What is the future of Canadian oil?
The future of crude oil development in Canada is an open question. Government, industry and civil society have mixed feelings about how to balance the environmental impacts and economic benefits of fossil fuel resource development. It’s hard to predict what will happen to the industry, as projections vary greatly from source to source. To complicate matters, the future will not only be shaped by Canadian climate policies, but also by factors that affect oil supply and demand worldwide, such as recovery from COVID-19, new low-carbon electricity and transportation options, international economic growth, and oil production in the US.
To help determine what could happen in the future, it’s important to understand the Canadian oil industry, and how it works, now. That is the aim of this new blog series – an attempt to help people understand how the oil industry works in Canada so we can better discuss the future.
In this series, we look at what is happening in the various sub-sectors of the oil industry, how they are impacting communities, and what people think about the future of this industry in Canada. Upcoming installments of the series will provide an in-depth look at oil sands mining and in-situ extraction in Western Canada, and offshore oil production in Newfoundland and Labrador.
The oil and gas industry is a large part of Canada’s economy, accounting for about 6% of Canada’s GDP. While that may not seem like very much, the economic impact of the oil industry is most significant in three provinces: Alberta, Saskatchewan, and Newfoundland and Labrador, where it accounts for 30%, 23%, and 25% of the GDPs, respectively. These three provinces are responsible for virtually all oil production in Canada, with Alberta alone producing 80% of all oil in Canada.
A significant share of the revenues collected by all levels of government in Canada is from the oil industry. Between 2013 and 2017, government revenues collected from the industry averaged $14.8 billion per year, including royalties, income taxes, indirect taxes, and land sales. The amount was nearly 10% of all operating revenues earned by governments in Canada in that period.
In 2019, oil exports totalled over $68 billion, surpassing traditional Canadian exports like vehicles ($40 billion), gold ($15 billion), automobile parts ($10 billion), and pharmaceuticals ($7 billion). Between 2013 and 2018, the value of crude oil exports ranged from 11% to 20% of Canada’s total exported goods. The US is the single largest customer, receiving 84% of the country’s total production in 2018.
Employment in Canada’s oil industry is substantial, with 170,000 workers directly employed across Canada as of 2018, 75%of whom are in Alberta. This number includes only those who work directly for the industry and doesn’t include oil and gas-related jobs in other industries, such as engineering, manufacturing, and services.
Canadian exports of energy to the US in 2018 (% of Canadian production)
Source: Natural Resources Canada
What’s the future of oil production in Canada?
There are many factors that may influence the future of oil production in Canada, such as climate policies, new pipelines, oil prices, and demand. In fact, there are a lot of projections around what Canada’s oil industry might look like in the near- and long-term future.
For instance, the Canadian Energy Regulator (CER, formerly the National Energy Board), projects a growth in Canadian crude oil production of nearly 50% between 2018 and 2040, from 4.8 to nearly 7 million barrels per day. Almost all this growth is projected to come from Western Canada, largely in Alberta, but also in Saskatchewan.
More in-situ projects expected for Western Canada
Western Canada contributes around 95% of Canada’s total production, of which about two-thirds come from the oil sands. Between 2018 and 2040, oil sands production is expected to grow from 3.1 to 4.4 million barrels per day. This growth will come primarily from expansion of existing in-situ projects, while production from oil sands mining is expected to remain stable.
Oil sands deposits (Northern Alberta)
Non-oil sands production, mainly conventional oil (oil extracted via traditional drilling methods), is expected to grow from 1.7 to 2.7 million barrels per day. Conventional oil is produced largely in Alberta and Saskatchewan, but also in Manitoba and British Columbia. Non-conventional production from tight oil (oil extracted by fracturing subterranean rocks, also known as fracking) is also expected to increase in Alberta.
Eastern Canadian production declines
Most of the oil production in Eastern Canada comes from offshore Newfoundland and Labrador, while small volumes are produced in Ontario and New Brunswick. Over 300,000 barrels per day by 2025 is expected to be produced offshore of Newfoundland before it starts declining, reaching 100,000 barrels per day by 2040, as both existing and new fields start to produce less.
Total crude oil production continues to increase
Source: The Canada Energy Regulator (CER)
Oil sands projects are major emitters of air pollutants
In 2017, the oil and gas industry was the largest emitter of greenhouse gases (GHG) in Canada, accounting for approximately 27% of all GHGs emitted. The oil sands alone accounted for 11% of Canada’s total emissions, equivalent to the entire emissions of Quebec.
Emissions from the oil sands have increased 125% between 2005 and 2017. These emissions are generated by direct extraction activities as well as those associated with the bitumen separation process, such as burning natural gas.
Emissions from the oil and gas industry are expected to remain mostly stable between 2019 and 2039, with increases in oil sands emissions and decreases in emissions from conventional oil production. Alberta and Saskatchewan will generate the most emissions, at 50 and 34% of Canada’s total, respectively.
Emissions from crude oil production, 2019-2039
Source: The Canadian Energy Research Institute
Oil production in Canada is dependent on climate goals and the US economy
It is not clear how the projected increase in oil production will fit with government carbon reduction policies. Although stricter environmental requirements for new oil production projects are in place, conflicting views of climate goals and growth in oil production remain an issue to be addressed. Another key issue involves new pipelines to get Canadian oil to new markets in the US and overseas and how or if they are built.
Apart from policy, economics will also be key, and this will depend on conditions that Canada cannot control. Low oil prices mean less income from oil sales. The lower the price, the higher the risk of not being able to recover the investment spent on an oil project. For instance, the up-front costs of an oil sands project (which requires large-scale infrastructure) is more expensive than most projects in the Middle East or in the US.
With less than one-third of oil production in Canada consumed by Canadians, and with nearly all remaining oil exported to the US, Canadian oil production will largely expand according to oil supply and demand in the US, and on climate change policies introduced there. Either a decline in oil consumption or an even larger increase in US oil production would reduce the interest in new oil projects in Canada.