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Calgary's hometown heroes

Grim headlines obscure the progress ahead in 2018 for the oil sands, unconventionals and LNG

Gone are the frenzied days when multi-billion-dollar oil sands projects were sanctioned on a regular basis. These days, project cancellations and supermajor exits from Canada have been grabbing the headlines. But if you look beyond the adverse news, there's an exciting renaissance happening in the Canadian oil and gas business. Here are some developments to watch in the upcoming year.

  • Supermajor exits create new opportunities. Over the course of the past year Shell, ConocoPhillips, Marathon and Apache all sold major Canadian assets. Despite this seemingly negative news, it's not the first time that supermajors have exited the Canadian oil patch en masse. In the 1990s, during a similar period of low oil prices, BP, Amoco, Texaco, Marathon and others sold projects in Canada. With these exits came the opportunity for Canadian companies, more focused on the home market, to purchase the quality assets that had been owned by the foreign majors. These transactions sowed the seeds for some of Canada's largest oil and gas producers. Today's exits are positioning Canadian oil and gas producers for a new wave of domestically driven growth.
  • New techniques are making Canadian shale gas and tight oil plays highly competitive. Internationally, Canada is known for its oil sands. But the Western Canadian Sedimentary Basin, which spans the provinces of British Columbia, Alberta and Saskatchewan, is endowed with a spectrum of hydrocarbons; from dry gas and natural gas liquids, to condensates and lighter oils. Over the past few years, continuous improvements in completion and drilling techniques have boosted well production and economics to levels comparable to the big-name US shale plays.
  • Growing outlets for western Canadian natural gas. While the cancellation of Petronas's Pacific Northwest liquefied natural gas project off Canada's west coast was a setback, there are still other options for increasing the outlets for Canadian gas. By 2020, natural gas exports to the US should increase by about 1bn cubic feet a day, and growing domestic consumption should add another 1bn cf/d of demand too. Finally, despite the recent cancellation of Pacific Northwest LNG, other Canadian LNG projects will still advance in 2018. Canada's competitive advantages over the US Gulf Coast include lower-priced gas and a shorter shipping distance to Asia.
  • Multiple options for moving oil. Despite the cancellation of the 1.1m-barrel-a-day Energy East pipeline project, there are still plenty of options for transporting oil from Canada. One outlet for expansion is adding additional capacity to existing pipelines. Over the past several years, debottlenecking the older pipes has already added more new takeaway capacity than the entire Keystone XL project proposes to ship. Another method is to move crude oil using rail with western Canada's existing infrastructure. Finally, there are new pipeline projects still advancing, including Kinder Morgan's Trans Mountain pipeline expansion project and TransCanada's Keystone XL pipeline.
  • Cost-cutting innovation. In Canada, lower commodity prices have caused a wave of cost-cutting innovation. In the oil sands, operating costs have fallen to levels that weren't conceivable before the downturn. Similar to headline US plays like the Permian Basin, Canadian costs have also seen steady and meaningful reductions in unconventional plays. The innovation has momentum going into 2018.
  • Growing oil sands, still. Canada supplies 4% of global liquids to the oil market, and production is still growing as oil sands projects that were sanctioned before the downturn are only now completing construction. The newly-minted Suncor Fort Hills and CNRL Horizon Phase 3 oil sands mining projects are ramping up their production into 2018, and should push Canada's total production to near 4.5m b/d at the end of 2018, compared with 4.1m b/d in 2017. After the next several years, oil sands growth is expected to slow since no new projects have been sanctioned since the downturn. But even then, these long-lived low-decline oil sands facilities will keep Canada in the ranks as a top global oil supplier for decades to come. On top of that, unconventional liquids production is growing as well.

Downbeat headlines about Canadian oil and gas development don't tell the full story. The fourth-largest producer of oil and gas in the world is undergoing a renaissance.

Jackie Forrest is Director of Research at Arc Energy Research Institute

This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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