Oilsands production is currently growing as major projects that were started before the oil price collapse are brought onstream, but investment in new growth is taking a nosedive.
A new report from IHS Markit’s Oil Sands Dialogue is forecasting that capital spending will drop below $10 billion this year – the first time that has happened since 2004.
There is also no return to previous annual spending highs of over $30 billion in any of IHS Markit’s three outlook scenarios.
“Each year since 2014, investment in the oilsands has fallen as projects have been completed and brought online and few new projects have been sanctioned,” IHS Markit said.
“Indeed, this is part of a trend that has led to a 45 percent reduction in spending on new oil projects globally from 2014 to 2017.”
Despite 165 billion barrels of established reserves, uncertainty clouds the future of oilsands development.
“The projected oil price and estimated cost of a project are the two most important variables a company weighs in decided whether to invest in a new development,” IHS Markit said.
“Unfortunately, in addition to a volatile oil price, a number of other uncertainties – some transitory and some particular to western Canada – currently complicate the oilsands investment case.”
This includes a constrained pipeline system struggling to keep pace with growth as opposition contributes to delays, being one of the few sources of global oil supply that is currently facing an increasing cost of carbon, and shifting marine fuel specifications that could further reduce the price received for heavy crude.
IHS Markit expects it is most likely that Brent pricing will rise gradually to US$80/bbl in 2030 on increasing global oil demand. While in this scenario Gulf oil production and American tight oil are the two key sources of supply growth, increases from these plays are not enough to offset declines in order to meet demand growth.
In this scenario, oilsands investment would gradually recover but stay well below early 2010 levels.
“In the early 2020s, oil prices continue to gradually recover and investors slowly become more comfortable as uncertainties facing the oilsands, including transportation constraints and the rising carbon price, are better understood,” IHS Markit said.
“All told, oilsands output expands nearly 1.4 million bbls/d in 2017-30 – with 26 percent of this growth from projects already in ramp-up or under construction today, 13 percent from efficiency gains, and the remainder from projects yet to be sanctioned, the vast majority of those being expansions.”
Growth in the oilsands will ultimately be a function of the future price of oil and the challenges that face the industry, according to Oil Sands Dialogue director Kevin Birn, “but growth will also be different, driven forward through the optimization and expansion of existing facilities because they are lower cost and quicker to oil. A more consolidated industry has also emerged in the last few years which means that even in much higher price scenarios overall investment is likely to remain lower than in the past.”