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A cornerstone of global oil supply — Canada at a cross roads


Canadian heavy crude is a cornerstone of global oil supply now and into the next decade. But growth is likely to be increasingly affected by investor sentiment soured by environmental concerns and competition for capital from tight oil. Both factors have already begun to reshape the domestic corporate landscape.

How many oil producing countries can predict with some confidence that they can increase output over the next decade? Outside OPEC, we reckon the answer is just three, a fraction of the thirty or more non-OPEC countries that will contribute 53 million b/d to global oil supply this year. Those three power houses are: USA, driven by tight oil; Brazil, by the giant deep water pre-salt fields of the Santos basin; and Canada, by the extra-heavy crude of its Albertan oil sands.

Canada is already the third largest non-OPEC producer (behind the US and Russia) with 4.4 million b/d, and its oil sands growth should help it stay there for the foreseeable future.

This year, there’s an increase of nearly 0.4 million b/d, in part catch-up after the wild fires that disrupted production in H1 2016. The three big, independent oil sands producers, Suncor (+13%), Cenovus (+8%) and CNRL (+6%), each predict a meaningful rise in their output this year.

Beyond 2017, oil sands growth is incremental, but relentless and cumulatively material over time. We expect another 1 million b/d of additional production to come on stream by the end of next decade, a rate of just under 0.1 million b/d p.a.

Much of the new volumes come from brownfield development using Steam Assisted Gravity Drainage (SAGD), an extraction process in the ascendant over the mining operations of the past. SAGD has a shorter development time and relative investment flexibility, compared with longer-lead time mining projects with high upfront expenditure and higher break-evens.

A number of factors support ongoing growth in oil sands production.

First, the huge unexploited resource base close to significant existing infrastructure lends itself to incremental development. Secondly, break-evens of US$60/bbl (NPV,10) for the best brownfield oil sands developments compare reasonably well with some tight oil or deep water projects. Ongoing reduction of costs through technologies such as solvent injection will be critical to stay competitive. Thirdly, the cash flow profile – once on stream, project operating costs can be as low as C$8/bbl. The ultra long-life, stable production, with returns less vulnerable to a single year’s oil price than conventional projects, can provide steady support for a dividend policy.

Strong demand for heavy crude is a fourth driver. US refiners in the Midwest are set up for heavier feedstock rather than for lighter tight oil supplies. The TMX pipeline will unlock new export markets in Asia. Keystone XL will take more Canadian crude to the Gulf Coast where it’s needed, with traditional heavy oil imports from Mexico and Venezuela waning.

M&A activity in oil sands began early in this downturn with seven deals for a total of US$6bn completed over the past two years. Most have been about critical mass and improving operational and capital efficiency around advantaged assets, with Suncor’s US$4.6 bn take over of Canadian Oil Sands the flagship deal.

Heightened environmental regulation is emerging as a new catalyst for M&A deals, post the Paris Agreement.

It may be wrong to tar all projects with the same brush, but oil sands are among the most carbon-intensive of oil developments – emitting 6-7x more CO2 on average than conventional oil developments based on our analysis. Alberta is updating regulation for oil sands’ carbon emissions which includes an industry-wide cap of 100 Mt, around twice current emissions. We do not expect the cap to be breached during the next decade.

Growing public and investor antipathy towards high CO2 intensity is one factor that prompted Statoil to divest its oil sands assets late last year. Other inward investors may follow Statoil and exit over time, judging that the rationale for exposure to oil sands has irreversibly changed.

It’s easy to imagine a future where assets are highly concentrated among fewer players: either domestic consolidators for whom oil sands is core such as Suncor, CNRL, Cenovus, and Imperial (XOM); or a handful of ‘ remainers’, likely other North Americans with material, legacy cash generating positions like Devon and ConocoPhillips.


14 Comments on "A cornerstone of global oil supply — Canada at a cross roads"

  1. penury on Mon, 27th Feb 2017 11:11 am 

    Really no a biased or North America centric position is it? Oh well, Forbes not known for accurate forecasting.

  2. BobInget on Mon, 27th Feb 2017 12:13 pm 

    Agreed, Forbes is usually US Centric to the max.
    This article, (how Canada’s future oil affects the US economy) lurks in the background.

    If Canada ups its refugee quotas: domestic energy needs will grow, (along with the economy)

    Vast Canada, USA’s largest trading partner, actually needs hard working refugees.
    The harder a Trump Administration funnels this willing work force of immigrants North, the faster a Canadian economy prospers. Additional alternative energies including oil and gas are now required.

    IOW’s Canada becomes ‘energy independent’ while the US falters.

  3. Davy on Mon, 27th Feb 2017 12:34 pm 

    Sure bob, then why isn’t it the case that all those counties where those hardworking immigrants are leaving prosperous? I guess you are one of those who believe the population can rise to 11bil and that is actually good for global growth.

  4. BobInget on Mon, 27th Feb 2017 1:15 pm 

    I specified, ‘refugees’. (from various oil wars, climate disasters)
    Today’s refugee count:

    “We are now witnessing the highest levels of displacement on record.
    An unprecedented 65.3 million people around the world have been forced from home. Among them are nearly 21.3 million refugees, over half of whom are under the age of 18.
    There are also 10 million stateless people who have been denied a nationality and access to basic rights such as education, healthcare, employment and freedom of movement”.UNHCR

    If a Canadian guy pours a glass of beer into another glass of similar size, he still has the same amount of beer. Not much changed vis world beer supply.

    Setting limits on populations is for your gang, Davy, not mine.

  5. Davy on Mon, 27th Feb 2017 2:13 pm 

    Gotcha bob, so you believe we don’t have population issues? How many immigrants should Canada take bob? Bob, do you realize we have millions of undocumented already in this country? I think you have inconsistent political views when reality tested. That’s my experience with your many bizarre comments.

  6. BobInget on Mon, 27th Feb 2017 2:23 pm 

    Which countries take in the Syrian refugees?
    Turkey: 1.9 million
    Remarkably, this country now shelters almost half of the Syrian refugees and clearly has more than it can handle.
    It’s the No. 1 destination for displaced families.
    Erdogan: 'Western world to be blamed' for migrant crisis

    Erdogan: ‘Western world to be blamed’ for migrant crisis 03:12
    Geography explains much of it: Turkey and Syria share a border.
    The masses are so vast that 14% of them are sheltered in camps, U.S. figures show.
    A staggering share of them are children and teens: More than half are under age 17, according to U.N. figures.
    Lebanon: 1.1 million
    The influx is so profound in Lebanon that the 1.1 million Syrian refugees mark a 25% increase in the country’s 4.4 million population.
    Those figures make Lebanon the country with the highest per capita concentration of refugees, the United Nations says. It also shares a border with Syria.
    “The influx of a million refugees would be massive in any country. For Lebanon, a small nation beset by internal difficulties, the impact is staggering,” U.N. High Commissioner for Refugees Antonio Guterres said last year.
    Jordan: 629,000
    Jordan provides shelter to a large number of refugees from Syria, Iraq, Somalia and Sudan, but Syrians constitute the majority of Jordan’s refugee population, the United Nations says.
    Putin, Erdogan blame West for Syrian Crisis

    Putin, Erdogan blame West for Syrian Crisis 04:42
    Jordan has a history of taking in refugees. Nearly half of its 7 million population is of Palestinian origin.
    The Syrian arrivals, however, strain resources and “could have a negative impact on Jordanian public opinion of refugees and make preserving the country’s asylum space in the country challenging,” the United Nations says.
    About 20% of the Syrian arrivals live in camps.
    Iraq: 249,000
    Like Syria, Iraq has been torn by attacks launched by ISIS, the extremist Islamist group that has captured portions of both countries for what it calls its Islamic caliphate.
    Not surprisingly, most of the Syrian refugees have settled in northern areas such as Irbil, Duhuk and Nineveh, which are among the closest to the Syrian border and have large Kurdish populations, the United Nations says.
    The notion of Syrian refugees in Iraq may strike some as ironic, if not absurd, because Iraq has deteriorated under sectarian strife and ISIS assaults, producing a sizable population of Iraqi refugees.
    Destination unknown: The struggle of refugees at Keleti station
    Photos: Destination unknown: The struggle of refugees at Keleti station
    “As Syria’s civil war has dragged on, the direction of forced migration for many Iraqi refugees has reversed. Tens of thousands of Iraqis who sought refuge in Syria between 2003 and 2011 have returned home, joining about a million Iraqis who were already internally displaced,” Refugees International said.
    About 38% of the Syrian refugees live in camps in Iraq, the U.S. State Department says.
    Egypt: 132,000
    Egypt rounds out this look at how the Mideast hosts most of the Syrian refugees.
    No refugees live in camps there.
    In fact, Egyptian billionaire Naguib Sawiris, one of the region’s wealthiest men, has offered to buy an island for refugees. He would like to buy an isle from Greece or Italy. His name for the proposed island home: Hope.
    Which countries are getting Syrian asylum requests?
    Germany: 98,700
    As Germany faces the largest share of Syrian requests for asylum in Europe, Chancellor Angela Merkel called for quotas to be set for each country to take a share of displaced people, including from Syria.
    Germany expects the overall asylum requests to soar above the current U.N. count of 98,700 from Syrians alone.
    A Syrian family arrives at a train station in Saalfeld, Germany.
    A Syrian family arrives at a train station in Saalfeld, Germany.
    There could be 800,000 applications for asylum in Germany this year, and the country could take 500,000 refugees annually for several years, Vice Chancellor Sigmar Gabriel has said.
    Sweden: 64,700
    Sweden joins Germany in demonstrating a high standard of responsibility in the refugee crisis, and Swedish Prime Minister Stefan Lofven joined Merkel at a press conference this week in urging a Europe-wide solution for hosting refugees.
    In the 1990s, Sweden accepted 84,000 refugees from the Balkans.
    “We accept that every person has a right to seek asylum,” Swedish Foreign Affairs Minister Margot Wallstrom said. “This also puts the European solidarity to a test. I think it’s important that we signal being a community that rests on common values of democracy and defense of human rights.”
    France: 6,700
    The number of asylum requests has been relatively low.
    But they will surely increase now that French President François Hollande has said France is ready to take on more responsibility and host 24,000 refugees over the next two years.
    The French leader said this number would be France’s share under a proposal by the European Commission for EU nations to take in 120,000 refugees over the next two years.
    “We will do so because it is the principle to which France is committed,” Hollande said.
    United Kingdom: 7,000
    The United Kingdom will likely see an upswing in asylum requests now that it has said it will take up to 20,000 Syrian refugees over the next five years.
    British PM says UK will resettle 20,000 new refugees

    British PM says UK will resettle 20,000 new refugees 02:47
    But Britain will focus on resettling vulnerable refugees from camps in countries bordering Syria, not those who have already entered Europe, Prime Minister David Cameron said Monday.
    “This provides refugees with a more direct and safe route to the United Kingdom rather than risking the hazardous journey to Europe, which has tragically cost so many lives,” he said.
    The refugees will receive a five-year humanitarian protection visa, Cameron said. Britain has been the second largest provider of humanitarian aid to Syrian refugees within the Middle East region, according to U.N. figures.
    Denmark: 11,300
    Denmark has received a relatively large number of Syrian asylum requests but has sought to discourage the arrival of more migrants.
    On Wednesday, Danish authorities tried to restrict migrants from crossing into the country from central Europe. Danish police said via Twitter it blocked access to some highways and suspended some international railway traffic.
    The country earlier had paid for ads in Arabic in four Lebanese newspapers to get the word out about its new, tightened restrictions — such as reducing social benefits — to try to prevent refugees from getting into the Scandinavian nation.
    “We cannot simply keep up with the present flow,” Immigration and Integration Minister Inger Stojberg, a member of the right-wing Venstre Party, said on Facebook. “In light of the huge influx to Europe these days, there is good reason for us to tighten rules and get that effectively communicated.”
    Hungary: 18,800
    Many Syrian refugees are reluctant to register an asylum application in Hungary.
    Having traveled north through the Balkans, those arriving on the country’s border with Serbia have had police greet them, and they’ve been forced to wait, sometimes for days, in holding areas and transit camps, where conditions are said to be poor.
    Tensions flare along Serbia-Hungary border

    Tensions flare along Serbia-Hungary border 02:17
    Many migrants would prefer to register as refugees in countries such as Germany, Sweden and Austria, continuing their journey through Hungary to Northern and Western Europe.
    Hungary’s right-wing government, which has been trying to stop the flood of migrants, has erected a barbed wire fence along its more than 160-kilometer (100-mile) border with Serbia to prevent them from crossing there.
    Serbia, which has received 49,500 asylum requests from Syrian refugees, is not a member of the European Union.
    Other European countries
    Syrian refugees have made a wide range of requests for asylum in other parts of Europe, including — between April 2011 and this July — 5,500 in Spain, 14,100 in the Netherlands, 18,600 in Austria, 8,300 in Switzerland and 15,000 in Bulgaria, according to the United Nations.
    Italy, where many migrants who’ve made the perilous Mediterranean crossing from North Africa first land, had received 2,143 asylum applications as of July, the United Nations said.
    Greece, which lies on a popular transit route from Turkey north through the Balkans to Northern Europe, has seen more than 250,000 people arrive on its shores this year, according to the International Organization for Migration. It had received 3,545 asylum applications as of July, U.N. figures show.
    What’s North America doing?
    United States: 1,500 resettlements
    About 1,500 Syrian refugees have been admitted to the United States since the start of the conflict in 2011, the vast majority of them this fiscal year.
    Here’s a breakdown: 23 in 2011, 41 in 2012, 45 in 2013, 249 in 2014 and 1,199 so far this fiscal year, which ends September 30, according to the State Department.
    About 300 more refugees are expected to be admitted by the end of this fiscal year. This equates to a grand total of about 1,800 refugees from Syria’s four-year civil war being admitted to the United States by October 1, according to U.S. officials.
    In the face of growing questions about such small numbers, President Barack Obama ordered his administration to “scale up” the number of Syrian refugees — at least 10,000 in the next fiscal year, a White House spokesman said Thursday.
    The proposed resettling of at least 10,000 Syrian refugees would be allocated out of a U.S. quota of 75,000 refugee admissions slated for next fiscal year, beginning October 1, a senior administration official said.
    That quota applies to refugees from all over the world and is determined at the beginning of the fiscal year, but Obama can raise that quota if there’s a crisis. Secretary of State John Kerry has already indicated to lawmakers that such an increase is in the works.
    Should the U.S. be doing more to help Syrian Refugees?

    Should the U.S. be doing more to help Syrian Refugees? 05:01
    The United States has given the largest share of aid to the Syrian refugee crisis, more than $574 million, or 31% of total aid donated, the United Nations said.
    Opinion: Why U.S. should do more for refugees
    Canada: 10,000 resettlements
    More than 2,370 Syrian refugees have resettled in Canada since January 2014, and the government promised in January to accept 10,000 Syrian refugees over a three-year period, the Toronto Sun reported.
    Since that pledge, 1,074 Syrian refugees arrived in Canada, the newspaper said.

  7. Hello on Mon, 27th Feb 2017 3:32 pm 

    It is always amazing to see how stupid the west is in importing boatloads of 3rd world trash, especially since a single well placed nuclear device could solve any refugee crisis once and for all.

  8. ________________________________________ on Mon, 27th Feb 2017 3:32 pm 

    Boil them in oil. there’s a glut

  9. penury on Mon, 27th Feb 2017 4:41 pm 

    Perhaps the majority of refugees were created by the use of bombs. Perhaps if the west stopped bombing ME nations the flood of refugees would abate to a semi manageable number.

  10. Plantagenet on Mon, 27th Feb 2017 5:38 pm 

    Canadian tar sands produce too much CO2. Time to phase them out.


  11. Nony on Mon, 27th Feb 2017 6:44 pm 

    US screwed Canada over big time with the Keystone fiasco. Wouldn’t even just turn it down immediately but played this game of delaying for 7 years and then spiking it. And then Canadians are too wimpy to just send a pipeline through to the East or West. Even Alberta has some screwed up ecofreaks in the government now. Oh well, enjoy your recession, Canadians.

  12. BobInget on Tue, 28th Feb 2017 11:03 am 

    China and India are eyeing buying more US oil ..
    Since late 2016 several cargoes have already shipped.


    I’ll ask the question; China this China that. India’s
    crude oil demand grew at 9.5% in 2016
    1.3 billion Indians are growing crude demand at
    11.%. (January)

    Outlook 2017: India’s oil demand growth rate to eclipse China’s yet again
    Singapore (Platts)–12 Jan 2017 1205 am EST/505 GMT

    Demonetization impact on oil demand to be short-lived
    LPG and transport fuels demand to rise
    New petrochemical projects a boon for naphtha demand

    The dramatic rise in India’s oil demand shows no signs of faltering, leading analysts to say that the country will remain a driver of Asian growth in 2017.

    Consumption is expected to rise 7-8% this year, outpacing China’s demand growth for the third consecutive year.

    The cash crunch following New Delhi’s move in early November to demonetize more than 80% of its currency is expected to temporarily dampen the country’s appetite for oil products in the first quarter, or maybe a little longer.

    But gains in oil demand that the country is set to achieve from the “Make in India” initiative — which aims to raise the share of manufacturing in GDP over the next few years — will more than offset the negative effects of demonetization, analysts said.

    The government’s clean fuel drive, sharp anticipated growth in transport demand and air travel, and the country’s insatiable growth for petrochemicals will act as a boon for gasoline, jet fuel, LPG and naphtha, helping oil products to post close to double-digit growth in 2017 — similar to that seen last year — if not higher.

    “For the third year in a row, India’s oil demand growth will outpace China’s demand growth,” Platts Analytics said in a note, adding that it was expected to grow at about 7% to 4.13 million b/d in 2017, compared with 3% in Chinese oil demand to 11.5 million b/d.

    India’s demand for oil products in November rose 12% year on year to 16.6 million mt, or 4.35 million b/d, data from the Petroleum Planning and Analysis Cell showed.

    Canadian shares are down on unfounded excise tax fear. DJT threatens Mexico not Canada.
    Mexico currently imports more oil then it exports.
    (we import Mexican oil, refine it, export it back to Mexico)

    Canada OTOH will be the last oil producers/exporters to give up on the US.
    Once “Canada/East’ pipelines are reversed,
    built Canada will be energy independent.
    Free to export to China/India.

  13. rockman on Tue, 28th Feb 2017 11:21 am 

    penury – “Perhaps if the west stopped bombing ME nations the flood of refugees would abate to a semi manageable number.” Not that there isn’t some validity to your point (at least in the past) but the vast majority of refugees today were created by their own govt or that of another ME govt bombing them.

  14. BobInget on Tue, 28th Feb 2017 11:44 am 

    Genscape, Inc.‏Verified account @genscape 2m2 minutes ago
    US #Crude #Exports reached new wkly high in 7 days ending 2/24. Bulk of shipments going to Asia. Get insight: #OOTT …

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