World Energy Outlook 2006

important factors. Higher differentials over the past few years have made the
option of adding local upgrading capacity more attractive. As a result, most
planned in situ projects now also include upgrading of the raw bitumen. For
integrated mining and upgrading projects, the cost of building upgrading
units is a critical factor. Capital costs have risen sharply in recent years as prices
of steel, cement and equipment have soared (Box 3.1). Rapid development
of the oil-sands industry has also led to a shortage of skilled labour and a fall
in productivity.
Chapter 3 - Oil Market Outlook
Box 3.1: Canadian Oil-Sands Production Costs
Overall production costs – including capital, operating and maintenance,
but excluding taxes – are typically lower for in situ projects. The cost
of producing bitumen from greenfield projects is currently about
US$ 16 per barrel. It is highly sensitive to the steam-to-oil ratio (SOR),
a measure of how much energy must be applied to the reservoir to induce
bitumen to flow into the producing-well bore. For pure steam, an
increase of 0.5 in SOR translates into an additional 6 cubic metres of
natural gas consumption per barrel of bitumen, as well as increased water
handling costs. At current gas prices, this equates to nearly $2 per barrel.
For integrated mining, the current cost of producing synthetic crude is
about $33 per barrel. Each 10% increase in capital costs is estimated to
increase the per-barrel production cost by $1.50 for in situ projects and
$2 for integrated projects.
The energy efficiency of both in situ and integrated projects is expected to
improve over the projection period. New technologies, such as bitumen or coke
gasification, which are assumed to be introduced after 2012, contribute to a
significant reduction in average gas intensity. Some new projects are expected
to use only natural gas, but others will use gasification or a combination of the
two. However, the fall in gas intensity may be partially offset by more intensive
upgrading to produce higher-quality synthetic crude, which requires more
hydrogen. Currently, about 60% of crude bitumen is transformed into various
grades of synthetic crude or upgraded products. Although this percentage is
expected to decline, we believe it will still be higher than 50% by 2015. Overall
natural gas consumption for oil-sands production, including on-site gas-fired
power production, is projected to rise from 10 bcm per year now to 21 bcm in
2015 and 29 bcm in 2030 (Figure 3.8). These projections assume that no
financial penalty for carbon-dioxide emissions is introduced. As oil-sands
production is very carbon-intensive, such a move could have a major impact on
prospects for new investment.
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© OECD/IEA, 2007
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