The slump in the price of oil is highlighting the cost of extracting Canada’s oil sands, and this is not likely to improve any time soon, the International Energy Agency said November 10.
The oil market will likely remain oversupplied until the end of the decade, and in its World Energy Outlook, the IEA said it anticipates oil demand growth to be less than 1% per year until 2020. This is equivalent to around 900,000 barrels per day (bpd), and it is expected to reach demand of 103.5 bpd by 2040.
The pace in demand growth forecasted by the IEA is too slow to dent the current oil glut that has driven prices to multiyear lows, analysts agree.
Several companies have been backing away from the oil sands, finding they can't make the economics of new projects work, as most of their projects were greenlighted when prices were higher, or believed to be heading higher. But what was tolerable a year ago at $100 a barrel has become less profitable—or unworkable—in today’s world of $50 a barrel crude.
The energy forecaster, in fact, does not expect crude oil to reach $80 a barrel until 2020.
After 2020, the IEA said, demand growth is expected to grind almost to a halt, increasing 5% over the next 20 years.
At those prices, the typical oil sand producer is just able to cover their production and transportation expenses, according to Jackie Forrest, a vice-president with ARC Financial, who monitors trends in the Canadian oil and gas industry.
The IEA reports offers some hope, but not for Alberta’s oilpatch, as it says that higher-cost producers in Canada and Brazil, as well as the U.S. are likely to fall victim to low oil prices faster than most exporters, but these declines could be offset by supply growth in Iraq and Iran.
