Oil sands rebound in 2019 hinges on rail, output cuts, pipeline

Canada’s oil industry is expected to be back in the black this year thanks to higher oil prices and more production after registering three years of losses. The Canadian oil industry could be in for another turbulent year in 2019, depending on how some pivotal events pan out.

But the Conference Board of Canada says the recovery will be modest and ongoing pipeline capacity problems will likely continue to result in Western Canada’s oil production selling for discount prices.

While the announcement of production curtailments by Premier Rachel Notley has succeeded in lifting Canadian crude prices from record lows even before their implementation starts next month. The world relies on an energy mix that includes oil, coal, natural gas, hydro, nuclear and renewables.

All forms of energy production must increase to meet growing global demand. Canada is uniquely positioned to provide an abundance of safe, secure energy.

Michael Burt, director of industrial economic trends, says the oil industry will register pre-tax profits of about $1.4 billion this year after a string of losses since prices crashed in 2014.

The government will then work to match production with transportation and storage policy, reviewing the levels every month. The province has said it only expects the full 325,000-bpd output cut to be in place for the first three months of the year.

The Enbridge’s expansion of its Line 3, which is designed to ship an additional 370,000 bpd from Alberta’s oil sands to a hub in Superior, Wisconsin, is expected to come into service.

The International Energy Agency (IEA) forecasts that global demand for energy is expected to increase 30 per cent by 2040 as economies continue to grow and standards of living improve, particularly in emerging countries such as China and India.

“We’re talking about a shift back to being in the black for industry but margins are still quite thin,” Burt said. Producers have struck contracts to ship more crude by rail next year, with Cenovus Energy Inc. announcing three-year agreements that cover about 100,000 bpd of capacity.

The province’s ability to extricate itself from the curtailment system depends partly on more rail-shipping capacity becoming available in the second half of the year. Canada is one of the few countries in the Organization for Economic Co-operation and Development (OECD) with growing oil production.

“So it’s obviously good news but for the industry it’s not a level of profitability that they would like to see to earn a sufficient return on their capital.” The fourth quarter is when Canada’s oil patch finally expects to get a taste of relief from its perpetual pipeline woes.

The increase in global energy demand means that more of all forms of energy will be needed, including fossil fuels. Hydrocarbons are forecast to remain the world’s dominant source of energy, meeting 75 per cent of the world’s energy needs by 2040.

Whether manufacturers and rail companies can supply all that equipment and the people to operate it in a timely fashion will be key to the success of those plans. The province’s plan alone will add 80 locomotives and more than 7,000 cars.

The timeline for other pipelines is both further out and less certain. Canada has the third-largest oil reserves in the world. Of the 170 billion barrels of Canadian oil that can be recovered economically with today’s technology, 164 billion barrels are located in the oil sands.

The IEA says Canada is expected to be third in oil production growth over the forecast period, after Brazil and Iraq. With consumption rising worldwide and conventional oil supplies declining, the need for a secure supply of oil from unconventional resources like Canada’s oil sands will continue to increase.

Alberta is scheduled to have its next provincial election on or before May 31. With the majority of reserves located in the oil sands, the resource has potential to become a key global supplier.

As the IEA reports, Canada has the energy the world needs our challenge is to move it to new customers in new markets in the years ahead. United Conservative Party Leader Jason Kenney for not doing more and for implementing environmental policies like a carbon tax.

Continued to be managed properly, this means more jobs and investment is anticipated for Canada. Still, oil prices are largely out of the premier’s hands, and it remains to be seen whether a change in who’s occupying the office can actually improve the industry’s fortunes.

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