Crude Oil Supply - SCO and Bitumen Supply Costs

Most of the crude bitumen that is produced will be upgraded to synthetic crude oil. The SCO would be sold to downstream refineries.

The analysis, conducted by the Canadian Energy Research Institute, of upgrading costs indicates that a mining project producing SCO in the Athabasca area would also need WTI prices of about US$25/b to be economic.

One of the key parameters for these analyses is the assumed natural gas prices, since these projects are very large natural gas consumers.

For their analysis, they assumed:

• NYMEX natural gas price of US$4.25/MMBtu – this translates into a plant gate natural gas price of C$4.74/GJ (March 2, 2004 closing prices were US$5.565/MMBtu and C$5.98/GJ respectively)
• Canada US exchange rate of 0.75 US$/C$ (March 1,2004 closing rate was 0.7448 US$/C$)

The costs of upgrading crude bitumen is estimated to be C$12.71/b

This is a summary, provided by the Canadian Energy Research Institute, of supply cost results for crude bitumen from Athabasca and Cold Lake. This bitumen has not been upgraded but can still be valued in the market as shown here.

Their analysis indicates that the oil sands industry requires West Texas Intermediate (WTI) oil prices of about US$25 per barrel at Cushing, Oklahoma to cover all costs and earn an adequate return on investment. While current oil prices are much higher, many project proponents are basing their plans on prices in the midtwenties.

The difference between the plant gate price and the WTI price takes into account:

• Transportation costs to market
• The value of the bitumen in the market having regard for its high sulphur content and low API gravity.