Climbing labour, service and commodity costs are driving early signs of cost inflation in the oil sector, making it the industry’s top risk for 2011, according to a new report by Ernst and Young.
"This year we won't see companies risking it all on single-stage capital intensive projects," said Lance Mortlock, senior manager at Ernst and Young's oil and gas practice. "While companies are still spending the same capital, many are concentrating on decoupling the value chain by moving away from fully integrated projects and completing segments in smaller incremental phases."
Low unemployment rates in the sector are also expected to further drive labour costs as numbers edge towards 2007 and 2008 levels, when service costs escalated out of control. Labour shortages came in as the second biggest risk for the industry for 2011 found Exploring the Top 10 Opportunities and Risks in Canada's Oilsands.
"Companies need to abandon the boom and bust mindset and take a holistic approach to cost management and forge ahead with long-term investments," said Mortlock. "Increased collaboration between industry players on new and innovative technologies can drive down costs, support improved recovery rates and mitigate environmental impact."
Recycling water and reducing the size of tailing ponds (where waste material from processing collects) are just two examples of how oilsands companies are collaborating. Sharing technology through partnerships, joint ventures and consortiums will be the key to ensuring the ponds return to their natural state, said Ernst and Young.
Canada's oilsands are emerging at the centre of global growth as new industry players look to replace reserves. The Canadian Association of Petroleum Producers (CAPP) predicts that oilsands production will grow to 2.2 million barrels per day by 2015 and 3.5 million barrels per day by 2025.
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