BMI View: Our growth outlook for Canada's oil and gas industry remains modest given mounting headwinds in both the upstream and midstream sectors amid a lower oil price environment . The greatest threats to these projects are unfavourable project economics and regulatory headwinds that will hamper the growth of oil sands-driven production and LNG terminal development, weighing on total hydrocarbon output. This is exacerbated by the likely drop in exploratory activity throughout Canadian acreage as companies revise capital expenditures in the coming years, with reserves likely to suffer as a result.
|e/f = BMI estimate/forecast. Source: National Sources, BMI|
|Crude, NGPL & other liquids prod, 000b/d||4,000.9||4,312.0||4,585.5||4,780.9||5,004.9||5,112.7||5,179.8|
|Refined products production, 000b/d||1,894.0||1,912.9||1,893.8||1,893.8||1,893.8||1,884.3||1,874.9|
|Refined products consumption & ethanol, 000b/d||2,456.2||2,511.5||2,489.4||2,491.6||2,515.9||2,552.7||2,590.1|
|Dry natural gas production, bcm||145.2||151.1||146.6||142.2||139.4||136.6||135.2|
|Dry natural gas consumption, bcm||103.5||104.4||108.6||110.8||114.1||117.5||121.6|
The main trends and developments in Canada's oil and gas sector are:
Canada's proven oil reserves are expected to trend lower from 172.0bn bbl at the beginning of 2015 to 167.9bn bbl by 2019 due to a slowdown in oil sands investment. We expect reserves to steadily decline thereafter due to lower upstream activity on the back of sustained lower oil prices.
Proven gas reserves will increase from 2.04tcm at the beginning of 2015 to 2.03tcm in 2018 as exploration activity begins to decline. From 2019 thereafter, reserves will experience steady growth through the remainder of our forecast period, reaching 2.2tcm by 2024.
We expect a continued global surplus of oil to depress the price of crude, keeping average benchmark prices below USD80/bbl through the remainder of our forecast period. With Western Canadian Select typically trading at a USD15 to USD20 discount per barrel to WTI, upstream operators in Canada will be forced to reassess the profitability of producing oil sands assets, with pre-FID projects likely to experience significant delays or cancelations.
Total Canadian liquids production (crude oil, condensate, NGLs and other liquids) in 2014 reached an estimated 4.3mn b/d, with volumes expected to grow an average of 6.0% y-o-y through 2017 as upstream oil sands projects currently under development come online. Over the longer term, production growth will be limited as deteriorating project economics in both conventional and unconventional sectors result in a 1.0% average y-o-y growth from 2018 through 2024, with output at 5.5mn b/d.
The abundance of natural gas provides Canada with considerable export potential, with seven LNG export terminals having been approved by the National Energy Board thus far. However, rising equipment and labour costs are challenging the competitiveness of new LNG projects, particularly within a bearish energy price environment. Moreover, less robust demand from Asia and a well supplied Pacific market have undermined efforts to ship LNG from Canada. As such, we anticipate Canadian gas output to fall from an estimated 146.6bcm in 2015 to 137.9bcm by 2024.
Canada's midstream oil and gas infrastructure will face significant bottlenecks that inhibit transportation of supplies more effectively from both oil and gas projects. The continued absence of the Keystone XL and other crude pipelines underscores the ongoing challenges of midstream development, resulting in the growth of crude-by-rail shipments to circumvent pipeline deficits. However, this trend may reverse as a result of recent efforts to increase regulation after a series of derailments and explosions revealed the deficient state of rail infrastructure within North America.