Why Alberta Oil Sands Production Does Not Slow Down When The Price of Oil Drops

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Take a look at the Canadian oil production forecasts below notice that the predictions from 2010 have been UNDER-estimated.

As you can see even with the 2014 oil price collapse oil sands production just kept chugging along.

Some have speculated that the tar/oil sands are like any other extractive industry and they will naturally produce less over time because the ‘easy’ oil is taken up first, leaving the more difficult and expensive oil to later years.  Oil Sands production has not been reduced because of three simple factors:

  1. Oil Sands production facilities cost billions of dollars to construct and so they are only built with a 40+ year cycle in mind.
  2. Much of the price of oil sands production is based on the already sunk cost of facilities so even if they lose money, they will produce oil.
  3. Massive technology improvements continuously lower cost and environmental impacts

Even at today’s low price for Western Canadian oil, there are major expansion projects on the way including a 45,000 barrel / day expansion of CNRL’s existing oil sands facilities.  These companies keep expanding for two reasons:

  1. The world demand for oil will increase through the 2040’s so they know there will be a market
  2. Expansions of existing facilities let these companies introduce new technologies and increased volumes that naturally lowers production cost, like any other industry

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