Page 4 - NorthAm Week 25 2021

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

P4 www. NEWSBASE .com Week 25 24•June•2021