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Oil Sands Producers Set to Become More Competitive

Next-generation solvent technology is lowering costs, and the long-term impact could be immense.

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Oil sands projects have long been characterized by high capital requirements and production costs. Even though production costs have drastically decreased over the past two years, most expansion projects still aren’t economic at $55 per barrel of West Texas Intermediate, our midcycle forecast, and struggle to compete economically with other global supply sources. And there is little room to reduce costs further with current extraction methods. In the search for lower costs, producers have spent considerable time and resources on testing new technology. For oil sands producers, that research has paid off in the form of solvents. Solvent-assisted technology should provide producers with the cost savings needed to be competitive with other marginal supply sources (deep water and higher-cost U.S. shale, for example). However, commercial implementation of solvent-assisted technology is not expected for at least a few more years as low oil prices continue to constrain expansion investment decisions and project development timelines are lengthy.

Oil Sands Basics
About 80% of Canada’s oil sands reserves are too deep to be extracted by mining techniques and require in situ extraction; steam-assisted gravity drainage is the most common method. The SAGD process involves two horizontal wells drilled into the oil sands reservoir. Steam is injected into the upper well, heating the reservoir to temperatures as high as 200 degrees Celsius and melting the bitumen. The second well pumps the heated bitumen and water emulsion to the surface.

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Joe Gemino does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.