Canada Oil Output Poised to Fall for First Time in 7 Years

  • Production to drop 0.7% in 2016, industry group CAPP forecasts
  • Expected decline marks first slide since 2009, data show

Canadian oil output is forecast to decline this year for the first time since 2009 after a wildfire in northern Alberta curtailed more than one million barrels a day for a month and low commodity prices hit producers.

Total Canadian oil output will drop to 3.82 million barrels a day in 2016, less than the 3.85 million barrels a day produced last year, the Canadian Association of Petroleum Producers said in its annual forecast released Thursday. In 2017, production will rise to more than 4 million barrels a day, the country’s industry lobby group said.

“It’s been a very difficult year for our industry,” CAPP President Tim McMillan said in an interview. “The fire was a big incident. Very fortunately the facilities weren’t damaged and it was a unique event.”

Oil-sands sites halted production last month after wildfires forced the evacuation of the city of Fort McMurray and caused Alberta’s most expensive natural disaster. The fires came as companies such as Suncor Energy Inc. and Cenovus Energy Inc. were already reducing investment to cut costs and weather the commodity downturn.

“People have adjusted by protecting their companies for the medium- and long-term and getting their costs in line,” McMillan said.

The industry has shed about 44,000 workers since the slump in oil prices began, with producers making the biggest two-year investment cut since 1947, according to previous CAPP estimates. West Texas Intermediate crude, the benchmark for North America, is hovering around $50 a barrel, about half the value of its mid-2014 peak.

Canada’s oil industry likely won’t see the kind of record levels of investment from past years anytime soon as companies focus on trimming costs, Cenovus Chief Executive Officer Brian Ferguson said in April. Reducing costs is still at the “core” of future investment plans, McMillan said Thursday.

Oil-Sands Growth

Despite the recent disruptions caused by fires, Canada’s oil sands won’t see a drop in output this year. Oil-sands production will total 2.39 million barrels a day this year, up from 2.37 million barrels last year.

Oil sands are where much of the country’s oil output growth will happen in the coming years, with output forecast to rise to 3.67 million barrels in 2030. Companies are racing to find ways, including development of new technology, to make crude production from sticky bitumen competitive with shale producers in the U.S.

New pipelines are needed to accommodate the rising volumes of crude Canada will produce in 2030, when total daily production will reach 4.93 million barrels, CAPP forecast. That’s 400,000 barrels per day lower in 2030 compared to the estimate made in last year’s report, the group said.

“The need to build new energy infrastructure within Canada is clearly urgent,” McMillan said in a statement released with the report. Kinder Morgan Energy Partners LP’s Trans Mountain expansion, which recently won regulatory approval, will likely be the first large domestic pipeline to get a green light from the federal government, he said.

“Public sentiment is increasingly supportive of pipelines and energy projects,” he said. “People are more knowledgeable about energy issues than they were a few years ago.”

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