of 2014, compared with net earnings of $680 million ($0.45 per common share) for the prior year quarter. Net earnings for the second quarter of 2014 were negatively impacted by after-tax impairment charges of $718 million on the company's interest in the Joslyn mining project, $297 million against the company's Libyan assets, and $223 million in Oil Sands following a review of certain assets that no longer fit with Suncor's previously revised growth strategies and which could not be repurposed or otherwise deployed. These factors were partially offset by after-tax earnings of $32 million related to a reserves redetermination in the Exploration and Production segment, and the impact of an after-tax foreign exchange gain on the revaluation of U.S. dollar denominated debt of $282 million, compared to an after-tax foreign exchange loss of $254 million in the prior year quarter.

[Graeme]

Suncor profit drops on prices, weaker production

Suncor Energy Inc , Canada's largest oil and gas company, said on Wednesday its third-quarter profit fell by nearly half on lower production and weaker commodity prices.

Suncor said its net income for the quarter was C$919 million($822 million), or 63 Canadian cents per share, down 46 percent from C$1.69 billion, or C$1.13, in the third quarter of 2013.

Adjusted earnings, which excludes most one-time items, fell 36 percent to C$1.31 billion, or 89 Canadian cents per share, from C$1.43 billion, or 95 Canadian cents.

The adjusted result beat the average analyst forecast of 77 Canadian cents per share, according to Thomson Reuters I/B/E/S.

Suncor, the largest oil sands producer, is ramping up its production from the world's third-largest crude oil reserve. It said output from its northern Alberta operations rose 3.9 percent to 411,700 barrels per day.

reuters

[Graeme]

TransCanada's Proposed Energy East Tar Sands Pipeline Faces a Sea of Opposition

A new tar sands pipeline called Energy East proposed by TransCanada -- the company behind the contentious Keystone XL tar sands pipeline -- faces considerable opposition and numerous hurdles that make this project far from a done deal. The project application for the massive new 1.1 million barrel per day pipeline project and supertanker loading facilities was filed today. Traversing 4,600 kilometers (2,858 miles), the $12 billion pipeline is designed to carry tar sands crude oil from Alberta's tar sands across Manitoba, Ontario, Quebec, and New Brunswick, where it will be loaded to tankers, many of which are destined for the United States. To do this, the proposal involves the construction of marine terminals at Cacouna, Quebec on the Saint Lawrence River and Saint John, New Brunswick in the Bay of Fundy, from where the majority of transported crude would be loaded onto large tankers for export to refineries in the U.S. Gulf Coast and around the world. It is no wonder that this gigantic and costly project has faced such stiff opposition from a wide range of interests since rumors of TransCanada's plans surfaced. It threatens land and water from Alberta to New Brunswick, and puts coastline from the Bay of Fundy, all along the Eastern Seaboard to the U.S. Gulf Coast at risk of a major oil tanker spill. And, despite claims from TransCanada, Energy East would do little help to reduce overseas crude oil imports, as most of the crude processed by Eastern Canadian refineries is already coming from North America, and Energy East is meant primarily as an export pipeline. Opposition to this risky project is running high, with around 2,000 people joining a protest in Cacouna, Quebec earlier this month. In addition to the risks to land and water, the climate change impacts associated with extracting 1.1 million barrels per day of tar sands are unacceptable; we must stop this dirty energy project in favor of clean, renewable energy.

huffingtonpost

On Proposed Mega-Pipeline, Tar Sands Opponents Vow: 'It's Not Going to Happen'

[rockdoc123]

Suncor profit drops on prices, weaker production

still wildly positive and beat the street's projection.....and that at reduced prices. Which only goes to support my point. The oil sands are economical now and will be at even lower prices, new projects will get put on hold but production will continue.

[Graeme]

Production may well decline if there is a change in government.

And with a federal election expected next year, the industry could well face a new government in Ottawa that would be more determined than the current one is to establish a national plan to reduce carbon emissions by reining in the oil sands. Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, acknowledges that the oil sands’ emissions will increase so long as production expands at projected rates.

[Graeme]

Public opposition has cost tar sands industry $17bn, says report

Anti-tar sands campaigns have cost the industry a staggering $17bn (£11bn) in lost revenues, and helped to push it onto the backfoot, according to a study by the Institute for Energy Economics and Financial Analysis (IEEFA), and Oil Change International.

Another $13.8bn has been lost to transportation bottlenecks and the flood of cheap crude coming from shale oil fields, says the Material Risks report, which presents the first quantification of the impact that environmental campaigners have had on the unconventional energy business.

“Industry officials never anticipated the level and intensity of public opposition to their massive build-out plans,” said Steve Kretzmann, Oil Change International’s executive director. “Legal and other challenges are raising new issues related to environmental protection, indigenous rights and the disruptive impact of new pipeline proposals. Business as usual for Big Oil – particularly in the tar sands – is over.”

The industry is currently facing a decline in increased capital expenditure on new tar sands projects, due to problems in transporting the crude, which the study links to public campaigns.

While industry profits continue to fall, the report says that lack of market access helped to stymie three major tar sands enterprises in 2014 alone – Shell’s Pierre River, Total’s Joslyn North and Statoil’s Corner project – which together would have emitted 2.8bn tonnes of CO2.

Protests by environmentalists have been swollen by the presence of first nations communities, angry at the environmental damage they fear the industry could wreak on their ancestral lands.

“The taking of resources has left many lands and waters poisoned – the animals and plants are dying in many areas in Canada,” says the Idle No More manifesto. “We have laws older than this colonial government about how to live with the land.”

“Tar sands producers face a new kind of risk from growing public opposition,” said Tom Sanzillo, director of finance at IEEFA, and one of the lead authors on the report. “This opposition has achieved a permanent presence as public sentiment evolves and as the influence of organisations opposed to tar sands production continues to grow.”

theguardian

[ROCKMAN]

I always find it interesting that folks who have no financial connection to the oil sands development argue it's not economic and yet folks with direct access to the data have invested many $billions in transporting production that "can't be sustained". And now another company is willing to invest $11 BILLION in more infrastructure to transport oil that "won't ever be produced". Obviously a lot of Canadian environmentalists must believe the oil sands are commercially viable. Otherwise why would they waste time and money trying to prevent the construction of new pipelines if there won't be oil to move thru them? Maybe the folks developing the oil sands found some clever way to make the "uneconomic" worth doing. But pipelines only make a return on investment based on how many bbls they carry: not enough oil...big financial lose with zero upside.

Reuters - TransCanada Corp said on Thursday it has filed for regulatory approval of its C$12 billion ($10.8 billion) Energy East pipeline, the largest, longest and most expensive ever proposed for the country, as it pushes ahead with a plan to ship oil sands crude to eastern refineries and Atlantic export ports. Canada's No.2 pipeline operator said it has filed the formal project application with the National Energy Board, officially starting the clock on a regulatory review of the proposed 2,860 mile line, a process expected to last about 18 months. The company wants to convert an existing natural-gas pipeline to carry 1.1 million barrels per day of crude as far as eastern Ontario, then add new pipe to Quebec and New Brunswick.

The line is expected to open new export markets for Canadian oil producers whose output is rising even as increasing supplies of shale oil from U.S. deposits cut into demand for the country's oil from Midwest refiners, now Canada primary export market. "We have seen crude production grow in North America quite substantially," Russ Girling, TransCanada's chief executive, told reporters at a press conference. The Energy East line is expected to displace some of the about 700,000 bpd now imported by eastern Canadian refineries, Girling said. Canada's regulatory process and timing is set by law, with the federal cabinet having the final say on whether the project can proceed.

[Graeme]

Not according to Carbon Tracker. They see a significant risk for investors.

[rockdoc123]

Carbon tracker is full of crap if they think all of the oil sands projects need $95/bbl.

BMO did a study mid last year that appeared in the financial post:

Worldwide supply costs for oil-weighted companies edged up 7% in 2012 to US$99.66 per oil-equivalent barrel, from US$92.73 per barrel in 2011, on higher reserve replacement costs, according to new research by BMO Capital Markets. The supply cost is essentially a break-even price, or the West Texas Intermediate oil price companies need in order to recover costs, plus earn a 10% return on capital.

The report pegs supply costs for oil sands projects in the range of US$50 to US$90 per barrel. That compares to the US$70 to US$90 a barrel needed to blast light, sweet crude through underground fissures in North Dakota’s Bakken shale, the Eagle Ford play in Texas and Colorado’s Niobrara shale, the bank said.

Importantly both of these analyses are looking at break even costs or cost of supply which refer to all in land cost/mining/drilling through to production whereas lifting cost (refering to existing production and what the operating cost is per bbl) is a lot lower.

“There’s a lot of oil sands projects that are being invested in on the basis of supply costs as low as US$50, so one of the key takeaways here is really oil sands isn’t that marginal a source of supply,” Randy Ollenberger, managing director, equity research at BMO in Calgary, said in an interview. The world’s No. 3 crude deposit “is actually quite economic in the global context.”

It is a message that runs counter to a history rife with cost overruns on project expansions and stalled pipeline developments that have contributed to price discounts for Alberta’s heavy crude, frustrating investors.

The first phase of Exxon-controlled Imperial Oil Ltd.’s 110,000-barrel-a-day Kearl mine, for instance, came with a $12.9-billion price tag — as much as 40% above earlier estimates.

and Bank of Nova Scotia reiterated that opinion in September. Note that in large part the decrease in differentials between WTI and Canadian heavy crude has helped make rail shipping quite economic:

How expensive are oil sands projects to develop?

In contrast, a report from Bank of Nova Scotia (TSX: BNS)(NYSE:BNS) earlier this year indicated that the development costs for the oil sands are among some of the lowest for crude in North America. The report found the lowest breakeven costs were in the Bakken in South Dakota at $44.30 per barrel, while the highest were in the Permian shale in Texas at $81 per barrel.

In fact, the average breakeven cost for U.S. oil production is $72 per barrel; Canadian oil production averages between $63 and $65 per barrel, with the oil sands averaging $65 per barrel. This makes the oil sands’ average breakeven price lower than Canadian light crude production, which was $66 per barrel, and lower than a number of U.S. oil plays, including the Permian and Nioabrara.

This is in stark contrast to claims by oil sands operators that rising costs, volatile crude prices, and lack of pipeline capacity are making projects too expensive to develop. But these costs don’t tell the full story alone. A key issue for oil sands operators is that heavy crude produced from the oil sands trades at a considerable discount to West Texas Intermediate.

It was only six months ago that Canadian heavy crude was trading at a discount to WTI of around 40%, but this has narrowed over that period to 26%. There are fears among industry insiders and analysts that this price differential will widen as pipeline capacity constraints and growing U.S. crude production reduce demand for Canadian crude.

[Graeme]

They're talking about Future tar sand exploitation. Here is a link to their website about said deposits.

[rockdoc123]

They're talking about Future tar sand exploitation.

exactly what do you think a break even analysis suggests?...it is exactly that. What price is required for new projects to be brought on stream....which is exactly what Bank of Montreal and Scotiabank were referring to. I think I will take an investment banks analysis over a climate group who knows nothing about the business, at least the banks have considerable skin in the game so they vote with their wallets so to speak

[Sixstrings]

I guess Desu's posts are helpful, sparking discussion and talking about PEAK OIL again and the basics again.

On the other hand.. EROEI?



I heard a lot of folks on this very forum talking about that -- years ago, now -- and now they don't talk about it.

That was like six years ago. So what's it gonna be six years from now, people still on this forum saying tar sands won't work out because the EROEI is upside down?

I'm sorry, I'm not out to be a anti-doomer but I am sorry it looks like the tar sands have been "working out."

I mean, we have to face facts and reality, do we not? US is #1 in the world in total energy, that's oil and nat gas, and we're darn near close to #1 with just oil. It's why the price at the pump has not risen. That's oil, call it dirty or heavy or whatever you want to call it but it makes my car go.

And it seems to be working. More of it produced, not less, is this not the reality? I can't see how anyone can be a Life As We Know It Is Ending Tomorrow peak oil fast crasher now in 2014, Desu's posts are like from six years ago during the price spike.

Turns out the "drill baby drill" crowd were RIGHT, were they not? And everyone laughed at them too, at the time?

[ralfy]

My guess is that investments will continue because of significant levels of credit available.

[Graeme]

CarbonTracker has warned investors probably including banks in their latest report above that there is a "heightened" risk that they will lose their money.

The vast majority (92%) of potential capex on discovery stage oil sands projects in the next decade has high oil price requirements which we would regard as particularly risky

Relative exposure to high cost oil sands development projects varies between companies, but can reach 100% of total company potential capex. We consider this an extremely high stakes gamble

[rockdoc123]

CarbonTracker has warned investors probably including banks in their latest report above that there is a "heightened" risk that they will lose their money.

and I'm sure the banks (who have been doing this kind of analysis on a daily basis for decades) are listening to a flawed analysis by a group who hasn't a clue about oil and gas economics