Canadian oil production growth could come to ‘complete standstill,’ IEA warns

HOUSTON – Canadian oilsands growth is likely to come to a “standstill” after the projects being built seriously stream as heightened environmental concerns, insufficient pipeline access and policy changes slow investment, warned the International Energy Agency.

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“We are likely to see continued capacity increases (in) the near term, with growth slowing considerably, if not creating any complete standstill, following the projects being built are completed,” the IEA said in its Medium-Term Oil Market report published Monday.

Canada is anticipated to boost production by around 100,000 barrels per day this year with additional amount of 285,000 and 220,000 bpd coming online in 2017 and 2018, respectively, as projects such as Fort Hills, the Suncor-Energy Inc.-led oilsands project, and Hebron, the East Coast offshore joint-venture development, commence production.

But past the projects planned during the era of high oil prices, 2019 and 2020 will each see Canadian crude output rising by a mere 35,000 bpd.

“While some companies are currently running with negative operating cash costs, no major shut-ins or plant closures happen to be announced up to now,” the IEA said.

By 2021, Canadian oil output is forecast to average 5.2 million bpd, which bitumen output from Alberta accounts for nearly 3.4 million bpd, or two-thirds of total supplies.

In 2016, we live in probably the first truly free oil market we view since the pioneering days of the industry

The slowdown in Canadian production belongs to a larger “plunge” in global oil production that poses supply security risks for that world, as companies slash investments to weather oil prices close to US$32 per barrel.

“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, however they should heed the writing on the wall: the historic investment cuts there has been raise the odds of unpleasant oil-security surprises in the not-too-distant-future,” said IEA executive director Fatih Birol, launching the report at IHS CERAWeek event.

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Global supply has to rise around three million bpd annually, simply to account for decline in production, in addition to 1.Two million bpd to accommodate annual rise in demand, Birol said. Pressure when needed will push prices up US$80 per barrel by 2020, Birol said.

The Paris-based energy watchdog forecasts approximately 4.A million bpd of oil contributing to the worldwide supply till 2021, when compared with 11 million bpd between 2009-2015. The industry is anticipated to cut spending by 17 per cent this year, to add to the 24 percent decline this past year.

The IEA now expects the markets to balance themselves only in another year’s time, as demand finally catches track of a persistent supply glut.

“Only in 2017 will we finally see oil supply and demand aligned however the enormous stocks being accumulated will behave as a dampener on the pace of recovery in oil prices once the market, having balanced, then begins to draw down those stocks,” the IEA said.

Unless it comes with an even bigger than expected fall in non-OPEC oil production in 2016 and/or a significant demand growth spurt it is “hard to see oil prices recovering significantly within the short term” using their low levels, the IEA said.

“In 2016, we live in perhaps the first truly free oil market we have seen because the pioneering days of the,” the IEA said, with oil producers maximizing production with little consideration for price.

U.S tight oil production will decline by 600,000 bpd this year and another 200,00 bpd in 2017, nevertheless it’s unlikely to spell the end of the shale revolution for the reason that country, the IEA noted.

Despite the U.S lifting its oil export ban, in North America only Canada is expected to see a notable uptick in shipments as producers increasingly target Asian markets.

The additional Canadian exports aren’t dependent on the construction of either Kinder Morgan Inc.’s Trans Mountain expansion or Enbridge Inc.’s Northern Gateway or perhaps TransCanada Corp’s Energy East pipeline, the IEA said.

“Rather, crude will follow existing routes to Asian markets where small volumes have already reached OECD Asia Oceania, China and Other Asia,” the IEA said.

Even as global oil supply starts plunging, global demand will continue to accelerate, rising to 100 million bpd by 2020, when compared with 94.4 million bpd in 2015.

But new climate change policies and focus on energy efficiency in lots of key countries could revise that demand outlook downwards, Birol noted.

yhussain@nationalpost.com
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