Despite the discord between Ottawa and the fossil fuel sector, Canada’s oil industry appears poised to set a global record for production increases this year that could “aid in a soft landing” for the economy, an analysis by Toronto-Dominion Bank suggests.
“The year ahead is shaping up to be a promising one for Canada’s energy sector,” Marc Ercolao, an economist at TD, said in a report on March 7. “Canada has the potential to be the largest source of crude supply growth to the global market.
He estimates that an expected jump in output of 300,000 to 500,000 barrels per day (bpd) could vault the sector ahead of the United States.
“In this sense, Canadian oil will continue to gobble up global market share” — about six per cent of global production, Ercolao said.
As a result, the economist said the oil industry “will carry positive impacts for Canadian real (gross domestic product), aiding a 2024 soft-landing scenario.”
He estimates the oil sector, which accounts for four per cent of real GDP, could end up boosting Canada’s growth this year by 0.2 to 0.4 percentage points.
“This is potentially impactful as Canada enters a cyclical slowdown, where we expect growth to register under one per cent,” he said.
Canada currently produces 4.9 million barrels of oil per day, placing it fourth behind Saudi Arabia, the U.S. and Russia for output.
However, Ercolao estimates Canadian production this year could soar to a range of 5.2 million bpd to 5.4 million bpd — “a record high” for the sector — if the increase in output tops out at the high end of his range. Even at the low end, the increase in production could outpace that of the U.S., which is forecasted to rise by a “more modest” 170,000 bpd.
Three of the world’s major energy forecasters are calling for most of the increase in supply to come from non-members of the Organization of Petroleum Exporting Countries this year, mainly Canada, the U.S., Brazil and Guyana.
Based on TD’s estimates, Ercolao said Canada could capture between 25 per cent and 67 per cent of global supply growth, more than the other three major contributors, with each projected to add 200,000 bpd.
The expected production surge is well-timed. It could help the oil sector capitalize on the “record quantities” of Canadian crude the U.S. is currently importing, allowing Canada to secure a larger share of the American import market than the 60 per cent it already holds.
Higher oil prices won’t hurt, either, he said.
“This boost in demand should provide a tailwind for the Canadian economy,” he said, with a large chunk of the growth … supported by the completion of the Trans Mountain Pipeline expansion.”
The federal government’s controversial pipeline, years behind schedule and much more expensive than predicted, is scheduled to be up and running in the second quarter. Alberta’s oilsands unleashed record amounts of production at the end of last year to take advantage of the expanded pipeline’s capacity to 890,000 bpd from 300,000 bpd.
Besides getting more Canadian crude to market, Ercolao forecasts, as do others, that the Trans Mountain’s capacity will help shrink the discount between the U.S. benchmark West Texas Intermediate and Western Canadian Select, possibly to $3 to $4 per barrel from the $18 to $20 that has been in place during the past several years, “which will incentivize production and support industry profitability.”
But the picture for Canadian oil production starts to sour looking ahead to 2025.
Ercolao said he expects the industry to run headlong into fresh pipeline capacity shortages that will push down the price of Canada’s benchmark crude and slow production to a two per cent increase, or 100,000 bpd — less than the historical average of 150,000 bpd.
“Past this, production prospects, including future investment decisions, are clouded by the proposed federal emissions cap on the upstream production sector, along with a suite of policies aimed at curbing downstream emissions and demand, such as the Clean Fuel Regulations,” he said.
But he said some of these challenges could be mitigated if the sector in Alberta is able to push ahead with a massive carbon-capture project being proposed by Pathways Alliance, a group of major oilsands players.
Oil & Gas Operator Lists
