(Adds quotes, details on other heavy crudes)
By Nia Williams
CALGARY, Alberta, Jan 6 (Reuters) - Benchmark Canadian heavycrude prices crashed below $20 a barrel on Wednesday, the lowestin at least a decade, piling more woe on one of the world'shighest-cost oil patches and driving much of the sector deeperinto the red.
With variable cash costs at some of the largest of Alberta'svast oil sands operations estimated at above $40 a barrel, the14 percent plunge in outright Canadian heavy prices this weekmay finally force some weaker players to consider shutting downoperations rather than racking up losses on every barrel theyextract, analysts said.
On Wednesday, U.S. crude futures slid nearly 6percent to as low as $33.77 after data showed the biggest weeklybuild in gasoline stocks since 1993.
Western Canada Select (WCS) heavy blend crude for February delivery traded at a discount to WTI of around$14.05, according to Shorcan Energy brokers, putting theabsolute price of the Canadian oil sands benchmark blend as lowas $19.72 a barrel. It had averaged $23.57 in December.
The sharp price slump was the latest bad news for oil sandsoperators who have watched the price of their crude, among theworld's cheapest because of its difficult-to-refine density andhigh cost of transportation to the main U.S. buyers, plummetfrom more than $85 a barrel in 2014.
"This is a very, very harsh reality for heavy oilproducers," said Judith Dwarkin, chief economist at RS EnergyGroup in Calgary. "They are - as they spent most of last yeardoing - trying to survive by cutting costs, increasingproduction to generate cash flow and borrowing if they can."
Northern Alberta's vast oil sands hold the world'sthird-largest crude reserves but carry some of the highestproduction costs globally due to energy-intensive production.
Most companies will likely keep producing even if the crudeprice does not cover cash operating costs, cushioned in smallpart by the Canadian dollar's fall to a 12-year low versus theU.S. greenback. The companies sell their crude in U.S. dollarsbut pay costs in loonies.
Royal Dutch Shell, whose Albian Heavy Syntheticcrude produced at its Scotford, Alberta, upgrader was trading atan even deeper $15.55 per barrel discount to U.S. crude onWednesday, is not considering slowing or shutting down oil sandsproduction, said spokesman Cameron Yost.
"We believe in the long-term fundamentals of the industry,and these are operations that have long operating life spans of30 to 40 years," he said. Shell also produces light syntheticcrude, which trades at a higher price, and sends most of itsoutput to its nearby Scotford refinery.
But others could be running out of options, according toBarclays oil analyst Warren Russell.
"There may be situations where people are either reachingthe end of the line on their capital available or have anoutlook that's particularly bearish. If you were in that camp,there's potential you could shut in production," he said.
UNDERWATER UNDER U.S. CRUDE $40
A January presentation released by producer Canadian OilSands Ltd, which is fending off a hostile takeover bidfrom competitor Suncor Energy, showed the averagebreakeven U.S. crude price at 10 of the biggest oil sandsprojects is $41 a barrel.
The analysis includes mining and upgrading projects such asImperial Oil's Kearl facility, which producehigher-priced light synthetic crude oil. But evenmost of those projects are in the red at current prices.
For producers of heavy Canadian grades aside from WCS, theeconomics are even worse. Sour crudes such as Cold Lake,produced by companies including Imperial and Cenovus Energy, and Access Western Blend, produced by MEG Energy, typically trade another $1-$2 a barrel lower. (Editing by Jonathan Oatis)
