The Canadian Association of Petroleum Producers (CAPP) has released its report, Crude Oil Forecast, Markets and Transportation 2019. This much-anticipated annual report is a country-wide snapshot, outlining crude oil production and supply from all Canadian sources, plus projected production for the forecast period 2019 to 2035 and issues affecting production during the forecast period.
CAPP projects serious constraints to Canada’s crude oil production over the forecast period, due to a number of ongoing challenges including cumulative regulatory and policy challenges and insufficient market access. CAPP concludes that if these challenges are not successfully addressed, any meaningful increase in oil production will not be achievable, ultimately reducing potential growth in Canadian GDP, business investment, exports, and jobs.
“We need pipeline capacity and more efficient regulatory policy to help bring investment back to the oil sector and drive growth,” says Tim McMillan, president and CEO. “CAPP has been vocal in our concerns about the challenges facing Canada’s energy industry and our forecast demonstrates the impact these challenges are having on the overall economy.”
The Canadian situation is in sharp contrast to growing energy demand and production elsewhere. By 2040, global oil demand is anticipated to increase 12 per cent, to 106.3 million barrels per day (b/d). Across the Asia Pacific region, oil consumption and refinery demand are growing significantly, and U.S. refinery demand is robust.
Canada has an opportunity to gain global market share by replacing less sustainably produced oil sources. At the same time, a healthy Canadian industry with access to global markets ensures ongoing prosperity and economic benefits across the country.
CAPP’s full report can be found here.
Production and Supply
Canadian crude oil production is expected to grow 1.28 million b/d by 2035, about 130,000 b/d less than CAPP’s 2018 forecast. Annual production is projected to increase by an average of four per cent until 2021, then slow to an average growth rate of two per cent annually. Oil sands production is expected to reach 4.25 million b/d by 2035 from 2.9 million b/d in 2018 – 205,000 b/d less than CAPP’s previous forecast.
Total western Canadian supply (which includes diluent volumes) is expected to reach 6.34 million b/d in 2035, from 4.66 million b/d in 2018. For comparison, in 2014 CAPP projected total supply from Western Canada would grow to 7.5 million b/d by 2030.
Major pipeline projects such as Northern Gateway and Energy East have been cancelled, in addition to delays to the Enbridge Line 3 Replacement project, Trans Mountain Expansion project and TC Energy’s Keystone XL project. All three pipeline projects were delayed in 2018 and price differentials reached record highs, resulting in the Alberta government implementing a production curtailment program.
As a result, Canadian producers are faced with insufficient takeaway capacity for crude oil. This limits Canada’s ability to serve existing domestic and U.S. markets, and prevents Canada from accessing emerging overseas markets.
MacMillan says, “Canadians are being left on the sidelines while global demand for oil and natural gas is rapidly growing. We are positioned to be a leading supplier of the most responsibly produced oil on the planet but our lack of pipelines and inefficient regulatory reality means that other suppliers, with lesser environmental and social standards, are taking market share.”
Continued regulatory and policy burdens create significant barriers to future investment, putting Canadian jobs at risk. Additionally, while the U.S. has aggressively reformed regulations and tax measures to promote its own oil industry, proposed Canadian federal legislation will establish barriers to industry growth and will negatively affect investor confidence.
The Canadian oil sands industry is set to post its fifth consecutive annual decline in investment in 2019.
Fair Market Value
Pipeline constraints and lack of market diversity also mean Canada is losing value for crude oil exports. Canadian producers are not benefiting from the global commodity price recovery. The key to obtaining better value for our resources in global markets is to build new as well as improve existing infrastructure, allowing Canadian energy to compete for emerging global markets.
Resolving current regulatory and policy barriers is essential to unlocking the future of Canada’s energy industry – and indeed to Canada’s future prosperity. Canada is in the unique position of having abundant natural resources but insufficient pipeline and other infrastructure to grow exports of Canadian oil to U.S. and global markets.