Everybody knows about the great U.S. oil boom since 2008, where we have provided the vast majority of new non-OPEC oil. Looking forward, however, Canada and Brazil will join us in greatly expanding that essential supply stock The U.S. Department of Energy just released International Energy 2019 is particularly bullish on new crude coming from Canada.
In fact, Canada is expected to account for almost 25% of new crude oil globally through 2050. This is noteworthy because Canada’s main production zone Alberta has been forced to install cuts because prices had gotten so low from a lack of midstream infrastructure to move supply. New pipeline projects in Canada have faced delays related to environmental and regulatory impediments as well as political opposition.
For example, a decade ago, the average price differential between Western Canada Select and West Texas Intermediate was around 15% of the WTI price. Last year, this had reached 40-45% during the first quarter, which resulted in Alberta’s oil curtailment forced by Premier Rachel Notley. There remains uncertainty when new pipelines can be expected, such as the Trans Mountain expansion and Enbridge’s Line 3 project. “Feds idle as pipeline obstructionists wage war.” The Canadian federal election is set for October 21, with the delicate dance of climate change versus oil and gas development at the forefront for PM Justin Trudeau.
But still, Canada has a BP-reported 170 billion barrels of proven oil reserves, third globally to Saudi Arabia and Venezuela. This means that Canada controls about 35% of the global non-OPEC oil reserves The Montney Formation of British Columbia and Alberta explains “Why Canada is the next frontier for shale oil.” In addition, Canada has slow growing domestic needs, so its capacity to export will only continue to grow, as long as the infrastructure gets build along the western coast. Lowering transport costs, Canada is much closer to oil-thirsty Asia than the U.S. Gulf Coast.
Currently, some 99% of Canadian heavy crude gets exported to the U.S. Canada’s ability to reach the U.S. oil market has remained stronger than perhaps expected, especially in the face of U.S. crude production rising 150% since 2008. Since then, Canada’s exports to the U.S. have nearly doubled to 4.7 million b/d. With flowing U.S. tight, shale oil being a lighter, sweeter grade, the heavier, sour kind that comes from Canada has remained key because the U.S. refinery system is based on processing that type of crude.
Longtime heavy oil suppliers Venezuela and Mexico have faced sinking output, so our need for imports from Canada has been rising. This further penetration for Canada into the U.S. oil market is made all the more noteworthy since total U.S. oil demand, although very high, has remained pretty flat. Indeed, “Venezuela’s U.S. Oil Loss Is Canada’s Gain.”
Higher oil prices will extend access to Canada’s oil sands since they are more expensive to develop. As global economic growth and demand marches on, oil prices will not remain this low forever. The U.S. Department of Energy has a reference case of $75 oil by 2030 and $100 oil by 2050. And importantly, a very significant new regulation coming in 2020 might not disrupt Canada’s oil industry as much as some have suggested: “New low-sulphur shipping rules now expected to be ‘non-event’ for Canadian heavy oil.”