Plunging Prices, Climate Concerns Hit Canadian Oil Sands Producers Hard

Canadian producers share an uncertain future with the oil industry, but higher costs and opposition to expansion and pipelines bring extra hardship.

Canadian oil sands producers, facing a double whammy of low oil prices and higher taxes in Alberta, are slashing spending, suspending production, cutting jobs and halting shareholder dividends.  They are fighting the same market forces that are putting pressure on the entire oil industry, but face even more hurdles than the oil majors.

Oil sands projects are among the industry’s most expensive endeavors, so they need sustained, higher oil prices.  When prices are low—or even very volatile—companies risk spending billions of dollars to get oil that’s not profitable to sell.  And oil prices have plunged by more than half since mid-2014.  Friday’s close was $43.87 a barrel.  Western Canada Select, the price marker for harder-to-produce bitumen from the tar sands, closed at $26.17, or $17.70 a barrel below the U.S. oil price.

Since prices crashed, oil companies have delayed or cancelled $200 billion in projects, and nearly 30 percent of those are in the oil sands, according to a recent Wood Mackenzie report.  With prices still below the cost of many new oil sands projects, "the short-term outlook for new incremental investment in Canadian oil sands is bleak," the report found.

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