Canadian oil production growth could come to 'complete standstill,' IEA warns
Canadian oilsands growth is likely to come to a “standstill” after the projects under construction come on stream as heightened environmental concerns, lack of pipeline access and policy changes slow investment, warned the International Energy Agency.
“We are likely to see continued capacity increases (in) the near term, with growth slowing considerably, if not coming to a complete standstill, after the projects under construction are completed,” the IEA said in its Medium-Term Oil Market report published Monday.
Canada is expected to raise production by around 100,000 barrels per day this year with additional quantities 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 beyond 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 have been announced to date,” the IEA said.
By 2021, Canadian oil output is forecast to average 5.2 million bpd, of which bitumen output from Alberta accounts for nearly 3.4 million bpd, or two-thirds of total supplies.
The slowdown in Canadian production is part of a bigger “plunge” in global oil production that poses supply security risks for the world, as companies slash investments to weather oil prices of around US$32 per barrel.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing 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.
Global supply has to rise around three million bpd annually, just to account for decline in production, in addition to 1.2 million bpd to accommodate annual increase in demand, Birol said. The pressure on demand will push prices up US$80 per barrel by 2020, Birol said.
The Paris-based energy watchdog forecasts just over 4.1 million bpd of crude oil adding to the global supply till 2021, compared to 11 million bpd between 2009-2015. The industry is expected to cut spending by 17 per cent this year, to add to the 24 per cent decline last year.
The IEA now expects the markets to balance themselves only in another year’s time, as demand finally catches up with a persistent supply glut.
“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks,” the IEA said.
Unless there is an even larger than expected fall in non-OPEC oil production in 2016 and/or a major demand growth spurt it is “hard to see oil prices recovering significantly in the short term” from their low levels, the IEA said.
“In 2016, we are living in perhaps the first truly free oil market we have seen since the pioneering days of the industry,” 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, however it’s unlikely to spell the end of the shale revolution in 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 are not dependent on the construction of either Kinder Morgan Inc.’s Trans Mountain expansion or Enbridge Inc.’s Northern Gateway or even 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, compared to 94.4 million bpd in 2015.
But new climate change policies and focus on energy efficiency in many key countries could revise that demand outlook downwards, Birol noted.
“We are likely to see continued capacity increases (in) the near term, with growth slowing considerably, if not coming to a complete standstill, after the projects under construction are completed,” the IEA said in its Medium-Term Oil Market report published Monday.
Canada is expected to raise production by around 100,000 barrels per day this year with additional quantities 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 beyond 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 have been announced to date,” the IEA said.
By 2021, Canadian oil output is forecast to average 5.2 million bpd, of which bitumen output from Alberta accounts for nearly 3.4 million bpd, or two-thirds of total supplies.
The slowdown in Canadian production is part of a bigger “plunge” in global oil production that poses supply security risks for the world, as companies slash investments to weather oil prices of around US$32 per barrel.
“It is easy for consumers to be lulled into complacency by ample stocks and low prices today, but they should heed the writing on the wall: the historic investment cuts we are seeing 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.
Global supply has to rise around three million bpd annually, just to account for decline in production, in addition to 1.2 million bpd to accommodate annual increase in demand, Birol said. The pressure on demand will push prices up US$80 per barrel by 2020, Birol said.
The Paris-based energy watchdog forecasts just over 4.1 million bpd of crude oil adding to the global supply till 2021, compared to 11 million bpd between 2009-2015. The industry is expected to cut spending by 17 per cent this year, to add to the 24 per cent decline last year.
The IEA now expects the markets to balance themselves only in another year’s time, as demand finally catches up with a persistent supply glut.
“Only in 2017 will we finally see oil supply and demand aligned but the enormous stocks being accumulated will act as a dampener on the pace of recovery in oil prices when the market, having balanced, then starts to draw down those stocks,” the IEA said.
Unless there is an even larger than expected fall in non-OPEC oil production in 2016 and/or a major demand growth spurt it is “hard to see oil prices recovering significantly in the short term” from their low levels, the IEA said.
“In 2016, we are living in perhaps the first truly free oil market we have seen since the pioneering days of the industry,” 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, however it’s unlikely to spell the end of the shale revolution in 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 are not dependent on the construction of either Kinder Morgan Inc.’s Trans Mountain expansion or Enbridge Inc.’s Northern Gateway or even 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, compared to 94.4 million bpd in 2015.
But new climate change policies and focus on energy efficiency in many key countries could revise that demand outlook downwards, Birol noted.
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