The growth engine of Canada’s energy industry is poised to shut off next decade, according to the International Energy Agency.
Production gains from the oil sands in northern Alberta will slow dramatically or come to a halt as crude prices remain low and costs too high for one of the world’s most expensive sources of oil, the agency forecast Monday in a report on the global medium-term crude market. Environmental concerns, a lack of new oil pipelines and uncertainty about policy in Alberta are also causing companies to slow development work, the report said.
“We are likely to see continued capacity increases in the near term, with growth slowing considerably, if not coming to a complete stand still, after the projects under construction are completed,” the agency said.
Oil sands producers were pulling out of projects in the face of competition from U.S. shale even before the current global market rout took hold more than 20 months ago. Suncor Energy Inc. and Total SA scrapped the Voyageur upgrader in 2013.
With U.S. crude trading about 70 percent below its mid-2014 high, companies continue to shelve oil-sands work. Royal Dutch Shell Plc made the rare move of canceling a drilling development under construction last October, Carmon Creek.
Still, Canada’s oil sands will remain a key source of production growth outside the Organization of Petroleum Exporting Countries over the next few years. Output will rise by about 800,000 barrels a day of supply by 2021 from projects under way, including the Fort Hills mine led by Suncor, the report said. By that time, bitumen from the oil-sands is forecast to account for about 3.4 million barrels a day, almost two-thirds of total Canadian oil supplies.
The outlook for slowing oil-sands growth next decade comes as Canadian energy companies report quarterly earnings results that display the full brunt of the market collapse. Narrowing refining margins are no longer shielding producers such as Cenovus Energy Inc. from losses in their upstream divisions. Companies are further lowering dividends, cutting jobs and setting aside drilling rigs to contend with what Cenovus Chief Executive Officer Brian Ferguson earlier this month called “hurricane-force” winds.