Alberta’s oil sands have not been faring too well during the pandemic, as low oil prices and reduced demand have caused oil production to decline significantly. In fact, according to research firm IHS Markit, oil production in the oil sands will be the lowest on record in 2020, with a drop of approximately 175,000 barrels per day.
However, the serious decline in production in light of the pandemic is expected to only cause implications in the short run, with Markit’s 10-year forecast remaining relatively unaffected. The research firm anticipates that oil sands production will climb to 3.8 million barrels per day by 2030, which is slightly lower than the 3.9 million barrels per day originally expected prior to the coronavirus pandemic.
Moreover, if the Alberta government were to relax its oil production restrictions which were introduced in 2019 in response to limited pipeline capacity, then output could reach ever higher. Indeed, Markit predicts that with the easing of such measures, by 2022 oil sands output could be 300,000 barrels per day more than in 2019. However, production growth will be limited to small investments, many of which are expected on projects that were already initiated; only a third of growth in production will come from further project expansions or greenfield operations.
In a move to better align itself with environmentally friendly business practices, Deutsche Bank has recently announced it will no longer provide financial support to new oil sands projects, adding an unsuspecting further blow to Alberta’s oil industry. The oil sands have been on the receiving end of criticism over the last several years in response to the tightening of environmental policies in Canada, which in turn have caused the overall sentiment surrounding pipelines to turn sour.
Information for this briefing was found via IHS Markit and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.