Large production growth is expected for Canada’s oil sands through to 2019, says a new report.
The IHS Markit 10-year production forecast also predicts more modest and steady growth after next year through to 2027.
The company forecasts production to rise more than half a million barrels per day in 2019 and up to one million barrels per day higher by 2027 compared to today.
“Pipeline constraints have exacerbated price discounts for Western Canadian heavy oil relative to global benchmarks. Over the past 12 months alone, the difference in price compared to a barrel of West Texas Intermediate (WTI) has fluctuated just under $10 per barrel to more than $30,” said Kevin Birn, executive director of IHS Markit, who heads the Oil Sands Dialogue. “This sort of price volatility is weighing on investment decisions in western Canada and will likely continue to do so until greater certainty can be achieved.
“Over the long term, the timing of the new pipelines will be key. Even when greater certainty on infrastructure is achieved, it will take time for the impact of subsequent investment decisions to play out on production growth because of the lead time involved in oil sands development. The current growth trajectory was a long time in the making, it has taken a time to slow, and it will take time to recover.”
The report said the Canadian oil sands have gained importance to the heavy oil market as the only source of material supply growth in the world for that type of crude. “Output from other large producers of heavy oil — most notably Venezuela, where production has fallen by more than one million barrels per day in recent years and is expected to fall further — has declined,” said IHS Markit. “Despite this increased prominence in heavy oil markets and higher oil prices in recent months, the new outlook still expects production growth to moderate after 2019, similar to previous IHS Markit expectations for oil sands production.
“The strong growth in the near term is expected to come from the completion of projects sanctioned prior to the oil price collapse, the revival of some deferred projects as well as some new investments in capital efficiency projects. Following 2019, uncertainties related to much-needed infrastructure – particularly pipeline takeaway capacity – point to a deceleration of growth.”
Respected business writer Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald in various capacities, including 12 years as a senior business writer.
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