Alberta oil sands need pipelines as large output growth expected through 2019

Oil sands

Potential exists for further technological innovation to alter course of oil sands production in future

Large oil sands production growth is expected through 2019—making Canada the second largest source of global supply growth during that time, according to a new report from IHS Markit.

More modest, but sustained growth is expected beyond 2019, with oil sands production at the end of 2026 around one million b/d higher than in 2017.

About 99 per cent of Canadian exports – over 3.3 million b/d in 2016 – is exported to the U.S., while less than one per cent is shipped overseas.

oil sandsOil sands production has proved resilient and has notched significant growth despite the collapse in oil prices three years ago.

Drilling by conventional crude oil producers is forecast to increase 70 per cent compared to 2016 levels, but still 40 per cent lower than in 2014.

The Canadian Association of Petroleum Producers(CAPP) believes that with the expected growth in oil sands, it’s more important than ever for new pipelines.

“The urgent need for new pipelines to increase our competitiveness continues to be one of the biggest challenges facing our industry. Without access to emerging new markets we’re putting our economy at risk,” said Tim McMillan, CEO of CAPP.

IHS Markit attributes oil sands growth in decreasing costs for existing operations and higher utilization rates as well as the completion of the projects being constructed at the time of the price collapse.

A lack of material production declines from oil sands facilities—unlike other sources of supply—also makes growth more readily achieved than other forms of oil production.

These factors are expected to continue to drive large production additions through 2017-2019. Starting in 2019, additions will begin to slow.

Growth will continue, but at a slower pace because of the long aftershock of lower prices and falling investment since the 2014 price collapse.

Among its biggest challenges continues to be pipeline constraints. In the past year pipelines such as the Trans Mountain Expansion Project, Enbridge Line 3, and Keystone XL have been approved and, when built, will provide much-needed pipeline capacity to access North American and Asian markets.

oil sands
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However, Energy East – a portal connecting Canada to Europe and beyond – is still needed to further connect Canada’s growing supplies to diverse markets.

The long lead time for these projects means the impact of lower oil prices will impact supply additions into the early part of the next decade.

“In recent years—even through lower prices—it was not uncommon for oil sands production additions to average more than 150,000 or even 200,000 barrels per day annually. Following 2019, modest additions beneath 100,000 barrels per day may be more common through the early part of the next decade.” said Kevin Birn, energy director for IHS Markit.

IHS Markit continues to expect growth to be dominated by expansions of existing facilities, which are lower cost, quicker to construct and lower risk.

“Innovation and leading-edge technology in the oil sands – through initiatives such as Canada’s Oil Sands Innovation Alliance – will allow Canada to become a global leader in producing energy for a growing world with less impact on the planet,” said McMillan.

The potential exists for further technological innovation to alter the course of oil sands production in the future, according to the IHS Markit study.

“The oil sands has always been a story of innovation and it is too soon to rule out the potential for technology to change the game in the oil sands,” concluded Birn.

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