By Celina Hwang, Director, North American Crude Oil, S&P Global Commodity Insights
Canada has over 100 years of history in crude oil production and today is the fourth largest producer in the world at nearly 5 million barrels per day in 2023. Western Canada produces 95% of the oil, two thirds of which comes from the oil sands, with the remainder being produced offshore in eastern Canada. S&P Global Commodity Insights anticipates that Canadian crude oil production will reach nearly 5.5 million b/d by 2030— largely due to growth from the oil sands.
The Canadian oil sands has entered a new phase of its development – an era of optimization. The modern oil sands industry started with the Great Canadian Oil Sands mine producing its first oil in 1967. By the end of the century, production reached half a million barrels per day. In 2001, the first commercial steam-assisted gravity draining (also known as “SAGD”) oil sands facility came online, starting a new period of oil sands production – one based on new construction and expansion. Between 2001 – 2020, oil sands production grew rapidly, reaching 2.8 million barrels per day, fueled by construction of greenfield oil sands sites and later brownfield expansions. However, since 2020, the industry began entering yet another era – one where production growth comes primarily from optimization of existing assets. By the end of this decade, S&P Global Commodity Insights expects oil sands production will reach 3.7 million barrels per day, making the oil sands the sixth largest producing region globally.
As oil sands crude production has grown, so has the demand for pipeline export capacity. Western Canadian oil production is remote, and product must travel long distances to end markets across North America. In response, pipeline capacity expanded — growing nearly 2.2 million barrels per day between 2007 and 2023. However, the increase in pipeline capacity was not always able keep up with demand, resulting in a volatile western Canadian crude price. The most infamous example occurred in late 2018, when production growth outpaced available pipeline capacity — combined with a temporary drop in heavy crude demand — the western Canadian oil price fell drastically from approximately C$40/b to C$18/b in two months. However, since 2018 nearly 875,000 b/d of incremental export pipeline capacity has been added, including Enbridge’s Line 3 Replacement Project in late 2021. By early 2024, an additional 590,000 b/d of pipeline capacity should come online with the startup of the Trans Mountain Pipeline Expansion. We estimate these additions coupled with potential for further optimization of existing pipelines could lead to stabilization of the western Canadian crude price.
Both downside and upside risks to the production outlook could tip this anticipated balance. Downside risks that could impact production include tighter capital discipline requirements from investors and emissions policies that could put further investment in the industry at risk should environmental mandates prove to be too stringent. An upside risk is that the industry’s productivity could increase more than expected via optimization projects. Because these projects develop organically throughout the industry, their production impacts are challenging to forecast. Additionally, steam displacement technologies could provide another source for unanticipated production growth. This technology reduces steam demand per unit of output in the oil sands, lowers emissions, but also frees up steam to be redeployed to grow production at new wells. The upside production growth potential is not infinite, though. In the near future, capital may be pulled away from oil sands projects and towards the advancement of several large-scale decarbonization projects, such as carbon capture and storage.
Scovan’s Innovation Center is developing products that can improve the optimization of SAGD assets, reduce carbon emissions, and help propel the industry forward.
Originally published in Scovan’s IGNITE Vol. 7.
