In the energy space, the oil sands capture much of Canada's attention. But take a peek at light oil for just a brief second, and you'll notice one thing: the production growth is staggering.
Earlier this year, Raymond James ran the numbers using a bottom-up analysis and estimated that U.S. crude production growth will grow roughly 10 per cent annually for the next five years at least, or about 1 million barrels a day.
Here in Canada, the firm also highlights strong light oil production growth, noting a 7 per cent bump in 2011. But it's not just this one investment bank who holds such optimism. Canada's National Energy Board, a typically "austere and conservative" group, according to Raymond James, have also highlighted the growth, expecting Alberta and Saskatchewan's light crude production to jump another 7 per cent in 2012.
What's driving this? A few things, but chiefly: 1) applying multi-stage horizontal well design to tight plays, and 2) increasing the number of oil rigs. Raymond James points out that the U.S. oil rig count is now 1,322, the highest since 1986, and the Canadian oil rig count, as of the first quarter of 2012, set a new record at 526.
Can it continue? No one knows, but here are two important things to consider, from both sides of the argument. First, though it may seem like this sort of production can easily continue for the foreseeable future, keep in mind that each light oil play has only a finite number of highly productive well locations. Yet on the other hand, doubters said the same thing about shale natural gas a few years back. Since, U.S. gas production has grown 28 per cent , and the price of natural gas has plummeted from about $10 per thousand cubic feet to $2 per thousand cubic feet.