page_title: Athabasca oil sands
section_title: Economics
hierarchical_section_title: Athabasca oil sands / Economics
caption_attribution_description: English: WTI/Light Sweet crude chart of daily price quotes from NYMEX, updated to March 2008. Created using Openoffice.org and Gimp 2.4.3 on an Apple MacBook Pro. FIle dimensions 1051x768.
context_page_description: The Athabasca oil sands, also known as the Athabasca tar sands, are large deposits of bitumen or extremely heavy crude oil, located in northeastern Alberta, Canada – roughly centred on the boomtown of Fort McMurray. These oil sands, hosted primarily in the McMurray Formation, consist of a mixture of crude bitumen, silica sand, clay minerals, and water. The Athabasca deposit is the largest known reservoir of crude bitumen in the world and the largest of three major oil sands deposits in Alberta, along with the nearby Peace River and Cold Lake deposits.
  Together, these oil sand deposits lie under 141,000 square kilometres of boreal forest and muskeg and contain about 1.7 trillion barrels of bitumen in-place, comparable in magnitude to the world's total proven reserves of conventional petroleum. The International Energy Agency lists the economically recoverable reserves, at 2007 prices and modern unconventional oil production technology, to be 178 billion barrels, or about 10% of these deposits. These contribute to Canada's total proven reserves being the third largest in the world, after Saudi Arabia and Venezuela's Orinoco Belt.
context_section_description: Despite the large reserves, the cost of extracting the oil from bituminous sands has historically made production of the oil sands unprofitable—the cost of selling the extracted crude would not cover the direct costs of recovery; labour to mine the sands and fuel to extract the crude.
  In mid-2006, the National Energy Board of Canada estimated the operating cost of a new mining operation in the Athabasca oil sands to be C$9 to C$12 per barrel, while the cost of an in-situ SAGD operation (using dual horizontal wells) would be C$10 to C$14 per barrel.
  This compares to operating costs for conventional oil wells which can range from less than one dollar per barrel in Iraq and Saudi Arabia to over six in the United States and Canada's conventional oil reserves.
  The capital cost of the equipment required to mine the sands and haul it to processing is a major consideration in starting production.  The NEB estimates that capital costs raise the total cost of production to C$18 to C$20 per barrel for a new mining operation and C$18 to C$22 per barrel for a SAGD operation.  This does not include the cost of upgrading the crude bitumen to synthetic crude oil, which makes the final costs C$36 to C$40 per barrel for a new mining operation.
  Therefore, although high crude prices make the cost of production very attractive, sudden drops in price leaves producers unable to recover their capital costs—although the companies are well financed and can tolerate long periods of low prices since the capital has already been spent and they can typically cover incremental operating costs.
  However, the development of commercial production is made easier by the fact that exploration costs are very low. Such costs are a major factor when assessing the economics of drilling in a traditional oil field. The location of the oil deposits in the oil sands are well known, and an estimate of recovery costs can usually be made easily.  There is not another region in the world with energy deposits of comparable magnitude where it would be less likely that the installations would be confiscated by a hostile national government, or be endangered by a war or revolution.
  As a result of the oil price increases since 2003, the economics of oil sands have improved dramatically.  At a world price of US$50 per barrel, the NEB estimated an integrated mining operation would make a rate return of 16 to 23%, while a SAGD operation would return 16 to 27%.  Prices since 2006 have risen, exceeding US$145 in mid-2008 but falling back to less than 40 US$ as a result of the worldwide financial crisis, the oil price recovered slowly and many of the planned projects (expected to exceed C$100 billion between 2006 and 2015) were stopped or scheduled. In 2012 and 2013 the oil price was high again, but the US production is increasing due to new technologies, while the gasoline demand is falling, so there is an overproduction of oil. But recovering economy can change this in a few years.
  At present the area around Fort McMurray has seen the most effect from the increased activity in the oil sands. Although jobs are plentiful, housing is in short supply and expensive.  People seeking work often arrive in the area without arranging accommodation, driving up the price of temporary accommodation.  The area is isolated, with only a two-lane road, Alberta Highway 63, connecting it to the rest of the province, and there is pressure on the government of Alberta to improve road links as well as hospitals and other infrastructure.
  Despite the best efforts of companies to move as much of the construction work as possible out of the Fort McMurray area, and even out of Alberta, the shortage of skilled workers is spreading to the rest of the province. Even without the oil sands, the Alberta economy would be very strong, but development of the oil sands has resulted in the strongest period of economic growth ever recorded by a Canadian province.
caption: Oil prices 1996–2008 (not adjusted for inflation)
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