Outlook 'brightened' for Alberta oil production, Conference Board of Canada says

Canada’s energy sector is on the cusp of entering a period of sustained growth thanks to added pipeline capacity and more efficient use of existing infrastructure, according to a report released on Tuesday.

'We think this is going to be a bit of turning point for Alberta in 2020'

The Conference Board of Canada says the LNG Canada project and new oilsands expenditures will lead to an average annual gain of 4.4 per cent in real oil and gas investment. (Jason Franson/The Canadian Press)

Canada's energy sector is about to enter a period of sustained growth thanks to added pipeline capacity and more efficient use of existing infrastructure, according to a report released on Tuesday.

The Conference Board of Canada's latest outlook summary predicts that several factors will conspire to boost production in the oilsands by an average of 4.2 per cent per year from 2020 to 2024.

For example, pipeline optimization programs at Enbridge and TC Energy that use drag-reducing agents to increase the flow on current pipeline infrastructure will add up to 150,000 barrels per day by early January, says the report by the Matthew Stewart, the board's director of forecasting and analysis.

"We think this is going to be a bit of turning point for Alberta in 2020," Stewart told CBC News.

Stewart says the recovery in energy investment will get rolling in 2020 with the biggest contributors being Trans Mountain Pipeline, Coastal Gaslink Pipeline and LNG Canada.

"Now, investment is still much, much lower than it was in 2014. So we have to keep that in context. But the improvement in takeaway capacity will encourage some improvement in investment. And we think that should drive GDP to … the top of the charts in Alberta in 2020," Stewart said.

Added pipeline capacity 

The coming online of Enbridge's Line 3 will create an additional capacity of 370,000 barrels per day in 2021, and the Trans Mountain expansion project is expected to add another 590,000 barrels per day by 2023.

"On top of expected improvements in takeaway capacity on existing pipelines, the Alberta government will grant exceptions to the curtailment for producers developing new conventional wells and those bringing new production online for rail export," the report says.

The report notes that Cenovus plans to bring production fully online at its dormant Christina Lake Phase G oilsands facility, adding about 50,000 barrels per day of new production.

"The outlook for production out of Alberta has brightened significantly, even as we head into the new year with curtailments still in place," says the report.

"Canada's energy sector will put its recent poor performance in the rear-view mirror over the medium term as the LNG Canada project and new oilsands investment lead to an average annual gain of 4.4 per cent in real oil and gas investment."

The report goes on to predict that the brighter future for the energy sector will help the national economy as non-energy exports continue to struggle amid a slowing U.S. economy, international trade uncertainty and Canada's higher corporate tax rates.

Statistics Canada reported on Tuesday that Alberta's 2019 third-quarter provincial unemployment rate was little changed at 7.2 per cent.

Stewart cautioned that Alberta's labour market will remain weak in 2020, given that investment is recovering from such a low level over the several past years.

Martin Pelletier, a portfolio manager in Calgary with Trivest Wealth Counsel, agrees that there are signs that Alberta's energy sector is turning a corner.

"We're starting to see … some light at the end of the tunnel," he said. "I think we'll start to see oil investment as early as this winter, based on what I'm hearing from private equity funds in the U.S. looking for development."

Energy sector to boost national economy

The report forecasts that the energy sector is likely to account for most of the growth in Canada's export sector in 2020, with exports expanding 2.2 per cent next year and another two per cent in 2021.

The boosts in oil production and exports will happen against the backdrop of prices remaining stagnated, the report predicts.

While OPEC production cuts and sanctions against Iran and Venezuela will put upward pressure on prices, continued rising U.S. production will likely result in the price of West Texas Intermediate (WTI) rising only modestly, from $57.00 US this year to $58.70 US next year.

The discount for Western Canadian Select (versus the WTI price) will remain in the range of $15–$20 US per barrel in the short term, the report forecasts.

"We no longer think the Bank of Canada will need to stimulate the economy by cutting rates early next year," the report says.