In the eyes of the energy sector, Fort McMurray, Alta., has never looked so promising.
The oil sands are entering a period of remarkable growth, doubling output in a decade – tripling in 15 years – and blowing past expectations from only 12 months ago, according to a sunny new industry forecast.
Recent months have seen the oil patch hit by waves of bad omens: industry leaders, concerned about unsustainable costs, have abandoned giddy growth targets. Efforts to sell oil sands properties have been abandoned, unfulfilled, amid buyer skepticism. Canadian oil prices have spiralled, then recovered – although worries remain about the value of Alberta crude.
The possibility of an expanded Alberta carbon tax threatens new costs. TransCanada Corp.'s Keystone XL project remains mired in a lengthy U.S. review; if it isn't built, analysts say, billions of dollars of spending will vanish or slow and, with that, as much as one-third of near-term growth expectations.
But optimism ranks among Calgary's most abundant commodities, and on Wednesday the Canadian Association of Petroleum Producers (CAPP) offered a far less dour view. In its annual outlook, a document that underpins the political and regulatory discussion about Canadian crude production, the industry group raised its projection of 2030 oil volumes by 500,000 barrels a day over its estimate a year ago.
By 2020, total Canadian oil output will surge by 50 per cent, according to CAPP, which projects it will more than double to 6.7 million barrels a day by 2030.
CAPP has slightly tempered its near-term oil sands outlook, saying 2014 and 2015 will see some 20,000 barrels a day less than previously expected, although overall Canadian oil output will be unaffected. And after those two years, production grows more quickly than earlier estimates.
The numbers make clear the stakes for Canada and Alberta in finding markets for oil, since the ability to pump new barrels is largely predicated on the ability to sell them.
Even with trains and the construction of every major pipeline project currently in public view – and some, including Enbridge Inc.'s Northern Gateway, are far from certain – industry will need more options by 2026, CAPP predicts.
"To enable this capacity, we will need a significant increase in capacity, which is above even the announced projects we have on the plate today," said Greg Stringham, CAPP's vice-president of markets and oil sands.
That places a substantial burden on pipeline companies, which must find ways to bury steel in places such as British Columbia, Nebraska and Quebec, where there is opposition to such plans.
On Wednesday, Enbridge chief executive officer Al Monaco described a corporate "mission" to improve safety performance enough to win public support. "It's clearly the No. 1 priority for our business today," he said. "We need to evoke a strong interest in this discussion and certainly build public trust further."
Russ Girling, CEO of TransCanada, argued that new pipelines are "better than importing the oil and there's this great opportunity for energy independence in North America." Getting there will require innovation and "finding solutions to be able to access markets on an ongoing basis. Rail, obviously, has become a very important option," he said.
"The world is not going to stop consuming oil. And therefore, we will find ways to safely deliver it to market," Mr. Girling said.
The power of rail to deliver oil on existing tracks may be underestimated, and may significantly solve transportation issues, said Peter Tertzakian, an energy economist with ARC Financial Corp. in Calgary. "One has to keep in mind that 10 unit trains is equal to one Keystone XL. And 10 trains isn't that many," he said.
The bigger issues confronting growth in the oil sands have to do with production costs and the value of crude in a world awash in growing oil output.
If "other countries start putting out a lot more oil, then the price is going to be a damper on the [Canadian] productive potential," Mr. Tertzakian said.
Labour availability is another concern. Growth in non-oil sands, or "conventional," crude also faces concerns that North America could be flooded in light oil, which could depress prices. Then there are the long-standing issues with the global competitive position of Canadian crude.
The CAPP forecast should be viewed "on very cautious grounds," said Robert Page, director of the Enbridge Centre for Corporate Sustainability at the University of Calgary. "The oil sands are just about the most expensive source of crude oil in the world," he said.
A 'good road map'
Enbridge Inc.'s chief executive officer says the B.C. government's decision to reject the Northern Gateway pipeline proposal in its current form is not a hindrance to the project. Indeed, the conditions laid out by Premier Christy Clark are a "good road map to get the project done."
Al Monaco said he has not yet had a chance to speak to Ms. Clark about her government's submission to the Joint Review Panel, a 99-page document outlining its concerns about systems for dealing with a spill, either on land or in Pacific waters. But he believes Enbridge officials will eventually be able to sit down with the province to discuss the project to carry heavy oil from Bruderheim, Alta., to Kitimat, B.C.
"I don't view it as a blow. In fact, I think that the B.C. position is pretty much what they've stated," Mr. Monaco told reporters in Calgary on Wednesday.
Last year, Ms. Clark laid out what she said were five unwavering conditions for any heavy oil pipeline to flow through British Columbia. They include stepped-up spill prevention, addressing First Nations treaty rights and ensuring that the province receives "a fair share of the fiscal and economic benefits."
Mr. Monaco said he sees such conditions "as a pretty good road map to get the project done."
The next step in the regulatory process is final oral arguments before the Joint Review Panel later this month. Mr. Monaco said Enbridge is examining what additional information it can provide to the B.C. government, but a number of issues won't be finalized until the "detailed design" phase.
Last week, B.C. Environment Minister Terry Lake said the government's submission rejecting the project wasn't "the final say in terms of the British Columbia position, but it certainly indicates that it is a very, very tall order for us to be supporting this."