The National Energy Board forecasts a 72% rise in oil sands output by 2040
The National Energy Board (NEB) recently released its updated 2016 outlook for the country's energy landscape over the next 25 years. The agency remains bullish on Canadian oil production but lowered its outlook on oil prices and energy consumption.
The NEB's last energy outlook was released in January when West Texas crude was hovering just above $30 a barrel. A lot has changed since then. Oil prices have staged a spectacular 65% rebound and a number of new carbon reduction initiatives have been introduced at both the federal and provincial levels of government. While oil production is set to rise dramatically over the next two decades, the NEB lowered its forecast for energy demand and greenhouse gas (GHG) emissions across the country, primarily due to a dramatic fall expected in coal consumption for power generation.
BEST GUESS FOR OIL PRICES
The NEB expects Brent crude to average US$45 a barrel this year, rising to US$68 by 2020 and US$90 by 2040 (2015 dollars). Brent has been trading at just over US$50 a barrel for most of October. The long term oil price forecast was revised lower by US$17 from January's estimates.
The forecast assumes there is a market for every barrel of oil produced and makes no direct assumption for pipeline approvals. However, the authors expect the heavy oil differential to widen by an extra US$6/bbl between 2018 and 2020 as new oil production comes online without additional pipeline capacity. The NEB thinks this production will be transported by rail, which is generally more expensive, widening the differential for Western Canadian Select. However, the forecast assumes pipeline constraints will be resolved by 2020. The heavy oil discount has been averaging about US$14 a barrel over the past few months.
OIL SANDS EXPECTED TO KEEP GROWING
Total Canadian oil production is expected to rise from the current 4 million bbl/day to 5 million bbl/day in 2025 and 5.7 million bbl/day by 2040. The long term forecast was revised lower by about 400,000 bbl/day from the January estimates.
Much of that production growth will come from the Alberta oil sands, primarily from projects already under construction. Output from the oil sands is expected to rise to 4.3 million bbl/day by 2040, up 72% from the current level of about 2.5 million bbl/day.
The NEB thinks higher oil prices will encourage more in-situ production but remains subdued on the prospects of new mining projects being announced anytime soon.
The regulator also remains hopeful on liquified natural gas (LNG), forecasting a small volume of exports will commence in BC by 2021, reaching peak export capacity by 2026.
THE ELEPHANT IN THE ROOM
The report excludes fall-out from Alberta's 100 Mt/year carbon cap or the recent carbon pricing policy unveiled by the federal government. The NEB says both the federal and provincial programs lack enough detail to be incorporated in its most recent assessment, but expects to update its 2017 outlook as governments release more information on their initiatives.
Despite the rise in oil production, the NEB projects that that GHG emissions will decline by 7% by 2040, primarily due to lower coal consumption and the increased use of natural gas and hydroelectric power.
The full report Canada's Energy Future 2016 Update is available on the NEB website (www.neb-one.gc.ca).