Thermal bitumen production in Alberta will be jolted when sulfur limits fall for marine fuel in 2020, according to a new study by the Canadian Energy Research Institute.
The group developed an optimization model to assess US refining responses to requirements by the International Maritime Organization (IMO) that bunker fuel contain no more than 0.5 wt % sulfur, down from 3.5 wt % now.
Most Canadian bitumen is consumed by complex Canadian and US refineries.
After 2020, CERI said, “Canadian crude will have to compete for US refining space on netback refining value with other crudes that currently contribute to high-sulfur fuel oil supply.”
It modeled US refining for each Petroleum Administration District for Defense under three scenarios defined by degree of compliance with the IMO 2020 regulation.
Under “plausible scenarios,” CERI said, a refinery-margin loss of $16-20/bbl between 2020 and post-2025 will directly affect the price differential between light and heavy crude oil.
That will widen Western Canada Select crude’s discount to West Texas Intermediate, historically $13/bbl, to $31-33/bbl.
CERI determined that production projects based on steam-assisted gravity drainage (SAGD) that use less than 3 cu m of steam to produce 1 cu m of bitumen probably will break even. SAGD projects that use a greater proportion of steam will lose money.
CERI cited data indicating Alberta production below the profitability threshold amounts to about 574,000 b/d of bitumen.