Updated June 2020
Production Forecast
Mined Bitumen
Production from existing facilities and supply from future projects are considered in Table S3.5. Production from future mining projects considers the cost of engineering and materials and the skilled labour needed to expand existing projects and build new ones. Other key factors are also looked at, such as the forecast of oil prices and the length of the construction period because they affect project timing.
We assessed projects that have been approved or applied for on their likelihood of meeting their on-stream date and anticipated volumes. This involves weighing the risks of each project. Any project with a high level of uncertainty about whether it will come on stream over the next decade is not included in the forecast.
In Situ Bitumen
Similar to surface mining, the supply forecast of in situ bitumen includes production from existing projects, expansions to existing projects, and new projects. All approved and applied for projects have been considered, as listed in Table S3.6, and the forecast assumes that all existing projects will continue producing at their current production levels over the forecast period. Projects considered for the forecast are assessed for the likelihood of meeting the on-stream date and volumes. This involves weighing the risks of each project. Some projects, although considered, will ultimately not be included in the ten-year forecast due to the high level of uncertainty about whether they will come on stream in the next decade.
In projecting primary bitumen production, the AER combines for each year expected production from pre-existing producing wells and new wells placed on production in that year. The number of new wells placed on production and their average initial productivity and decline rates are the main determining factors in projecting production volumes. Similar to the crude oil well methodology, an economic model is used to determine the number of primary wells placed on production which forms the basis of the forecast.
The production forecast for future crude bitumen projects accounts for the past performance of similar schemes (including production and energy demand intensities), project modifications, the forecast of crude oil and natural gas prices, light crude and bitumen price differentials, and the ability of North American markets to absorb increased volumes. The production forecast does not consider future export pipeline capacity since the AER does not have authority over approving pipelines that cross provincial or international borders. Factors that may affect the pace of development, such as the availability of labour and equipment, were considered in the forecast.
Upgraded Bitumen
Table S3.7 lists all future projects in the forecast. The AER considers the cost of engineering and materials and the substantial amount of skilled labour required to expand existing projects and build new ones. Other key factors are assessed, such as crude oil price forecasts, the price differential between light crude oil and bitumen, the length of the construction period, and the market penetration of new upgraded volumes, all of which will affect project timing.
Demand Forecast
The bitumen demand forecast largely considers upgrading and refining capacity. Alberta demand includes newly proposed and approved expansion projects. Marketable production in excess of Alberta demand is assumed to be exported to other markets. Markets traditionally served by Alberta's bitumen are assessed for opportunities and limitations, including maintenance schedules, transportation constraints, and competing supplies of crude oil.
Supply Costs
Supply costs are the minimum constant dollar price required to recover all capital expenditures, operating costs, royalties, and taxes, as well as to earn a specified return on investment. After accounting for transportation costs and exchange rates, bitumen supply cost calculations enable projects to be compared to other benchmarks. This price can also be compared with current market prices to assess whether a project or resource is economically attractive.
Assumptions
Reference projects in our supply cost estimates include in situ SAGD (with and without cogeneration) and standalone mining (with cogeneration). While each real-life project is unique in its location and in the quality of its reserves, our supply cost analyses rely on a range of project specifications, including capital and operating cost information gathered from applications and company plans.
Integrated mines were not looked at because, currently, no integrated bitumen projects have been proposed in Alberta. Supply costs for CSS were not determined due to a lack of proposed CSS projects, even though production currently comes from such projects.
SAGD capital costs cover a wide range of values, with the lower range representing additional expansion phases where portions of the infrastructure are already in place, and the upper range representing capital costs for greenfield projects.
A major component of operating costs is natural gas purchased for fuel and feedstock. The supply costs analysis uses the forecast for the AECO-C gas price over a project's 30- to 40-year life. For 2019 and beyond, our analysis assumes a discount rate of 10 per cent.
Data
All 2019 data is as reported by industry up until the end of December and does not capture any subsequent amendments. We used crude bitumen production volumes submitted in Petrinex.