Alberta's oil patch would have to re-engineer itself if oil exports to the United States fall 60 per cent in the next decade, as a new report predicts.
The International Energy Agency's World Energy Outlook notes that the rapid spread of fracking technology is allowing the United States to add more oil and gas production than any other country in the world. Output has been climbing by 500,000 barrels per day, a pace that puts the U.S. on track to become the world's largest oil producer by 2017.
This is not good news for Canadian oil producers who export 98 per cent of domestic production – 2.2 million barrels per day – to destinations south of the border (see chart at left). Billions of dollars in investment in the oil sands and domestic shale deposits have seen Canadian crude exports to the U.S. rise 27.1 per cent since the beginning of the millennium, making Alberta the country's dominant economic force.
Soaring U.S. production is likely to crimp demand from south of the border for Alberta's output. While the growing appetite from emerging economies makes it likely that Canada will always have buyers for its energy production, the glory days of the oil patch may be behind us.
As U.S. production grows, Canadian oil and gas will have to find new markets for its expanding output – a task that will require a complete reworking of traditional routes to market. There will have to be investment in pipelines and West Coast port facilities to transport energy to the growing economies of Asia. Profits are likely to be squeezed, particularly if rising U.S. production creates enough supply to dampen global energy prices.
The Americans face issues of their own, not least the considerable amount of pipeline construction required to move oil and gas from producing areas to the densely populated markets in the northeast. And there is the possibility that the shale revolution could produce dwindling results. The rapid depletion of shale reserves – production routinely declines 40 per cent after one year of operation – suggests that the lofty targets projected by the IEA are not guaranteed.
Nonetheless it is difficult to see how Canadian energy exports to the United States can grow at anywhere close to the current pace, or grow at all, if our neighbour does succeed in becoming the world's largest oil producer. The IEA's projection that the U.S. will become "all but self-sufficient" by 2030 brings up the possibility that Canadian exports south could dwindle to levels near zero in the next 15 years.