2013-09-22 09:02:59 - Fast Market Research recommends "Canada Oil & Gas Report Q4 2013" from Business Monitor International, now available
Increasingly challenging economics could slow the growth of oil-sands driven production, although we note that liquid-rich shales could be the new engine of crude output. Exploration in the country's offshore acreage and unconventional resources could unearth more oil and gas reserves to support the country's long-term growth prospects. The outlook for Canada's oil and gas industry is still a rosy one, though its upstream potential needs more support from infrastructure development.
The main trends and developments we highlight for Canada's oil and gas sector are:
* The abundance of gas production provides Canada with considerable export potential. More LNG export projects continue to emerge, with ExxonMobil the latest company to file for an export application for up to 41bn cubic metres
(bcm) a year from a British Columbia (BC) site. Two smaller projects have also materialised from Woodfibre LNG in BC and H-Energy in Nova Scotia.
* Canada's oil and gas infrastructure face bottlenecks that need to be addressed to move oil and gas more effectively across the country, and out of it. Otherwise, the country will be faced with the paradox of being over-supplied with oil and gas, but prevented from exporting these due to the supply shortages that exports could pose to the domestic consumption needs of particular regions of the country. The 1.1mn barrel (bbl) Energy East pipeline now looks increasingly likely to go ahead as long as it receives the necessary approvals. This would increase the flow of western Canadian crude to the Easter refining centre.
* We are seeing a growing trend of crude-by-rail shipments to circumvent the limitations in pipeline capacity. Strong growth in Canadian crude exports by rail is playing a critical role in transporting heavy crude produced from oil sands to the refineries on the US Gulf Coast configured to process it. Our view is that this alternative mid-stream route will see strong short-term growth, at least until an alternative pipeline solution is found. Even in the mid-to-long term there will be opportunities for crudeby- rail to enhance US-Canadian oil trade.
* We continue to see a threat to growing oil reserves from oil sands projects. Due to the boom in light, sweet crude production in the US, demand for heavier Canadian crudes from oil sands has fallen. Complicated by infrastructure bottlenecks that are limiting crude flows, this has widened the discount between the prices of Canadian crudes and WTI, which has in turn hit the economics of oil sands projects.
* Canada's proven oil reserves are expected to fall from 173.1bn barrels (bbl) in 2013 to 158.0bn bbl in 2017 due to a slowdown in oil sands investment, but a reversal of this trend is expected, with proven reserves climbing back up to 162.0bn by 2022 thanks to additions from liquid shale developments. ExxonMobil's purchase of ConocoPhillips' Clyden assets has rekindled some confidence in oil sands projects; however, greater interest is being shown in the liquids-rich unconventional plays, particularly Montney and Duvernay.
* Proven gas reserves will increase from 1.9tcm in end-2012 to 2.1tcm in 2017 and pushed further to 2.3tcm by 2022 as discoveries, mainly from shale deposits, are booked as reserves. Exploration breakthroughs if favourable economics lead to an increase in offshore drilling activity pose upside risks to our forecasts.
* Gas production will initially fall owing to declining conventional output - especially in Alberta and Saskatchewan - from an estimate of 145.5bcm in 2012 to 144.1bcm in 2013, but see an uptick from 2014 to reach 157.5bcm by 2017. We expect production to hit 206.1bcm by 2022, supported by gas production in British Columbia to feed proposed LNG projects and emerging shale gas production from Alberta.
* Imperial Oil has decided to convert its Dartmouth, Nova Scotia refinery into a terminal following a lack of interest from potential buyers. This will reduce Canada's refining capacity by 88,000b/d until the North West Redwater facility in Alberta is completed in 2015.
* So far in 2013, Statoil has made two discoveries in its acreage in the Flemish Pass offshore Newfoundland. The Harpoon and Bay du Nord discoveries add to the Mizzen discovery in 2012 and bolster interest in oil exploration efforts off Canada's east coast. BP and Shell also hold acreage in the vicinity which could provide further upside.
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At the time of writing we assumed an OPEC basket oil price for 2013 of US$109 per barrel (bbl), falling to US$101/bbl in 2014. Global GDP in 2013 is forecast at 2.9%, up from an assumed 2.5% in 2012, reflecting some recovery in the US, though uncertainty with regard to the eurozone debt situation will continue to hamper growth. For 2014, growth is estimated at 3.1%.
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