IHS Markit’s 10-year forecast expects Canadian oil sands production in 2030 to be 3.6 million barrels per day, well above the current level, but lower than prior projections.
On Canadian oil sands production:
Fully recovered from last year’s “COVID-19 Shock”, the largest contraction of upstream production in Canadian history, and has exceeded pre-pandemic levels.
However, lingering COVID impacts, pipeline constraints and uncertainties related to an accelerating energy transition have reduced the longer-term growth projection for oil sands.
Latest forecast by the IHS Markit Oil Sands Dialogue:
IHS Market expects Canadian oil sands production to reach 3.6 million barrels per day (MMbd) in 2030, an increase of 650,000 barrels per day compared to 2021 levels (900,000 b/d from 2020). The previous IHS Markit forecast expected production to reach 3.8 MMbd in 2030.
“Canadian oil sands production recovered rapidly to exceed pre-pandemic levels by the end of 2020 and the outlook for longer-term growth remains substantial,” said Kevin Birn, vice president and head of Canadian oil market, IHS Markit. “Nevertheless, lingering impacts from the “COVID-19 Shock,” delays to critical transportation infrastructure, and rising energy transition pressures have trimmed that growth outlook from previous estimates.”
Even prior to the pandemic, IHS Markit expected the coming decade to be one of sustained-but-slower growth for the oil sands. Transportation constraints such as a lack of adequate pipeline capacity and the resulting sense of price insecurity in western Canada weigh on new large-scale incremental investments.
“Although oil prices have rebounded and even exceeded pre-pandemic levels, producers are prioritizing rebuilding their balance sheets, paying down debt and returning cash to shareholders,” said Birn. “These trends, which will delay a rise in upstream spending in the oil sands, factored into the reduction in the IHS Markit long-term growth expectation.”
Cancellation of the Keystone XL pipeline:
The cancellation isn’t expected to carry an immediate impact on the latest IHS Markit outlook.
However, pipelines continue to be a source of uncertainty that factors into the overall outlook.
If Enbridge Line 3 and Trans Mountain pipeline, as well as other announced optimizations, are able to proceed as planned pipeline export capacity may be adequate to keep the market balance. However, in the absence of Keystone XL pipeline, there is the potential for high levels of export pipeline utilization which would leave little room to absorb any system upsets and could contribute to regional price volatility.
Economics of existing oil sands operations:
Will continue to prove attractive and resilient. Uncertainties about the pace of energy transition and future demand factored into the new IHS Markit outlook.
Although the industry has driven down the price at which new thermal oil sands projects can break even into a range similar to that of U.S. shale, the longer lead times and greater upfront out-of-pocket expense required to bring new oil sands projects online are likely to disincentivize new oil sands projects compared to shorter-cycle shale.
Less emphasis on longer lead time, more capital-intensive new projects suggest that the outlook for oil sands is also increasingly resilient. More than 80% of the growth in the new IHS Markit outlook is expected to come from the ramp-up, optimization and completion of projects where some capital has already been invested. Nearly two-thirds alone is expected to come from just the ramp-up of existing operations.
IHS Markit believes there is potential for higher production principally from debottlenecking and optimization projects of existing operations.
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