‘The Canadian oilsands has a really, very lengthy life forward of it, even beneath Canada’s present environmental outlook’
The Canada Power Regulator doesn’t have a crystal ball to foretell the longer term, nor do I.
However its new power outlook report presents an intriguing glimpse of what the following three a long time could maintain for oil and pure gasoline producers on this nation.
Launched this week, the research exhibits loads of change forward because the Canadian power advanced evolves with new strain factors, decarbonization challenges and shifting consumption patterns.
Listed here are two themes that warrant a deeper look:
Don’t depend the oilsands out
Throughout the early days of the pandemic when crude costs tanked, oilsands manufacturing was slashed as corporations scrambled to stem large monetary losses.
Some observers wrote the oilsands off. One provocative headline requested: Has the coronavirus killed the oilsands trade?
That narrative ignored a few factors.
Sure, it does price lots of upfront cash to construct a significant new oilsands venture. Between 1996 and 2015, capital funding within the oilsands hit $262 billion.
However as soon as the capital is invested, these developments faucet into confirmed long-life reserves that may churn out oil for many years.
Given the relentless focus of producers to chop prices because the 2014 worth crash, operations have develop into extra resilient to commodity worth gyrations.
These elements arrange the oilsands for reasonable manufacturing development within the coming years, in line with the outlook within the Canada Power Regulator report.
“In three a long time’ time, Canada might be producing roughly the identical quantity of oil as it’s immediately,” Rory Johnston, managing director and market economist at Worth Avenue, stated Friday.
“The Canadian oilsands has a really, very lengthy life forward of it, even beneath Canada’s present environmental outlook.”
In three a long time’ time, Canada might be producing roughly the identical quantity of oil as it’s immediatelyRory Johnston
Beneath the research’s base-case situation, which displays evolving local weather insurance policies, whole Canadian oil manufacturing will develop by 16 per cent to succeed in 5.8 million barrels per day (bpd) in 2032, then dip to 4.8 million barrels by 2050.
The important thing to the outlook is the endurance of the oilsands.
Final 12 months, uncooked bitumen manufacturing averaged three million bpd and it’s anticipated to rise — sure, rise — to nearly 3.9 million barrels by the top of this decade. By 2050, the oilsands are nonetheless producing almost 3.5 million bpd, in line with this situation.
And this isn’t triggered by some huge upswing in costs, however Brent crude falling from US$68 a barrel to $40 by the top of its forecast.
Some will argue the regulator’s situation isn’t lifelike as a result of it doesn’t account for more durable local weather insurance policies wanted to get to net-zero emissions by 2050, which can be the goal of the most important oilsands corporations.
“If you’re not anticipating success, when it comes to Canada’s (local weather) commitments, then it’s not stunning there’s much more room for oil and gasoline manufacturing,” stated Dale Marshall of Environmental Defence.
(The report itself sees Canadian fossil gasoline consumption dropping by greater than 40 per cent by 2050.)
We’ll extra stay a steady ‘Regular Eddie’ whereas the remainder of the trade declines extra shortlyDale Marshall
But, it’s price remembering oilsands manufacturing got here again shortly final 12 months after power demand rebounded, whereas U.S. output lagged.
Emissions per barrel within the oilsands are falling and firms are crafting plans to seize and retailer emissions underground. The research factors out using solvents injected into oilsands reservoirs might minimize working prices by as much as $3.50 per barrel.
Whereas the times of constructing megaprojects seem like over, further output may be added by smaller expansions.
“It’s not essentially that we’re going to develop gangbusters,” stated Johnston. “We’ll extra stay a steady ‘Regular Eddie’ whereas the remainder of the trade declines extra shortly.”
Pure gasoline pains
If the report highlights the resiliency of the oilsands, it seems much less bullish for the prospect of accelerating Canadian pure gasoline manufacturing, with quite a bit using on the nation’s skill to develop LNG exports.
The regulator’s outlook signifies whole gasoline manufacturing, which averaged 15.5 billion cubic toes (bcf) per day final 12 months, to stay flat till 2040.
Then, it drops to 13 bcf per day by 2050, properly under the outlook contained in final 12 months’s CER report.
“It’s barely pessimistic. There was a perception that LNG tasks would deliver incremental development to the basin and we don’t see that right here,” stated Ian Archer, affiliate director of North American pure gasoline for power consultancy IHS Markit.
“It could characterize a possible situation the place lots of North American gasoline demand has gone away, and that assumes some fairly sturdy electrification.”
There was a perception that LNG tasks would deliver incremental development to the basin and we do not see that right hereIan Archer
In its newest report, the CER anticipates exports of liquefied pure gasoline will stop the manufacturing decline from arriving sooner, or from falling even sooner. It sees nearly 40 per cent of whole Canadian gasoline output destined for worldwide markets by 2050.
It’s curious that pure gasoline, which appears to be the logical bridge gasoline to interchange higher-emitting coal in energy era, now holds much less promise than oil to extend output.
“What’s driving the autumn in manufacturing is de facto the value assumptions. So the value isn’t sufficient — the assumed worth isn’t sufficient — to maintain manufacturing up,” stated CER chief economist Darren Christie.
What’s driving the autumn in manufacturing is de facto the value assumptionsDarren Christie
(The forecast assumes benchmark U.S. gasoline costs will rise barely from US$3 per million British thermal models to US$3.64.)
The report has LNG exports rising from 1.8 billion cubic toes per day in 2026 to 4.9 bcf a day by 2040, after which flattening out.
Nonetheless, Canada has proven an lack of ability to get many LNG tasks to the end line, in contrast to america. Just one venture, the large LNG Canada improvement, is now being constructed off the British Columbia coast.
The CER report additionally signifies that by 2028 B.C. will overtake Alberta to develop into the most important pure gas-producing province.
Regardless of the brand new outlook, gasoline producers consider there’s nonetheless development forward, with rising LNG manufacturing displacing coal use in Asia.
“There isn’t any doubt we’re going to undergo an power transition,” stated Phil Hodge, CEO of Pine Cliff Power, an Alberta pure gasoline producer.
“Pure gasoline demand and use go up in every single place it’s been used on the earth … I don’t see that slowing down.”
The CER says its new report is just not meant to foretell the longer term. It’s, nonetheless, meant to be a “baseline for discussing Canada’s power future.”
For the nation’s oil and gasoline producers, the most recent report has completed that goal.
Chris Varcoe is a Calgary Herald columnist.