Canada’s oil production is booming as producers ramp up projects and extractions thanks to expanded market access and narrowing price differentials for Canadian heavy crude versus the U.S. benchmark.
The Trans Mountain Expansion Project, now finally completed and operational after years of delays, is a game-changer for Alberta’s oil sands producers, providing them with access s to markets in Asia and on the American West Coast.
Constrained for years due to insufficient output, Canadian oil now has nearly 600,000 barrels per day (bpd) of additional market access. The expanded Trans Mountain pipeline triples the original pipeline’s capacity to 890,000 b/d from 300,000 b/d to transport tar sands crude from Alberta to British Columbia on the coast of the Pacific.
And producers are taking advantage. They began ramping up production late last year in anticipation of the Trans Mountain Expansion (TMX) starting in the first half of this year. Canadian oil companies are now getting more bang for their buck as the spread on Western Canada Select (WCS), the benchmark for Canadian heavy crude sold at Hardisty, Alberta, has narrowed relative to the U.S. benchmark, West Texas Intermediate (WTI), in recent weeks.
Furthermore, production increases in the oil sands are the result of the expansion of operational projects with existing infrastructure, which translates into capital expenditures – very high levies for this type of crude extraction – lower than those necessary for construction projects from scratch.
Canada’s increased oil sands production, primarily through the Trans Mountain Expansion, places the country among the top non-OPEC+ contributors to global supply growth this year. alongside the United States, Guyana and Brazil.
Some analysts even predict that Canada could be the most important source of growth in oil supply, ahead of the United States or Guyana.
“Barring unforeseen events, Canada could be the largest source of increase in oil supply globally in 2024,” wrote Marc Ercolao, at economist at TD Economics, in a report earlier this year.
This year, production growth in Canada could reach 300,000 b/d to 500,000 b/d, placing the country in the running to become the largest source of oil supply growth “re global,” Ercolao said.
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Estimates of global oil supply growth vary depending on divergent projections from forecasters and agencies, but Canadian oil could account for 25% to 67% of additional supply in 2024, according to the economist.
“Canada should be able to take advantage of the higher prices paid for our oil as well as the future ability to market Western oil in international markets,” added © Ercolao.
Increased outflows, higher prices
The TMX is poised to boost the price of Canadian heavy crude for years to come, according to top executives from major energy companies.
In 2023, WCS was valued on average US$17.90 less than WTI. By early 2024, this gap had widened to around US$18.50 before narrowing to less than US$13 by early April 2024, just before entry in service of the TMX, according to data from the National Energy Board of Canada (NEB) indicated.
Crude oil production has increased in Western Canada, with Alberta reaching a record production of 4.53 million b/d in December 2023. TMX is expected to increase total pipeline capacity in Western Canadian crude oil exports by 13%, helping to ease capacity constraints on export pipelines, the regulator noted last month.
In broad terms, the expanded Trans Mountain pipeline capacity will account for 17% of the total pipeline export capacity available to Canadian crude oil shippers, he said. © the CER.
As Canada’s largest oil companies reported mixed quarterly results this spring, they all expect TMX to boost oil prices in Canada and be an asset major for the industry in the years to come.
Drew Zieglgansberger, Executive Vice President and Chief Commercial Officer at Cenovus Energy, said: “We are very excited on behalf of the industry and Canada to have another great asset at our disposal. .”
Tar sands companies outperform U.S. shale producers
Investors welcome renewed optimism in the industry and higher returns offered to shareholders by Canadian producers.
Canada’s four largest oil sands producers have seen their shares rise 37% over the past 12 months, while the index of the largest U.S. oil and gas companies has lagged that average by 19 percentage points, according to data compiled by The Wall Street Journal.
While oil sands projects require more capital and take years to get off the ground, they can produce oil for years or even decades, unlike shale formations in the United States. United States.
“The oil sands are expensive to produce, but there is no shortage of resources,” Wells Fargo equity analyst Roger Read told the Journal.
The outlook is improving for Canadian producers, at least in the short and medium term. Corporations began to reward shareholders.
For example, Canadian Natural Resources said in its first quarter earnings release last month: “Starting in 2024, we are returning 100% of available cash flow to shareholders, consistent with “We adhere to our free cash flow allocation policy, and continue to manage the allocation prospectively and annually.”
By Tsvetana Paraskova for Oilprice.com
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