Canadian Annual Energy Report 2012: Pipelines, politics and price

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Canada’s proved oil and gas reserves—more than 25 billion barrels of crude oil and liquids, another 150 billion barrels of economically recoverable bitumen and more than 40 trillion cubic feet of natural gas (and perhaps as much as 1,400 trillion cubic feet of in place tight gas)—are amongst the largest and most strategically important in the world.

The country’s success at attracting global capital, particularly from Asia, combined with game changing technological advances, has led to the development of these resources on a scale not even imaginable just five years ago and at a pace that is threatening to surpass infrastructure developments needed to move output to market.

In 2011, total Canadian crude production stood at 2.9 million barrels per day. By 2020, that number is forecast to reach 4.2 million barrels per day, according to a June 2011 forecast by the Canadian Association of Petroleum Producers.

Over the next five years, other forecasts suggest oil sands output will rise to three million barrels per day as 14 projects currently under construction are commissioned, adding 850,000 barrels a day to productive capacity.

Another 14 projects comprising 780,000 barrels per day have been approved but have not yet begun construction, for total output additions of 1.633 million barrels per day between 2012 and 2017.

On the gas side, the National Energy Board, in a November 2011 production forecast, expects natural gas production to dip over the next couple of years to 13.1 billion cubic feet per day in 2015 from 13.5 billion cubic feet per day last year. Production is also expected to increase steadily over the next two decades, to 18 billion cubic feet per day in 2035, as supplies from deeper and more productive conventional, tight and shale gas reservoirs are brought on stream.

But if these production forecasts are to be realized, industry must overcome a daunting list of challenges, mostly around what to do with expanding output. Refinery capacity throughout North America remains stagnant, and new pipeline capacity is required to move growing bitumen production to key refining markets in the United States, particularly those along the Gulf Coast.

At the same time, the factors that have contributed to Canada’s growing productive capacity for crude oil and natural gas—horizontal wells with multi-stage fracture stimulation completions—are also at play in the United States, and Canadian producers will need to compete for market share with significant new shale gas and tight oil supplies in the United States.

In fact, some reports now circulating suggest that the U.S. will become significantly less dependent on foreign sources of oil in the next few years. Imports are projected to fall to just 4.5 million barrels a day by 2015, while crude oil and natural gas liquids production is projected by others to climb to 14.1 million barrels a day by 2020, an astonishing 74% increase from 2011 production of 8.1 million barrels per day. Various estimates suggest that as much as 1.7 million barrels a day of new light tight oil production could be coming from mid-continent plays in the United States by 2016. Crude oil from the Bakken play in North Dakota (880,000 barrels a day), Eagle Ford in Texas (390,000 barrels a day), Niobrara in Colorado/Wyoming (120,000 barrels a day) and Utica (around 100,000 barrels a day) could all be available by 2017 to the same Gulf Coast refinery markets being targeted by Canadian bitumen producers.

Against this backdrop, Canadian producers—already in a battle with environmental non-government organizations (ENGOs) over pipeline projects that would help secure existing U.S. markets and open up new overseas markets—are looking to the federal and provincial governments for policy leadership on the markets front, and are pushing for creation of a national energy strategy that would clearly outline Canada’s future energy marketing goals and strategies to achieve those objectives.

Download reports from previous years.