Page 8 - NorthAmOil Annual Review 2021

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Oil sands on the rebound

Rising crude-by-rail exports and a shrinking budget deficit for

Alberta point to improved market conditions for the province’s

oil sands, though other obstacles remain

ALBERTA ALBERTA’S oil sands appear set to enjoy greenhouse gas (GHG) emissions intensity in
improved market conditions after being among recent years in order to demonstrate that their
WHAT: the industries hit particularly hard by the coro- resource does not have to be incompatible with
The oil sands are set navirus (COVID-19) pandemic. decarbonisation goals, the industry continues to
to enjoy better market Various indicators are pointing to this, struggle with its public image.
conditions after being hit including the fact that Canadian crude-by-rail This is compounded by the fact that new oil
hard by the pandemic. exports are reported to be rebounding, while sands projects would be capital-intensive, while
Alberta’s budget deficit is expected to shrink. the global oil industry remains on a mission to
WHY: However, the oil sands industry can expect to rein in spending – at least for now. If global oil
Rebounding crude- continue grappling with several major obstacles demand regains significant momentum in the
by-rail exports and a as questions remain over its future in a decar- long term, propping up oil prices, the oil sands
shrinking budget deficit bonising world. could see a new wave of investment. However,
in Alberta are among demand expectations have changed, with the
the signs pointing to an Rail rebound International Energy Agency (IEA) revising its
improvement. Exports of crude by rail are on the rise after fall- long-term forecast last year. The agency now
ing almost 40% in 2020, according to the Canada projects that oil consumption will increase by
WHAT NEXT: Energy Regulator (CER). about 750,000 bpd each year to reach 103.2mn
This comes against the The regulator’s data show that crude-by-rail bpd in 2030, which is about 2mn bpd less than it
backdrop of US President exports averaged 172,013 barrels per day, com- predicted in 2019.
Joe Biden seeking to pared with 280,272 bpd in 2019. They hit a his- Questions therefore remain over how much
move past the blocking of toric high of 411,991 bpd in February 2020 but crude-by-rail capacity will be needed in the
Keystone XL in terms of subsequently collapsed to an eight-year low of years ahead. And even in the shorter term, while
relations with Canada. 38,867 bpd in July. oil price differentials are favourable enough to
Rail shipments then began a gradual recov- spur crude-by-rail shipments, they tend to be
ery as more oil returned to the market following seen as playing a supporting role in the takea-
a collapse in demand caused by the pandemic way capacity picture rather than a central one.
in the first half of 2020. By December, crude- This is illustrated by comments made recently
by-rail shipments had rebounded to 190,454 by Cenovus Energy’s CEO, Alex Pourbaix. In its
bpd, but year on year this was just over half the fourth-quarter earnings statement, Cenovus
347,136 bpd worth of rail exports recorded in said it had resumed crude-by-rail shipments in The CER noted
December 2019. the final quarter of 2020 as market conditions
The CER noted that future levels of crude-by- for moving Western Canadian crude to refin- that future levels
rail exports depended on the pace of economic eries in both Canada and the US improved. of crude-by-rail
recovery from COVID-19, as well as on price As of early February, barrels of Western Cana-
differentials. However, a recovery in the oil mar- dian Select (WCS) crude in Hardisty, Alberta exports depended
ket is anticipated to help boost rail shipments, were trading at an $11.34 per barrel discount
at least in the near term. In the medium term, to WCS at Nederland, Texas, compared with a on the pace
the start-up of new pipeline capacity will likely fourth-quarter 2020 discount estimated at $9.41
displace some of them, but beyond that, the per barrel. of economic
recent cancellation of the cross-border permit However, Pourbaix said on the company’s recovery from
for the Keystone XL oil pipeline project could earnings call that while Cenovus was working
mean that more rail capacity will be needed in with its freight partners to manage costs and COVID-19, as
the future if oil sands production is to expand that “some elements of rail movement make
significantly. sense”, he saw it only playing a “modest” role well as on price
There is considerable uncertainty over this, in the company’s business unless differentials
however. The oil sands have been hit by an widened out “significantly north of $15” per differentials.
exodus of foreign investors in recent years – barrel.
both exploration and production companies Nonetheless, it is clear that crude-by-rail
and financial institutions that have sought to shipments have at least some role to play for
demonstrate greener credentials. While oil now, and appear set to continue rising in the
sands producers have worked to reduce their shorter term.

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