Highlights
- After a relatively weak year for Canada’s oil producers, output growth in 2024 could amount to a significant 300–500k/barrels per day — putting the nation in the running to be the largest source of global oil supply growth.
- The Trans Mountain Pipeline is the biggest factor, with Alberta’s oil producers ramping up late last year in anticipation for it’s start up.
- In addition, the restart of the Terra Nova oil field in Newfoundland and Labrador (N.L.) should add a decent tally to national oil production growth.
- Oil sector output could contribute 0.2–0.4 percentage points (ppts) to total Canadian GDP, offering an important buffer as the broader Canadian economy gears down this year.
- Global oil supply growth estimates vary based on differing agency projections, but Canadian oil could account for 25–67% of incremental supply in 2024. However, production growth will moderate in 2025.
Canadian oil production has always punched above its weight on the global scale. At last count, Canada ranked fourth across nations for total oil output, only trailing the global heavyweights of the U.S., Saudi Arabia, and Russia (Chart 1). While the gap between Canada and the world’s top producers is still comparatively large, the year ahead is shaping up to be a promising one for Canada’s energy sector. In annual terms, Canada has the potential to be the largest source of crude supply growth to the global market. In this sense, Canadian oil will continue to gobble up global market share (currently around 6% of total production), especially as U.S. production growth slows and OPEC+’s voluntary production cuts remain in place until at least June this year.
The expected sharp rise in oil output this year is a result of various factors. Lower production in 2023 due to wildfires, general maintenance at major oilsands facilities, and macroeconomic headwinds provide a favourable starting point for this year’s growth. Further, the long-awaited Trans Mountain Pipeline (TMP) expansion is virtually complete, adding nearly 600k barrels per day (bpd) in takeaway capacity, while Newfoundland & Labrador’s (N.L.) Terra Nova oil field has finally resumed production. Adding to this, a healthy commodities backdrop is spurring robust capital expenditure intentions for 2024 in order to support increasing industry output. Past this year however, production growth will moderate.
According to the most recent updates from the Canadian Energy Regulator (CER), Canadian oil output currently stands at around 4.9 million/bpd. Full data for 2023 is not yet available, but national production likely edged ahead by only around 50 thousand/bpd last year, or about 1%.
In 2024, we estimate that Canadian oil production could advance by 6–10%, roughly equivalent to 300–500k/bpd. The band is fairly wide to incorporate lingering uncertainties, but even on the low end, this would match average annual growth in the booming years between 2010–2015. On the high-end, it would take annual oil production growth to its highest level, outpacing the 370k/bpd growth in 2018 (Chart 2). At this level of growth, Canadian production would total between 5.2–5.4 million/bpd, a record-high.
This is significant for a few key reasons. Firstly, growth in this range would likely edge out U.S. oil production estimates for the year ahead. After U.S. production surged by almost 1 million/bpd in 2023, the Energy Information Administration (EIA) is now forecasting U.S. growth for the year ahead to slow to a more modest 170k/bpd. This is happening at the same time that the U.S. is importing record quantities of Canadian oil. Canada currently accounts for 60% of U.S. crude imports and this boost in demand should provide a tailwind for the Canadian economy, while also building up Canada’s share of U.S. crude oil imports. Second, a large chunk of the growth will be supported by the completion of the Trans Mountain Pipeline (TMP) expansion (details in the next section). This new export conduit will allow Canadian oil to more efficiently reach the U.S. and new international markets, tighten the discount for Canadian crude prices, and provide a boost to resource revenues.
Sources of Supply Growth
Trans Mountain Pipeline
After numerous delays and significant cost over-runs, TMP is set to be operational this year, likely next quarter. Its expansion, which is in the final stages of construction, will boost the pipeline’s capacity to 890k/bpd from the current 300k/bpd. In anticipation of the pipeline’s start-up, Alberta’s oil producers have recently ramped up production. In both November and December of 2023, oil production in Alberta reached nearly 4.2 million/bpd, pulling up the 2023 average to 3.82 million/bpd.
Flatlining production near December’s levels translates to 2024 annual growth of around 300k/bpd, or 8% year-on-year (y/y), just in Alberta alone (Chart 3). This is not an unreasonable assumption given the pipeline’s capacity to support additional barrels and the stated intentions of major producers to increase output this year.
Canadian oil prices, benchmarked by Western Canada Select (WCS), have been depressed for many years due to pipeline shortages and refinery and transportation costs. The discount to West Texas Intermediate (WTI) has hovered between $18–20 over the past several years to reflect these hurdles (Chart 4), but that spread should narrow as a result of the TMP completion. Looking forward, WCS prices could conservatively close the spread by $3–4/bbl later this year, which will incentivize production and support industry profitability.
Canadian oil is back in the spotlight for 2024. The boost in expected output is made possible by the Trans Mountain Pipeline expansion, the completion of maintenance at major facilities, continued sector investment and a still-supportive commodities backdrop. Production this year will carry positive impacts for Canadian real GDP, aiding a 2024 soft landing scenario. On an industry-level basis, the oil and gas sector accounts for 4% of total GDP. With annual production growth pegged between 6–10%, this translates to 0.2–0.4 ppts added to total GDP. This is potentially impactful as Canada enters a cyclical slowdown, where we expect growth to register under 1.0% (Chart 8).
Barring any unforeseen circumstances, Canada could be the largest source of increased oil supply across the globe in 2024. Canada should be able to capitalize on higher prices paid for our oil as well as the forthcoming ability to get Western oil reaching international markets.
That being said, this year’s pace of growth is unlikely to be sustained in the years following. Such levels of growth in 2025 and onwards could reintroduce pipeline capacity constraints, while future production and investment in the sector depends on future emissions caps and the rising price for carbon. As the production impulse from this year’s major factors begins to fade, we see oil production growth in 2025 pulling back to below-average levels.