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Energy research firm Wood Mackenzie believes higher cost oil-producing formations around the world would need to shut in production amid the oil price rout, unlike in 2014 when sub US$35 per barrel Brent oil prices lasted for only one quarter.

These prices are well below the break-even cost for the Canadian oilsands producers, which risks posting massive losses this year as low prices persist.

“Canada’s oilsands are at the upper end of the (cost) curve, even in a benign price environment,” said Fraser McKay, vice-president, upstream at Wood Mackenzie, in a report released Friday.

He noted that if the Brent crude oil benchmark averages US$35 per barrel over the course of 2020, “we would expect corporate cash flow from the sector to be US$17 billion in the red,” and the Alberta government would also forego $2 billion in royalties.

Canada’s oilsands are at the upper end of the (cost) curve, even in a benign price environment Fraser McKay

While the costs are high, McKay noted that it’s difficult to shut in or suspend oilsands operations as steam-based producers are concerned that letting a formation go cold would damage the reservoirs.

“The sector will do everything it can to trim costs first,” he said.

Wood Mackenzie isn’t the only firm predicting oil production cuts in Canada.

On Monday, Rystad Energy warned that oil production cuts in Canada “are imminent as storage is days away from full capacity.”

The Oslo, Norway-based firm predicted that Canadian oil producers would cut 440,000 bpd of production as oil storage tanks in Alberta are reaching their peak capacity of 40 million barrels of storage.