Canada's oil sands sector expects to boost its production by 1.55 million barrels a day between now and 2030 despite depressed prices and fierce political opposition to pipelines that the industry says it urgently needs to reach new markets.
In its annual forecast released Wednesday, the Canadian Association of Petroleum Producers reduced its 2030 forecast by 300,000 barrels a day from its 2015 outlook, but still predicts substantial growth. And the association said the industry desperately needs new pipelines as current supply from Western Canada is already sufficient to fill existing capacity.
"The need to build new infrastructure within Canada is clearly urgent," CAPP president Tim McMillan said.
"New pipelines will deliver more Canadian energy to Canadians, build our country's economic prosperity and help Canada meet the world's growing energy needs."
However, the proposed pipeline projects are encountering staunch opposition from some local politicians, First Nations and environmentalists who warn about catastrophic spills argue that building long-term oil and gas infrastructure is inconsistent with Canada's commitment to reduce greenhouse gas emissions.
"I can understand why oil companies want Canadians to believe our energy future is tied to what they are selling, but our governments should acknowledge that there is no market for this additional high-carbon oil in a world that is acting on climate change," Greenpeace Canada campaigner Keith Stewart said.
In its forecast – which is based on a survey of member companies – CAPP said oil sands producers intend to add 850,000 barrels a day (b/d) between 2015 and 2021, largely as a result of projects begun before the 2014 price collapse. Between 2021 and 2030, producers are expected to boost supply by 700,000 b/d, despite the cancellation or delay of numerous major projects over the past two years.
The industry has several pipeline projects at various stages of review, including Kinder Morgan Inc.'s Trans Mountain expansion and TransCanada Corp's Energy East. But their fate remains uncertain, given court challenges from First Nations and noisy political opposition.
The country's pipeline network can move about four million b/d, which was roughly equal to the average production last year plus the amount of diluent needed to be mixed with the raw bitumen so it can be shipped through the pipelines, CAPP said. There are also 754,000 barrels of oil equivalent a day in rail-loading capacity, a more expensive means of transporting crude than pipelines.
All told, the industry expects to boost crude production by 28 per cent over the next 15 years to 4.9 million b/d. That's 400,000 b/d fewer than the 2030 forecast issued last year. The oil sands will account for 3.7 million b/d of that 2030 total, the industry said.
"What is keeping it going is that global demand continues to increase," Mr. McMillan said in an interview from Calgary. "All forecasts show the demand for crude oil is going to increase fairly substantially between now and 2030. And Canada … can be that supplier of choice."
However, CAPP's expectation for substantially increased global crude demand is based on an assumption that the world will not meet the goal of holding the global temperature increase to less than two degrees above preindustrial levels. Under a two-degree scenario, the International Energy Agency sees global oil demand peaking and declining to 87 million barrels a day by 2035.
Even with lower demand, the world will need investment in new production to offset declines in existing fields, Mr. McMillan said.
However, there are big questions about the pace and scale of growth in northern Alberta, given the slump in prices with North America's trendsetting West Texas intermediate trading around $50 (U.S.) a barrel.
After repeatedly slashing spending, Suncor Energy Inc. and Husky Energy Inc. are among oil sands companies poised to generate significant cash flow as oil prices recover to the range of $50 to $60 a barrel this year, analysts at Citigroup Global Markets Inc. said in a research note on Thursday.
However, they said growth prospects in the sector remain challenged, even after accounting for deflation and lower natural gas input costs. To generate sufficient returns, companies will need to significantly lower costs under a scenario in which U.S. shale output caps future oil prices at or under $75 a barrel, as many forecasters predict.
"The large upfront costs of the oil sands also pose a challenge in a volatile oil price environment by exposing capital for a longer period," the Citi analysts said. That will limit production gains, with future activity focused on squeezing more crude from existing plants, rather than building hugely expensive projects from scratch, they said.
Oil market balance
Rising petroleum demand in China, North America and Europe will help bring global oil markets into balance this year, BP PLC chief executive Bob Dudley said.
"Global supply and demand recently have moved toward a better balance, and we expect this trend to continue into the second half of 2016 and probably reaching a balance by the end of the year on a daily basis," Mr. Dudley said in a speech to the Economic Club of Washington. As stockpiles are drawn down, oil prices will probably reach $50 (U.S.) a barrel by the end of the year and $50 to $60 next year, he added.
Crude prices in New York have rebounded by about 90 per cent since hitting a 12-year low in February, hovering around $50 a barrel, as U.S. output has declined and disruptions in Nigeria and Canada pared supplies. It's still worth less than half its peak price in mid-2014 though, which has forced BP and other producers to slash spending and defer new projects. That approach should continue even as BP works to replenish naturally declining reserves.
"We're not expecting the days of $100 oil to return anytime soon, so we must maintain our discipline and continue to improve our productivity or we won't survive," he said. "We've got about 40 projects that look economic between now and the early 2020s that we can see."