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Canada missing opportunities to capacity lack and regulatory trouble
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Canada's oil sector is missing a significant opportunity to benefit from the global commodity price and finally receive fair market value for Canadian resources, according to the Canadian Association of Petroleum Producers' (CAPP) 2019 Crude Oil Forecast, Markets and Transportation report.
The report shows a constrained outlook for Canadian oil production over the forecast period from 2019 to 2035 and, although the country's overall crude oil production is expected to grow over the coming years, that growth forecast is significantly reduced from previous expectations. Pipeline constraints, a lack of market diversity, and inefficient regulations are largely responsible for holding back Canada's oil sector.
CAPP projects Canadian crude oil production will increase by 1.27 million barrels per day (b/d) to 5.86 million b/d by 2035. This represents a 1.44 per cent annual increase, a growth rate less than half of what was projected in CAPP's 2014 outlook.
"We need pipeline capacity and more efficient regulatory policy to help bring investment back to the oil sector and drive growth. CAPP has been vocal in its concerns about the challenges facing Canada's energy industry and our forecast demonstrates the impact these challenges are having on the overall economy," said Tim McMillan, CAPP president and CEO. "Canadians are being left on the sidelines while global demand for oil and natural gas is rapidly growing. We are positioned to be a leading supplier of the most responsibly produced oil and natural gas on the planet but our lack of pipelines and inefficient regulatory reality means that other suppliers, with lesser environmental and social standards, are taking our market share."
This year, capital spending in the oil sands is set to decline for a fifth consecutive year to roughly $12 billion, approximately one-third of the investment seen in 2014. Conventional oil producers are expected to drill fewer wells in 2019 compared to either of the two previous years, and activity is not likely to improve without better market access via pipelines.
Overall, capital investment across Canada's oil and natural gas industry is forecast to fall to $37 billion in 2019 compared to $81 billion in 2014. With global demand for crude oil expected to grow through to 2040, Canada has the opportunity to reclaim over $40 billion of investment if it addresses the key challenges surrounding access to international markets and regulatory and fiscal policy both federally and provincially.
If those challenges are not met, any meaningful increase in oil production will not be achievable, reducing potential growth in Canada's gross domestic product (GDP), business investment, exports, and jobs.
- Production in Eastern Canada is forecast to peak at 354,000 b/d in 2026 (353,000 of that from offshore Atlantic Canada) before falling to about 91,000 b/d in 2035.
- Total production growth in Western Canada is forecast to reach 5.76 million b/d in 2035 from 4.36 million b/d in 2018.
- The Canadian situation is in sharp contrast to growing energy demand and production elsewhere. The Energy Information Administration in the United States recently forecast larger than expected growth in U.S. crude oil production, reaching 13 million b/d by the end of 2019. The U.S. is anticipated to become a net exporter of petroleum and liquids by the fourth quarter of this year.
- By 2040, global oil demand is anticipated to increase 12 per cent, to 106.3 million b/d. Across the Asia-Pacific region, oil consumption and refinery demand are growing significantly, and refinery demand in the United States is robust.
- Today, nearly all of Canada's oil exports are delivered to U.S. refineries. In 2018, Canada exported more than 3.6 million b/d to the U.S., while less than one per cent of exports were delivered to other markets. Domestic Canadian refinery markets account for about one million b/d, or 24 per cent of total demand for Canadian production.
- In its 2018 World Energy Outlook, the International Energy Agency projected oil consumption will comprise 27 per cent of total world energy demand, or 105 million b/d, by 2040 - representing the largest share of any fuel source.
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