(Reuters) – The outgoing chief executive of Alberta Investment Management Corp (AIMCo), said on Tuesday oil sands producers need to cut production costs through new technology as US$70 crude is here to stay.
Leo de Bever, who is stepping down from the $80 billion provincial pension fund administrator after six years at the helm, said he would be surprised if oil topped US$70 in the long-run given rising global supply, even if it rebounded to US$100 per barrel at some point.
Oil sands producers in Alberta have some of the highest costs in the world. While they can cope with crude prices around current levels, de Bever warned future growth would be difficult unless companies invest in more efficient processes.
Oil at US$70 a barrel “is probably something you should target for your technology in terms of being able to survive,” he said.
“If you are an existing producer in the oil sands you probably say this does not really affect me, as long as your physical plants hold together. But if you need to build something new, you’re out of business.”
The Canadian Association of Petroleum Producers forecasts oil sands production will hit 4.8 million barrels per day by 2030, up from around 2 million bpd currently.
But new mining projects require oil prices of around US$115 to break even, while the break-even price for new thermal projects ranges between US$50-$70, according to consultancy Wood Mackenzie. If these estimates are correct, some proposed projects may have to be shelved.
Competition from the U.S. shale boom is also causing problems for the Canadian energy sector.
“We are going to have to figure out in a real hurry how to move from a very high-cost producer to a low-cost producer because the new supplies of energy that have been found are closer to market, they are cheaper to produce in many cases and they do not have some of the transportation issues,” de Bever said.
The AIMCo chief urged the energy industry to use the slide in prices as an opportunity to invest in unproven technology that will boost productivity.
AIMCo is invested in Oak Point Energy, a privately held oil sands exploration company working on an extraction method that uses less water. The fund administrator is also working with companies developing technology for upgraders, which turn mined bitumen into refinery-ready synthetic crude.
De Bever said small companies trying new approaches needed to be surrounded by stable capital and strong management.
By Nia Williams
(Editing by David Gregorio)
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