The Canadian Association of Petroleum Producers (CAPP) is forecasting a 14 per cent increase in upstream natural gas and oil investment in 2021. Capital spending in the sector is expected to reach about $27.3 billion, an increase of around $3.36 billion from the estimated total investment of $24 billion in 2020 — which was the lowest in more than a decade.
The 2021 increase would reverse a dramatic decline that started in 2014, when upstream capital investment reached $81 billion. The spending increase denotes a stabilizing of industry investment and the beginning of a longer-term economic recovery. It also counters the capital spending trend in the United States upstream natural gas and oil industry, which fell approximately 40 per cent in 2020 and is expected to decrease another 15 per cent in 2021.
“It is a positive sign to see capital investment moving up from the record lows of 2020,” says Tim McMillan, CAPP president and CEO. “This projected increase can be read as the start of what we expect will be a long road to economic recovery for the natural gas and oil industry, and signals that producers are invested in Canada’s economic recovery.”
He adds, “With some hard work, we can build momentum from this positive news and position Canada for success as economies around the world recover.”
The additional spending is primarily focused in Alberta and British Columbia, while numbers in Saskatchewan show modest improvement and offshore investment in Atlantic Canada is expected to remain stable compared to 2020. Conventional oil and natural gas capital investment for 2021 is forecast at $20 billion, up from an estimated $17.2 billion last year. Capital investment in the oil sands is forecast at $7.3 billion in 2021, up from an estimated $6.7 billion total in 2020.
The expected 2021 spending increase is partly due to anticipated widespread availability of COVID-19 vaccines, leading to increased global economic activity and energy demand. Federal and provincial government support in Canada is also a contributing factor.
The International Energy Agency (IEA) projects the global economy will return to pre-COVID levels in 2021 while global energy demand is expected to reach pre-pandemic levels in 2023. This growth offers significant opportunity for Canadian natural gas and oil producers as their access to global markets expands.
“As one of the country’s largest private investors and employers, the natural gas and oil industry can be a driver for national economic recovery,” McMillan says. “The industry is committed to working with governments at all levels, to create an environment where businesses can thrive and attract investment back to Canada. This is how we will maintain jobs and create new opportunities for Canadians.”
One year ago, CAPP’s initial forecast for 2020 expected investment to reach $37 billion. However, a crude oil price war between Russia and Saudi Arabia in March 2020 and the global economic impacts of the COVID-19 pandemic contributed to an unprecedented 31-per-cent drop in investment, wiping out more than $12 billion of planned spending in Canada’s upstream industry.