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Modelling the costs of non-conventional oil: A case study of Canadian bitumen

  • Méjean, Aurélie
  • Hope, Chris

High crude oil prices, uncertainties about the consequences of climate change and the eventual decline of conventional oil production raise the issue of alternative fuels, such as non-conventional oil and biofuels. This paper describes a simple probabilistic model of the costs of non-conventional oil, including the role of learning-by-doing in driving down costs. This forward-looking analysis quantifies the effects of both learning and production constraints on the costs of supplying bitumen, which can then be upgraded into synthetic crude oil, a substitute to conventional oil. The results show large uncertainties in the future costs of supplying bitumen from Canadian oil sands deposits, with a 90% confidence interval of $7-12 in 2030, and $6-15 in 2060 (2005 US$). The influence of each parameter on the supply costs is examined, with the minimum supply cost, the learning rate (LR), and the depletion curve exponent having the largest influence. Over time, the influence of the LR on the supply costs decreases, while the influence of the depletion curve exponent increases.

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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 36 (2008)
Issue (Month): 11 (November)
Pages: 4205-4216

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Handle: RePEc:eee:enepol:v:36:y:2008:i:11:p:4205-4216
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Paul Stevens, 2005. "Oil Markets," Oxford Review of Economic Policy, Oxford University Press, vol. 21(1), pages 19-42, Spring.
  2. Adelman, M A, 1990. "Mineral Depletion, with Special Reference to Petroleum," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 1-10, February.
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  8. Grubb, Michael, 2001. "Who's afraid of atmospheric stabilisation? Making the link between energy resources and climate change," Energy Policy, Elsevier, vol. 29(11), pages 837-845, September.
  9. Rehrl, Tobias & Friedrich, Rainer, 2006. "Modelling long-term oil price and extraction with a Hubbert approach: The LOPEX model," Energy Policy, Elsevier, vol. 34(15), pages 2413-2428, October.
  10. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-34, December.
  11. Soderbergh, Bengt & Robelius, Fredrik & Aleklett, Kjell, 2007. "A crash programme scenario for the Canadian oil sands industry," Energy Policy, Elsevier, vol. 35(3), pages 1931-1947, March.
  12. McDonald, Alan & Schrattenholzer, Leo, 2001. "Learning rates for energy technologies," Energy Policy, Elsevier, vol. 29(4), pages 255-261, March.
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