Canadian oil and gas producers benefitting from higher prices

Calgary, October 5, 2021 – Production of Canadian crude oil is expected to outpace 2019 levels by the end of this year and remain strong through 2022, according to Deloitte Canada’s Resource Evaluation and Advisory (REA) group in its latest forecast. The report says higher prices have allowed producers to drill new wells, with oil rig counts exceeding the five-year average over the last quarter. While this increased production could narrow the differentials between light and heavy oil, it still expects crude oil prices to remain relatively flat for the remainder of 2021.

“Despite weaker demand forecasts as a result of an increase in COVID-19 Delta variant cases, prices should be stable over the coming months, in part because OPEC+ members have decided to keep their production levels constant,” said Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. “Overall global production has not yet returned to pre-pandemic levels, even though OPEC+ and the United States ramped up their production this summer.”

The forecast notes that short-term disruptions to offshore production in the U.S. have led to the lowest crude inventories there in nearly two years. Some U.S. shale producers may be looking to drill new wells to take advantage of higher oil and gas prices, increasing spending in the sector and bringing U.S. production levels closer to those of 2019. Canadian oil producers are also expected to continue their capital spends on new wells heading into winter.

Canada’s natural gas producers have also benefited from higher prices over the summer as pipeline flows out of Western Canada rose and domestic demand was higher than in recent years. Natural gas production volumes were higher, although drilling activity remained steady as companies stayed focused on maximizing cash flow. Meanwhile, in the United States, steady export volumes and decreased supply led to the highest seasonal Henry Hub gas price since 2014.

“North American gas prices should remain strong as we close out 2021 but are likely to stabilize as the U.S. boosts its gas production and LNG export volumes start to flatten,” said Botterill.

Deloitte’s latest forecast also includes an assessment of how Canada’s oil and gas companies are preparing for a low-carbon future in which they remain key domestic and global energy providers. This includes decarbonizing existing assets, investing in carbon capture and storage, hydrogen production, greater reliance on biofuels and building alliances to find the best route to carbon neutrality. While the energy industry faces the greatest pressure to make sweeping changes, Deloitte’s Sustainable Ecosystems assessment notes governments also have a significant role to play.

“It’s going to take huge investments for Canada to get to net-zero emissions by 2050, which will require government incentives beyond the traditional tax breaks and subsidies, including channeling revenues generated by carbon capture back to individuals and businesses to facilitate the transition to low-carbon energy,” said Craig Alexander, Chief Economist at Deloitte Canada. “Governments should also be investing in infrastructure and supporting the training of Canada’s workforce to ensure they have the new skills and trades needed for a low-carbon future.”

For Deloitte’s complete oil and gas price forecast and its Sustainable Ecosystems assessment, visit our website.