According to the latest forecast by the Canadian Association of Petroleum Producers (CAPP), Canada’s oil sands production is forecast to grow by 53 per cent by 2030. This means that Canada will need more pipelines to transport growing crude oil supplies to markets across North America and around the world.
“The urgent need for new pipelines to increase our competitiveness continues to be one of the biggest challenges facing our industry. Without access to emerging new markets we’re putting our economy at risk,” says CAPP president and CEO Tim McMillan.
CAPP’s 2017 Crude Oil Forecast, Markets and Transportation report also documents a troubling trend: falling investment in the oil sands industry. This trend highlights some key competitiveness challenges that are tempering the industry’s long-term growth prospects: challenges that must be overcome if Canada is to realize its potential as a global energy supplier.
Growth and access to new markets
According to the forecast, production in the oil sands will jump by 1.3 million barrels per day (b/d) to 3.7 million b/d by 2030. Conventional crude oil, meanwhile, will produce 884,000 b/d on average throughout the forecast period.
Growth in oil production will drive economic growth for the entire country—creating jobs while generating government revenues. The industry also creates significant spinoff economic benefits to service and supply companies across the country, including thousands across B.C., Ontario and Quebec.
Growing oil production also means that by 2030, total Western Canadian crude oil supply volume will reach 5.4 million b/d. That’s well in excess of the current pipeline takeaway capacity for the region of 4.0 million b/d. Without new pipelines to reach more markets, Canada could miss out economically.
“We’ll be captive to supplying limited existing North American markets for less than the global value,” says Nick Schultz, vice-president of CAPP. “As well, it’ll mean more oil gets transported by other means, such as by rail.”
“It really places urgency on moving the pipeline projects forward to construction and operation to get our products to expanded markets in North America and globally,” adds Schultz. “Pipelines are the safest and most cost-effective means of transporting oil long distances over land.”
In the past year, pipelines such as Trans Mountain Expansion Project, Enbridge Line 3, and Keystone XL have been approved and, if built, will provide much-needed pipeline capacity to access North American and Asian markets. However, Energy East is still needed to further connect Canada’s growing supplies to markets in Eastern Canada, Europe and elsewhere.
Competitive Headwinds
Western Canada’s crude oil supply is forecast to grow a robust five per cent per year to 2020. However after 2020, growth slows to two-per cent per year out to 2030.
Slowing industry growth is largely connected to a dramatic fall in investment in Canada’s oil sands industry. CAPP estimates that capital spending by oil sands producers will decline for a third consecutive year in 2017: falling from $34 billion in 2014 to a forecasted $15 billion in 2017.
Meanwhile, drilling by conventional crude oil producers is forecast to rebound 70 per cent compared to 2016 levels. However, this will still be 40 per cent lower than in 2014.
Several factors are tempering the industry’s long-term growth prospects. One is that Canada’s policies and regulations for the industry are becoming increasing stringent and costly, which reduces attractiveness for investment. External factors are also weighing on investment decisions, including the continued global low-price environment for oil, uncertainties over potentially protectionist U.S. trade policies, and the potential for diverging environmental policies between Canada and the U.S.
“Canadian crude oil producers continue to face a number of challenges such as industry competitiveness, regulatory uncertainty, and low commodity prices, in addition to lack of access to new markets,” says McMillan, “The success of Canada’s energy future relies on the ability to overcome these challenges.”
Global Opportunities
In its 2016 World Energy Outlook report, the Paris-based International Energy Agency forecasts combined demand growth from China and India at 10.1 million barrels per day of oil by 2040. That’s more than 90 per cent of the total world demand increase from 2015 to 2040. Asia provides a significant export opportunity for Canadian oil—provided producers can get their product to tidewater.
Another significant opportunity is the U.S. Gulf Coast. The region has an estimated heavy oil processing capacity of more than two million barrels per day. As such, the area is ideally suited to refining forecasted Western Canadian heavy oil supplies.
There’s also Eastern Canada, which currently imports 613,000 barrels per day from foreign sources, including Saudi Arabia, Algeria, Nigeria, Norway and the United States. The opportunity to displace foreign oil with oil produced in Western Canada would support jobs all across the country and keep revenues inside Canada’s borders. The use of domestic oil over foreign oil is a position that 68 per cent of Canadians support, according to a June 2017 Ipsos survey which CAPP commissioned.
The first-of-its kind international energy attitudes survey, called Global Energy Pulse, also found that when people around the world were asked what country they’d prefer importing their oil from, Canada topped a list of 11 oil and natural gas producing countries.
“It’s clear from the survey that the world wants our oil and natural gas,” says Jeff Gaulin, vice-president communications at CAPP.
“Canada’s ability to produce oil responsibly and sustainably positions Canada as a global energy leader,” he adds. “Our world-class regulatory system guarantees we meet stringent standards that exceed other producing nations.”
“Now we just need to get that clean, responsible Canadian oil to the global markets that want it,” says Gaulin, “Which means building pipelines heading east, west and south: this is an urgent priority for our industry and for all Canadians.”
