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OIL AND GAS
Canadian oil sector resilient -- sort of
by Daniel J. Graeber
Calgary, Alberta (UPI) Dec 17, 2015


disclaimer: image is for illustration purposes only

Short-term growth for Canadian oil sands remains robust through 2020, though direction beyond that is uncertain, a sector research report finds.

Lower crude oil prices in 2015 have crimped spending in the energy sector. The Canadian Association of Oilwell Drilling Contractors said earlier this year it was revising downward its drilling forecast because of lower crude oil prices and changing market conditions in the resource-rich province of Alberta.

According to analytical group IHS, Canadian oil sands production more than tripled from around 600,000 barrels per day in 2000 to more than an expected 2.3 million bpd this year. By 2020, output will grow to 3 million bpd, largely through projects already under construction.

Kevin Birn, senior director of Canadian programs at IHS Energy, said oil sands production was largely competitive before a bear market for crude oil emerged in mid-2014. Costs, meanwhile, are falling, though market headwinds make the future uncertain for Canadian producers.

"Lower prices are now lowering costs globally -- including in the oil sands," Birn said in a statement. "In this paradigm, oil sands' competitiveness position may shift -- for better or worse."

The rapid growth in Canadian oil production was met by a rise in capital expenses through 2014, largely because of the use of emerging technology and limited access to labor pools. With a foundation in place, the IHS report finds operating costs are dropping.

"Now that significant infrastructure has been built over the past 15 years, the oil sands industry is shifting to a new period where success will be measured by efficient operation of existing facilities," Birn said.

Any growth, however, will be incremental as the lower-for-longer scenario for crude oil prices acts as a throttle for any major acceleration in the industry.

Canada's economy relies heavily on the energy sector. Monthly gross domestic product increased in August -- the last full month for which data are available -- by 0.1 percent for Canada, compared with 1.5 percent for the United States in the third quarter.

Exports from Canada largely target a U.S. economy that's relying less on foreign reserves because of increased production from shale basins in the Lower 48.


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