By Nia Williams
CALGARY, Alberta, Aug 20 (Reuters) - More than
three-quarters of Canada's daily output of 2.2 million barrels
of crude from oil sands is being produced at a loss at current
prices, research from analysts at TD Securities shows, although
producers are unlikely to halt operations.
Only two mining and upgrading projects - Canadian Natural
Resources Ltd's CNQ.TO Horizon project and Suncor Energy 's
SU.TO Millennium mine - are producing synthetic crude for less
than its current outright price around $36 a barrel, analyst
Menno Hulshof said on Thursday.
Every thermal oil sands player is bleeding cash on every
barrel produced with U.S. crude around $41 and the Canadian
heavy benchmark, Western Canada Select (WCS), around $24 a
barrel, according to a report released by the bank on Wednesday.
That means only around 450,000 barrels per day of oil sands
production is in the black, a bleak picture for the region which
holds the world's third-largest oil reserves but is also saddled
with high operating costs.
There are two types of oil sands projects: thermal projects,
in which steam is pumped underground to heat reservoirs so tarry
bitumen can flow to the surface, and strip-mining projects. Most
mining projects upgrade the bitumen into refinery-ready
synthetic crude, while thermal projects tend to blend the
bitumen into lower-priced heavy crude such as WCS.
The TD research took the average costs of some of the
most efficient thermal operations, such as Cenovus Energy
CVE.TO and MEG Energy's MEG.TO Foster Creek and Christina
Lake projects, and concluded they need U.S. crude above $43 to
make money. U.S. crude futures CLc1 settled on Thursday at
$41.14 per barrel.
At $41, companies struggle to cover the cost of operating,
royalties, transportation and blending.
Mining projects on average require more than $36 a barrel to
break even. The analysis did not include Royal Dutch Shell's
RDSa.L mining and upgrading operations, but a Shell company
spokesman said its synthetic crude production costs were $42.46
a barrel in 2014.
On Wednesday Canadian Oil Sands Ltd COS.TO the
largest-interest owner in the Syncrude mining and upgrading
project, gave a presentation showing it is losing around $6 on
every barrel produced. ID:nL1N10U23M
Even so, COS said it would not consider shutting in
production, and other oil sands producers are likely to follow
suit given the high cost of halting operations and the risk of
damaging bitumen reservoirs.
"We very much struggle to come up with prices low enough
that you would shut in and turn off these projects," said Wood
Mackenzie analyst Mark Oberstoetter.
(Editing by James Dalgleish)