Canada’s Oil Production is Recovering Faster Than Expected
Canada’s oil production is recovering faster than expected amid rapid global demand rebound.
“The bounce in demand for oil is expected to outstrip the ability of producers to restore supply,” says Amrita Sen, co-founder and director of research for international consultancy Energy Aspects. Analyst are suggesting that world oil demand has bounced back much faster than expected and is now at 89% of pre-COVID levels.
Canada’s oil producers are already better positioned than their competitors in the United States to capitalize on demand recovery. According to RBN Energy analyst Martin King, “The industry is actually on its way to growth, with small oil sands expansions underway by companies like Canadian Natural Resources and Suncor Energy.”
US oil producers ramped down in March due to COVID-19 and production has continued to decline as of mid-August. “The steep decline rates for [U.S.] shale require constant drilling and completion activity, and it will take a while to get production back to pre-pandemic levels.” says Elisabeth Murphy, analyst with ESAI Energy. Some estimate as many as 70% of US shale producers will go out of business before this is over. Oil historian Daniel Yergin says, “ US shale is in a sort of death pageant, and will probably remain that way for the foreseeable future.”
Meanwhile in Canada, oil sands or heavy oil production is already well into coming back online as producers capitalize on their unique ability to swiftly respond to stabilizing oil prices.
In April, deliveries on the Enbridge Mainline to refineries in the U.S. Midwest dropped by 12% compared to pre-COVID levels. By July, Mainline deliveries to the U.S. Gulf Coast refining cluster increased to 120% of levels pre-pandemic.
“Canadian production could actually be higher after all this,” says Enbridge CEO Al Monaco . “Maybe slightly delayed in terms of getting to that point but still higher next year than where it was pre-COVID”. Whereas the US could be down by 1.5 million, maybe 2.5 million barrels a day as it will take a while to get production back to pre-pandemic levels.
Analysts expect oil demand to return to up to 95% of pre-COVID levels through the first quarter of 2021. Because Canadian Oil Sands has virtually no base decline, and has the ability to ramp up, back to previous levels more quickly, production is expect to return to pre-Covid levels or maybe even better.
All good news for the Canada’s oil sector, and all Canadians for that matter, because as the oil industry continues it’s recovery it will be able to support to rest of the country as it begins to awaken from the COVID nightmare.
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