2013-12-14 10:36:06 - Recently published research from Business Monitor International, "Canada Oil & Gas Report Q1 2014", is now available at Fast Market Research
Increasingly challenging economics could slow the growth of oil-sands driven production, although we note that liquids-rich shales could be the new engine of liquid output growth. 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 positive one, though its upstream potential needs more support from the community and the government for 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 Altagas and Idemitsu the latest companies to file for
an export application from a British Columbia (BC) site.
* 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 approval of TransCanada's 1.1mn barrel (bbl) Energy East pipeline would increase the flow of western Canadian crude to the Eastern refining centres.
* 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. This alternative mid-stream route will see strong short-term growth, at least until an alternative pipeline solution is found.
* 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 168.0bn bbl in 2017 due to a slowdown in oil sands investment, but should stagnate at around this level thanks to additions from liquids-rich shale developments, 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 143.1bcm in 2012 to 137.5bcm in 2014, but see an uptick from 2015 to reach 144.45bcm by 2017. We expect production to hit 223.9bcm by 2022, supported by shale gas production in British Columbia and Alberta to feed proposed LNG projects.
* 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 to 1.94mn b/d in 2014 until the North West Redwater facility in Alberta is completed in 2015. Thereafter, refining capacity is expected to stay flat at 2.01mn b/d.
* 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.
Full Report Details at
At the time of writing we assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Global GDP in 2014 is forecast at 3.1%, up from an assumed 2.6% in 2012. For 2015, growth is estimated at 3.3%.
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