Canadian oil sands optimization projects to increase production, even in lower price track of 2025

Canadian oil sands production is expected to reach a record annual average production of 3.5 million b/d in 2025, 5% higher than 2024, according to an S&P Global Commodity Insights outlook. By 2030, production could top 3.9 million b/d, 500,000 b/d higher than 2024 and 100,000 b/d higher than Commodity Insights' outlook released in 2024.

This is Commodity Insights' fourth consecutive upward revision to the oil sands annual outlook, which follows several years of downward revisions due to the impact of the coronavirus pandemic. In fact, the current outlook is nearly aligned with Commodity Insights' pre-pandemic oil sands growth expectations.

Optimization projects have dominated oil sands growth for nearly a decade. From 2019 to 2025, oil sands output is expected to increase by over 600,000 b/d, more than offsetting the heavy crude production decline in Latin America during this time. With more than 3.8 million b/d of existing installed capacity brought online between 2001 and 2017, companies are looking at ways to increase the productivity of existing assets -- decreasing downtime and increasing throughput -- and identifying debottlenecking opportunities.

One of the greatest misconceptions about oil sands, defined as synthetic crude oil and undiluted bitumen, continues to be the cost of supply. The challenge that oil sands producers face has always been the large up-front, out-of-pocket expenditure over multiple years required to bring new projects online. However, that is not the cost structure required to continue to maintain and even optimize existing production.

In 2025, Commodity Insights estimates that the half-cycle breakeven for oil sands range from $18/b to $45/b on a West Texas Intermediate basis. Half-cycle break-even costs include operating cost, the cost to purchase diluent (if needed), as well as an adjustment to enable a comparison to WTI -- specifically, the cost of transport to Cushing, Oklahoma, and quality differential between heavy and light oil. The cost range spans steam-assisted gravity drainage (SAGD) facilities, integrated mines that market SCO (mined SCO) and unintegrated mines that market diluted bitumen. Commodity Insights estimates the overall average breakeven at $27/b in 2025.

The particularly challenging nature of forecasting optimizations has resulted in upward revisions to the outlook. This method of increasing output is relatively limited to large-scale operations, such as in the offshore or oil sands. The optimization projects are also often the result of learning by doing or emerge organically and are often much more focused on the short term, making longer-term outlook forecasting more difficult. As a result, Commodity Insights continues to see upside risk to its outlook as the potential for additional optimizations remains.

Analysts at Commodity Insights do see downside risk associated with the lower price path that has emerged in 2025. Oil sands production, however, has proven capable of withstanding extreme price volatility in the past, which has been far greater than what might result from the current Canada-US trade exchanges.

Moreover, because optimizations often contribute to efficiency gains, many companies would likely see them through to completion, even in a more challenging price environment. For oil sands output to be impacted, prices would likely have to fall well below $40/b WTI and remain there for a protracted period. At this price, Commodity Insights analysts would also expect more pronounced reductions in US tight oil and other key sources of supply.

Other important risks remain, including the adequacy of pipeline export capacity. With even more production growth expected, without further incremental pipeline capacity, export constraints have the potential to reemerge as early as next year. Should this occur, western Canadian prices could be negatively impacted, leading to slower and lower growth than currently anticipated.