Western Canadian oil on average more cost competitive than US oil
Despite claims to the contrary, Western Canadian oil is in some cases cheaper to produce than shale oil in the US, according to a recent commodity report from Scotiabank.
"An examination of more than 50 plays across Canada and the United States (in addition to Alberta oil sands integrated mining & upgrading projects) reveals that the oil plays in Western Canada are on average lower cost than in the United States (including the prolific ‘light, tight’ ‘North Dakota Bakken’ and the ‘Eagle Ford’ & ‘Permian’ Basins in Texas)," analyst Patricia Mohr writes.
This is mostly due to royalty credits in Canada and technology improvements at the oil sands.
"In Canada, an average WTI oil price of US$63-65 per barrel is required to yield a 9% after-tax return on ‘full-cycle’ costs for the oil plays shown on page 1 compared with close to US$72 in the United States (based on costs in the Fall of 2013)," the report reads.
And several small-volume Canadian plays require only $45 per barrel.
"Ranking the plays with significant volume, the ‘Southwest Saskatchewan Bakken’ is on the bottom of the Canada-U.S. supply curve," the report report reads.
Mohr isn't the first to say it. BMO Capital Markets pointed out last summer that oil sands projects are "actually quite economic in the global context," the Financial Post reported.
"There’s a lot of oil sands projects that are being invested in on the basis of supply costs as low as US$50, so one of the key takeaways here is really oil sands isn’t that marginal a source of supply," Randy Ollenberger, managing director, equity research at BMO told the Financial Post.
Scotiabank writes that western Canadian producers should focus on accessing Asian markets and expanding export capacity to the BC coast and central and Atlantic Canada.