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Volatility of bitumen prices and implications for the industry

Natural Resources Research

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DOI: 10.1007/s11053-008-9078-5

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Abstract

Sustained crude oil price increases have led to increased investment in and production of Canadian bitumen to supplement North American oil supplies. For new projects, the evaluation of profitability is based on a prediction of the future price path of bitumen and ultimately light/medium crude oil. This article examines the relationship between the bitumen and light crude oil prices in the context of a simple error-correction economic-adjustment model. The analysis shows bitumen prices to be significantly more volatile than light crude prices. Also, the dominant effect of an oil price shock on bitumen prices is immediate and is amplified, both in absolute terms and percentage price changes. It is argued that the bitumen industry response to such market risks will likely be a realignment toward vertical integration via new downstream construction, mergers, or on a de facto basis by the establishment of alliances. ?? 2008 International Association for Mathematical Geology.

Additional Publication Details

Publication type:
Article
Publication Subtype:
Journal Article
Title:
Volatility of bitumen prices and implications for the industry
Series title:
Natural Resources Research
DOI:
10.1007/s11053-008-9078-5
Volume
17
Issue:
4
Year Published:
2008
Language:
English
Larger Work Type:
Article
Larger Work Subtype:
Journal Article
First page:
205
Last page:
213
Number of Pages:
9