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The cost of building and operating oil sands projects has fallen dramatically since the high-water mark of 2014, and the sector is ripe for growth if export constraints can be solved, a leading consulting firm says.

The cost to construct a new oil sands plant has fallen 25 per cent to 33 per cent, while operating costs have fallen by as much as 40 per cent, London-based IHS Markit Ltd. said in a report Wednesday.

The report, prepared by Calgary-based analyst Kevin Birn, forecasts that the oil sands sector will add another one million barrels a day of production by 2030 to the more than three million it produces today. However, the growth rate will be slower than in the booming decade between 2009 and 2018 and remains at risk due to uncertainties around export capacity, he said.

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“Oil sands economics have improved dramatically over a very short period,” Mr. Birn wrote. “Still ongoing [export] constraints continue to weigh on timing of future investments and the investment and the growth outlook continues to moderate. … There is upside potential, but the key will be the ability of government and industry to restore confidence that Canadian crude will get to market, whether by pipe or rail."

Costs in other oil-producing regions – from offshore to the shale oil fields of the United States – have also declined, and oil sands capital costs remain near the high end of the range, especially for new mines or in situ projects that use steam to extract crude from underground. The lower-cost production – the expansion of steam-assisted projects – would require a US$45-a-barrel price for West Texas intermediate to break even with a commercial rate of return, down from US$65 in 2014. A new mine in 2014 required a break-even price of almost US$100 for WTI, though that threshold fell to US$65 in 2018.

The IHS Markit benchmark assumes Canadian heavy oil is traded at a normal discount, based on quality and transportation, of US$12 a barrel less than WTI. The differential widened to as much as US$50 last fall as growing production and insufficient export capacity meant producers could not get their crude to market, which caused a glut of inventories in Alberta.

Mr. Birn’s report is in line with a forecast by the Canadian Association of Petroleum Producers last June that saw oil sands production rising by 1.5 million barrels a day by 2035. CAPP also warned that insufficient pipeline capacity would put that forecast at risk.

The IHS Markit growth forecast suggests there will be a need for all three of the pipeline projects currently being stalled or delayed by regulators or courts in the United States and Canada. They include TransCanada Corp.'s Keystone XL, Enbridge Inc.'s expansion of its main pipeline to the U.S. Midwest and the Trans Mountain expansion project, which would have to be reapproved by Ottawa after the federal Court of Appeal quashed a permit last August.

CAPP president Tim McMillan said companies have managed to lower their costs across the board, including in the oil sands. Some of those savings came from innovation and new technologies, but some were the result of the downturn in the industry, which has not fully rebounded since the global price collapse of 2014.

"A lot of cost savings we’ve seen came as companies shelved projects and laid off development teams and from the substantial layoffs across the economy and across the country, Mr. McMillan said in an interview Wednesday. “It’s not healthy in one sense, but it is the reality of a lot of investment leaving Canada.”

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