Low oil prices don’t mean Canada doesn’t need to expand its pipeline infrastructure. According to a Jan. 21 statement by the Canadian Association of Petroleum Producers (CAPP), the long-term need for to diversify the country’s oil and gas markets and build infrastructure to move these products to market remains strong despite the recent sharp oil price decline and cuts in capital spending intentions.
In a short-term review of its industry forecasts, CAPP estimates a 33 percent decline in short-term capital spending in 2015 and a projected slowdown in growth of oil production from its prior forecast by about 65,000 barrels per day (bpd) in 2015 and 120,000 bpd in 2016.
“No question, the effects on the industry are sharp but we continue to need all forms of transportation in all directions, pipelines in particular, as our industry continues to grow in the years ahead,” said CAPP president Tim McMillan.
These conditions are due to lower oil prices and the significant cost burden on the industry. CAPP’s forecast is a snapshot in time and the industry will remain nimble to respond appropriately when conditions change. If pricing declines continue, CAPP anticipates further revisions could occur.
According to the review, capital investment in Western Canada, including the oil sands, will total $46 billion (CAD) in 2015, down 33 percent from $69 billion invested in 2014.
In the oil sands, 2015 capital investment is forecast at $25 billion compared to $33 billion last year. Capital spending in the conventional oil and gas portion of the Western Canada Sedimentary Basin is forecast to decrease to $21 billion this year from the $36 billion invested in 2014.
The total number of wells to be drilled in Western Canada this year is forecast to decline by 30 percent to 7,350 wells.
“These are challenging times and Canadians across the country will see or feel the impacts,” McMillan said. “Purchases will be down, including purchases from the more than 2,300 businesses from coast to coast, excluding Alberta, that sell goods and services directly to the oil sands,” McMillan said. “Investors have seen their portfolios shrink, and governments will see reduced revenues from the industry’s royalty and tax payments. We all will feel the effects.”
The new 2015 forecast for total Western Canadian oil production is 3.6 million bpd, about 150,000 bpd higher than total 2014 production of 3.5 million bpd, with a similar rate of growth expected in 2016.
Conventional oil production is flat at 1.3 million bpd in 2015 and oil sands production increases to 2.3 million bpd due to projects coming on stream from prior-year investments. This production growth underscores the ongoing need for market diversity and increased transportation capacity.
The forecasts are developed from oil producer data and CAPP analysis of production trends, expected drilling activity, recent announcements and ongoing discussions with industry stakeholders and government agencies. CAPP does not forecast oil prices.
“Canada has the opportunity to be the supplier of choice at home and in the global market and that’s why market access, by all means, in all directions, is so critically important to improve the health, wealth and quality of life of all Canadians,” McMillan said, “even with the current declines in prices and investment.”