CALGARY, Alberta, June 1 - New projects in Canada's oil sands could be viable with crude prices of just $60 a barrel, as much as 40 percent below estimates made before oil prices slumped late last year, an analyst said on Monday.
In a research report, Andrew Potter of UBS Securities said labor and material prices in the oil sands region of northern Alberta have fallen far enough that producers may look to revisit projects that were mothballed when the recession pushed oil prices down from July highs of more than $147 a barrel.
Last fall, Potter estimated that new projects in the region, which contains the largest oil reserves outside the Middle East, needed oil prices of between $80 to $100 a barrel to be economic. Now those projects may be profitable at current oil prices, which ended on Monday at $68.58 a barrel.
More than C$90 billion ($83 billion) worth of oil sands projects were delayed, deferred or canceled after prices plunged, freeing up a squeezed skilled-labor pool, boosting productivity and increasing the availability of contractors.
"Developers are likely to see vastly improved labor productivity and lower labor costs as fewer workers are required to execute long-term oil sands growth," Potter wrote in his report.
To be sure, not all projects were halted by the downturn. Imperial Oil Ltd (IMO.TO) said last month it would go ahead with its C$8 billion Kearl oil sands mine and other producers continued with expansion programs under way before the recession slashed prices.
While new projects may be coming, Potter said he did not expect oil sands development to proceed at the same heady pace envisaged before prices crashed.
Instead of the 3.5 million barrels a day of oil production by 2015 forecast last year, Potter said output of 2 million to 2.5 million barrels a day six year out is more likely.
"We expect oil sands volumes to grow but at a significantly reduced pace relative to our forecasts one year ago," he wrote.
Output from the oil sands is currently around 1.5 million barrels per day.
($1=$1.09 Canadian)
In a research report, Andrew Potter of UBS Securities said labor and material prices in the oil sands region of northern Alberta have fallen far enough that producers may look to revisit projects that were mothballed when the recession pushed oil prices down from July highs of more than $147 a barrel.
Last fall, Potter estimated that new projects in the region, which contains the largest oil reserves outside the Middle East, needed oil prices of between $80 to $100 a barrel to be economic. Now those projects may be profitable at current oil prices, which ended on Monday at $68.58 a barrel.
More than C$90 billion ($83 billion) worth of oil sands projects were delayed, deferred or canceled after prices plunged, freeing up a squeezed skilled-labor pool, boosting productivity and increasing the availability of contractors.
"Developers are likely to see vastly improved labor productivity and lower labor costs as fewer workers are required to execute long-term oil sands growth," Potter wrote in his report.
To be sure, not all projects were halted by the downturn. Imperial Oil Ltd (IMO.TO) said last month it would go ahead with its C$8 billion Kearl oil sands mine and other producers continued with expansion programs under way before the recession slashed prices.
While new projects may be coming, Potter said he did not expect oil sands development to proceed at the same heady pace envisaged before prices crashed.
Instead of the 3.5 million barrels a day of oil production by 2015 forecast last year, Potter said output of 2 million to 2.5 million barrels a day six year out is more likely.
"We expect oil sands volumes to grow but at a significantly reduced pace relative to our forecasts one year ago," he wrote.
Output from the oil sands is currently around 1.5 million barrels per day.
($1=$1.09 Canadian)
