Canadian Oil Production Is Expected to Increase by 8% Over the Next Two Years

Analysts predict that Canadian crude production will increase by roughly 8% over the next two years, despite a slowdown in the second quarter due to the busy oil sands maintenance season and early summer wildfires.

Canada, the fourth-biggest oil producer in the world, has added roughly 375,000 barrels per day (bpd) over the last five years combined, despite promising European allies it would increase its crude output after Russia invaded Ukraine in early 2022.

Canada Energy Regulator data shows oil production reached 4.86 million bpd in 2022, up from 4.61 million back in 2018.

Cenovus Energy (CVE.TO) and Canadian Natural Resources Ltd (CNRL) (CNQ.TO) will drive growth by improving efficiency in their oil sands operations.

Companies are also developing “step-out” or “tie-back” oil sands thermal projects by establishing new locations with existing plants to steam bitumen resources faster and cheaper.

Analysts have suggested that manufacturers’ decision to increase output while continuing to distribute free cash to shareholders is a sign that they expect pricing to remain stable. Instead of developing a brand new facility to steam bitumen deposits, companies are pushing forward with so-called “step-out” or “tie-back” oil sands thermal projects, which include connecting new areas with existing plants to accelerate construction and reduce costs.

“Companies can finally say things have recovered enough in the industry that we can maintain returns to shareholders and put some money into production growth,” said analyst Martin King from RBN Energy.

The average price of a barrel of North American oil this year is $75.64, down from 2022 highs but higher than the average price of $65.89 for the previous five years.

Since oil and gas production produces the greatest amount of greenhouse gases in Canada, increasing production would be in conflict with the government’s efforts to reduce emissions by 40-45 percent by 2030.

Total Canadian crude output is predicted to expand by 175,000 bpd this year and another 200,000 bpd in 2024, according to RBN, while yearly oil sands production is projected to increase by roughly 350,000 bpd by 2025, according to S&P Global Commodity Insights analyst Kevin Birn.

Production is anticipated to increase in the second half of the year, and corporations are making progress on integration initiatives.

To increase production by 30,000 barrels per day (bpd) by 2025, Cenovus is constructing a 17-kilometer (11-mile) pipeline from its Narrows Lake site to its Christina Lake processing facility, and CNRL intends to expand from its Jackfish and Kirby facilities to develop the Pike project it acquired from BP (BP.L) in 2022.

“It’s a great opportunity and quite innovative. Rather than building a central processing facility all way up at the site, we’ve been able to tie it back to our existing plant,” said Cenovus’s executive vice president upstream, Norrie Ramsay.

In the first quarter of 2024, the 600,000 bpd Trans Mountain expansion (TMX) pipeline project is expected to begin operating, coinciding with the arrival of the increased volumes. Pipeline congestion caused by TMX delays might increase shipping prices for producers transporting petroleum by rail.

“It’ll have to be done by the middle of next year or we’ll have to have more rail,” said analyst Phil Skolnick from Eight Capital.