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NorthAmOil                                    COMMENTARY                                          NorthAmOil




       Oil sands rebound amid





       long-term jitters







       Canadian oil sands production has rebounded and is now

       exceeding pre-pandemic levels, but the region is grappling

       with longer-term uncertainty



        ALBERTA          CANADIAN oil sands production is rebound-  new projects compared with shorter-cycle shale
                         ing, buoyed by strengthening oil prices. Indeed,  development.
       WHAT:             consultancy IHS Markit said this week that oil   Nonetheless, oil sands production is antici-
       Oil sands production   sands output has now exceeded pre-pandemic  pated to continue growing, albeit not as rapidly
       has risen above   levels. But while the short-term outlook is  as previously projected. IHS Markit projects that
       pre-pandemic levels,   brighter for the region, its longer-term pros-  oil sands production will reach 3.6mn barrels
       according to IHS Markit.  pects appear to be increasingly uncertain, and  per day in 2030, marking an increase of 650,000
                         the accelerating energy transition is diminishing  bpd compared to 2021 levels and 900,000 bpd
       WHY:              future production expectations.      from 2020. The consultancy had previously
       Stronger oil prices are   These longer-term uncertainties are not new  expected oil sands output to reach 3.8mn bpd
       helping to bolster output   for the oil sands, which have long struggled with  in 2030.
       in the region.    their public image amid concerns over their   “Canadian oil sands production recovered
                         greenhouse gas (GHG) emissions intensity.  rapidly to exceed pre-pandemic levels by the
       WHAT NEXT:        However, the pace of the energy transition and  end of 2020 and the outlook for longer-term
       The oil sands’ longer-  the way it is being embraced has put a spotlight  growth remains substantial,” stated IHS Markit’s
       term growth prospects   on the issue.                  vice-president and head of Canadian oil market,
       have been diminished by   Oil sands producers and other industry play-  Kevin Birn. “Nevertheless, lingering impacts
       the accelerating energy   ers have started announcing plans for decar-  from the ‘COVID-19 shock’, delays to critical
       transition.       bonising the region, but the success of these  transportation infrastructure and rising energy
                         initiatives will not be measurable for years. In  transition pressures have trimmed that growth
                         the meantime, though, a rebound will be wel-  outlook from previous estimates.”
                         comed by the industry following the severe hit it   IHS Markit noted that even prior to the pan-
                         took as a result of the coronavirus (COVID-19)  demic, it had anticipated the coming decade to
                         pandemic.                            be one of sustained but slower growth for the
                                                              oil sands, citing takeaway capacity constraints   Oil sands
                         On the up                            as weighing on new large-scale incremental
                         The rebound in oil sands production comes as  investments. Indeed, the longer-term takeaway   production is
                         Western Canadian Select (WCS) crude prices  capacity picture looks more challenging for the   anticipated
                         have risen from $31 per barrel a year ago to  region, following TC Energy’s recent cancella-
                         over $58 per barrel currently. And while Can-  tion of Keystone XL – though IHS Markit said   to continue
                         ada struggled with a new wave of COVID-19  this was not expected to have an immediate
                         infections this spring – with the oil sands badly  impact in its outlook.  growing, albeit
                         affected – this has now subsided. Both Canada   Enbridge’s Line 3 and the government-owned
                         and the US – its main crude export market – are  Trans Mountain expansion are moving closer   not as rapidly
                         seeing pandemic-related restrictions ease. This  to completion in the meantime, and this will   as previously
                         is proving to be a boon for the oil sands, which  help ease short-term pipeline capacity con-
                         have been struggling since oil prices began to fall  straints. However, this is not expected to lead   projected.
                         in 2014. Over time, producers have succeeded in  to producers rushing to make major new oil
                         bringing oil sands breakeven costs down, and at  sands investments, as they appear set to remain
                         current prices, they have more breathing space.  under pressure to be more disciplined with their
                           IHS Markit has noted that new thermal oil  spending.
                         sands projects can break even into a range simi-  “Although oil prices have rebounded and
                         lar to that of US shale at this point. However, the  even exceeded pre-pandemic levels, produc-
                         consultancy added that longer lead times and  ers are prioritising rebuilding their balance
                         greater up-front costs required to bring new oil  sheets, paying down debt and returning cash to
                         sands projects online are likely to disincentivise  shareholders,” said Birn. “These trends, which



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