Study No. 141 July 2014 CANADIAN CANADIAN OIL SANDS SUPPLY ENERGY RESEARCH COSTS AND DEVELOPMENT INSTITUTE ROJECTS P (2014-2048) Canadian Energy Research Institute | Relevant • Independent • Objective CANADIAN OIL SANDS SUPPLY COSTS AND DEVELOPMENT PROJECTS (2014-2048) Canadian Oil Sands Supply Costs and Development Projects (2014-2048) Copyright © Canadian Energy Research Institute, 2014 Sections of this study may be reproduced in magazines and newspapers with acknowledgement to the Canadian Energy Research Institute ISBN 1-927037-25-6 Authors: Dinara Millington Carlos A. Murillo Rob McWhinney Acknowledgements: The authors of this report would like to extend their thanks and sincere gratitude to all CERI staff that provided insightful comments and essential data inputs required for the completion of this report, as well as those involved in the production, reviewing, and editing of the material, including but not limited to Peter Howard and Megan Murphy CANADIAN ENERGY RESEARCH INSTITUTE 150, 3512 – 33 Street NW Calgary, Alberta T2L 2A6 Canada www.ceri.ca July 2014 Printed in Canada Front Cover Photo’s Courtesy of Cenovus Energy Canadian Oil Sands Supply Costs and Development Projects (2014-2048) iii Table of Contents LIST OF FIGURES ................................................................................................... v LIST OF TABLES .................................................................................................... vii EXECUTIVE SUMMARY ......................................................................................... ix Supply Cost Results ................................................................................................ ix Supply Cost Sensitivities ........................................................................................ x Projection Results – Three Scenarios ..................................................................... xiii Oil Sands Production ......................................................................................... xiii Oil Sands Capital Investment ............................................................................. xiv Natural Gas Requirements ................................................................................ xv Oil Sands Emissions ........................................................................................... xvi Oil Sands Royalties ............................................................................................ xvii Environmental Considerations .............................................................................. xix CHAPTER 1 INTRODUCTION ............................................................................. 1 Background ............................................................................................................ 1 Approach .............................................................................................................. 4 Organization of the Report .................................................................................... 5 CHAPTER 2 OIL SANDS OVERVIEW ................................................................... 7 Oil Sands, Background ........................................................................................... 7 Oil Sands Development Scenarios ......................................................................... 10 CHAPTER 3 OIL SANDS SUPPLY COSTS .............................................................. 15 Introduction ........................................................................................................... 15 Methodology and Assumptions ............................................................................. 15 Design Assumptions .......................................................................................... 16 Light-Heavy Differential..................................................................................... 22 Crude Oil Transportation Costs ......................................................................... 26 Economic and Taxation Assumptions................................................................ 27 Royalty Assumptions ......................................................................................... 29 US-Canadian Exchange Rate .............................................................................. 31 Supply Cost Results ................................................................................................ 32 Supply Cost Sensitivities ........................................................................................ 36 CHAPTER 4 OIL SANDS PROJECTIONS ............................................................... 41 Methodology and Assumptions ............................................................................. 41 Delay Assumptions ............................................................................................ 42 Estimating Royalty Revenues and Blending Requirements .............................. 42 Oil Sands Projections – Three Scenarios ................................................................ 43 Oil Sands Capacity ............................................................................................. 44 Oil Sands Production ......................................................................................... 46 Oil Sands Capital Investment ............................................................................. 48 July 2014 iv Canadian Energy Research Institute Natural Gas Requirements ................................................................................ 50 Oil Sands Emissions ........................................................................................... 52 Oil Sands Royalties ............................................................................................ 55 Oil Sands Projections – Reference Case Scenario .................................................. 56 Oil Sands Production – Historic and Forecast ................................................... 56 Diluent Demand, Supply and Transportation.................................................... 59 Capital Investment and Operating Costs ........................................................... 64 Alberta Oil Sands Royalty Revenues .................................................................. 65 CHAPTER 5 ENVIRONMENTAL CONSIDERATIONS FOR OIL SANDS ..................... 71 Air and Emissions ................................................................................................... 71 Mining and Upgrading ....................................................................................... 72 In Situ ................................................................................................................. 74 Water Use and Tailings Ponds Management ......................................................... 76 Mining ................................................................................................................ 76 In Situ ................................................................................................................. 79 In Situ Water Regulations .................................................................................. 80 Update on Monitoring Programs ........................................................................... 83 AEMERA ............................................................................................................. 85 July 2014 Canadian Oil Sands Supply Costs and Development Projects (2014-2048) v List of Figures E.1 Total Field Gate Bitumen/SCO Supply Costs – Reference Case Scenario ........ x E.2 Supply Cost Sensitivity – 30 MBPD SAGD Project ............................................ xi E.3 Supply Cost Sensitivity – 100 MBPD Mining and Extraction Project ............... xi E.4 Supply Cost Sensitivity – 115 MBPD Integrated Mining, Extraction and Upgrading Project ............................................................................................ xii E.5 Supply Cost Sensitivity – 100 MBPD Standalone Upgrader ............................. xii E.6 Bitumen Production Projections ...................................................................... xiv E.7 Total Capital Requirements ............................................................................. xv E.8 Natural Gas Requirements ............................................................................... xvi E.9 Greenhouse Gas Emissions .............................................................................. xvii E.10 Oil Sands Royalties – Three Scenarios ............................................................. xviii E.11 Alberta Oil Sands Royalties – Reference Case Scenario .................................. xix 1.1 Full Cycle Supply Costs ..................................................................................... 2 2.1 Alberta’s Oil Sands Areas ................................................................................. 8 2.2 Mining and Extraction ...................................................................................... 9 2.3 In Situ – SAGD .................................................................................................. 9 2.4 US and BRIC Oil Consumption, Shares of Total Oil Consumption ................... 11 2.5 World Oil Demand by Region (New Policies Scenario) 2012-2035 ................. 11 3.1 Average Initial Capital Cost .............................................................................. 19 3.2 Average Non-Energy Operating