The outlook for Canadian oil production has “significantly deteriorated” from just last year due in part to lack of pipeline capacity, as the U.S. shale sector is expected to dominate global crude growth, the International Energy Agency said in a forecast Monday.
As a result of the shale boom, the United States is expected to surpass Russia and challenge Saudi Arabia as the leading exporter of crude and petroleum products by 2024, the Paris-based agency said.
“The second wave of the U.S. shale revolution is coming,” Fatih Birol, the IEA’s executive director, said in a news release. “It will see the United States account for 70 per cent of the rise in global oil production and some 75 per cent of the expansion in [liquefied natural gas] trade over the next five years. This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy.”
The tremendous growth in U.S. supply poses a major challenge for Canadian producers who rely virtually exclusively on American refiners for export customers. As a growing exporter itself, the United States will have less need of Canadian supply in the future, though refiners there are still eager to purchase oil sands crude for their facilities that are specifically designed to process heavy-quality oil.
While the American production is booming, Canada’s outlook has faded over the past year as pipeline projects are stalled and crude-by-rail has failed to fill the void, the agency said in its annual oil forecast.
The lack of sufficient export capacity led to a glut of supply in Alberta last fall that depressed prices and prompted the provincial government to order an across-the-board production cut. It kicked in at 350,000 barrels a day (b/d) on Jan. 1, but has since been reduced to 250,000 b/d and is set to drop to 225,000 b/d in April.
“The outlook for Canadian oil production has significantly deteriorated,” said the IEA, which advises industrialized countries on energy policy.
“With Canadian oil prices under pressure and so much uncertainty regarding new takeaway capacity, companies have been reluctant to launch new projects,” it said. As a result, it expects Canadian crude production to expand by just 300,000 b/d by 2024 – equivalent to the increase in 2018 alone.
Energy economists said the lack of sufficient pipeline capacity and burdensome regulations are just two of the factors resulting in the lack of investment capital needed to increase production in Western Canada.
The global effort to reduce carbon emissions from oil and gas is also having an impact, which will only increase as the effects become more apparent, University of Alberta economist Andrew Leach said Monday.
“Large institutional investors are seeing carbon risk more clearly,” Mr. Leach said. At the same time, the retreat from the oil sands by multinationals companies such as Royal Dutch Shell PLC, Total SA and Norway state-owned Equinor ASA is "partly a function of oil sands’ relative emissions intensity and – perhaps more importantly – reputation globally,” he said.
The Canadian oil industry has seen capital investment evaporate compared with the boom years when the sector regularly attracted $15-billion to $20-billion in debt and equity investment, said ARC Energy Research Institute director Peter Tertzakian in a note last week. Last year, that investment amounted to roughly $5-billion and it is expected to be lower this year, he said. Among the reasons: Institutional investors are pulling back because of climate-change considerations, imposing a “de facto carbon tax on the industry’s cost of new capital,” he said.
At the same time, the boom in U.S. shale oil has meant American investors, who typically accounted for half the capital raised in Western Canada’s industry, are now investing closer to home.
The U.S. shale story continues to dominate the global market. From virtually zero, production of the light oil from the shale sector hit six-million b/d last year and is expected to climb to 9.6-million b/d by 2024, assuming prices remain around the US$50- to US$55-a-barrel mark. Total crude production in the United States should hit 13.7-million b/d in 2024.
By 2021, the United States will be a net exporter of crude and petroleum products, though it will continue to import crude for its refineries through the end of the forecast period.
CHANGE IN TOTAL OIL SUPPLY 2018-24
Million barrels per day
U.S.
Brazil
Iraq*
Norway
UAE*
Guyana
Canada
Mexico
Colombia
China
Venezuela*
Iran*
-2
-1
0
1
2
3
4
Follow related authors and topics
Authors and topics you follow will be added to your personal news feed in Following.