Canada oil sands producers anticipate expansion in 2024, await pipeline impact

New Delhi [India], January 4 : Canadian oil sands producers are gearing up for an expansion in 2024, buoyed by expectations of tighter price differentials and improved market access following the startup of a pipeline expansion.
According to a press release by the S&P Global Commodity Insights, industry participants anticipate that the Trans Mountain Expansion (TMX) pipeline, scheduled to commence commercial operations in the first quarter of 2024, will be a game-changer for Western Canadian oil sands crude exports, particularly to the US Gulf Coast and West Coast.
Volatile pricing and significant planned maintenance at various Canadian and US refineries during late summer 2023 contributed to fluctuating Western Canadian Select (WCS)/WTI differentials.
These differentials swung from a low of USD 12/b in July to USD 25/b in November, becoming a dominant theme for the year.
Despite these fluctuations, Alberta's oil sands producers are poised to conclude 2023 with an output of 3.345 million b/d, showing a 3 per cent increase compared to 2022.
The forecast for 2024 is an output of 3.430 million b/d, further growing to 3.529 million b/d in 2025.
The upcoming TMX pipeline, with an expected line fill in the first quarter of 2024, will facilitate a new export option for Western Canadian Sedimentary Basin (WCSB) producers.
This pipeline, extending from Edmonton in Alberta to the Westridge marine terminal on the West Coast, aims to tighten light/heavy oil price differentials and offer improved pricing for Western Canadian producers.
The completion of TMX is seen as a significant development, providing an alternative route for exports and enhancing the competitiveness of Western Canadian crude in global markets.
Greg Stringham, a former vice president for markets with the Canadian Association of Petroleum Producers, highlighted that TMX's startup would bring increased investments, aligning with producers' growth plans for 2024.
"Volatile pricing was a key factor in 2023 and added to it was the heavy planned maintenance at multiple Canadian and US refineries in the Midwest that impacted some 2.5 million b/d of crude movements during the late summer months," said Greg Stringham.
"The [Western Canadian Select]/WTI differentials swung from a low of USD 12/b in July to USD 25/b in November and this has been a dominant theme in the current year," Stringham said.
The pipeline is expected to play a crucial role in driving export demand, with Asian refiners and those in Europe competing for WCSB barrels by paying a premium.
Major oil sand producers such as Canadian Natural Resources (CNR), Imperial, and Cenovus Energy are gearing up for additional output and investments.
CNR anticipates an output of 1.455 million b/d of oil equivalent by the end of 2024, with a focus on drilling activities related to longer-cycle projects and shorter-cycle development opportunities.
Director of R-Cube Economic Consulting, Vijay Muralidharan said, "However, there could be some headwinds, like an economic slowdown in the first half of 2024 that will impact demand for heavy crude, rising interest rates and a widening of price differentials with US refinery maintenance in the first and second quarters. In the first half of 2024, the WCS/WTI differentials will range USD 18/b to USD 21/b, before narrowing to USD 13/b to USD 15/b when TMX starts ramping up."
Imperial is set to accelerate the first phase of the Grand Rapids project at Cold Lake, aiming to deliver 15,000 b/d gross at full production.
Cenovus plans to invest in its oil sands assets, including growth and optimization capital for projects like Foster Creek optimization, Narrows Lake tie-back to Christina Lake, and optimization and new well pads at Sunrise.
The industry's positive outlook for 2024 is underlined by expectations that TMX will enhance market access, allowing for increased exports and contributing to the continued growth of Western Canada's oil sands production.
However, potential headwinds such as economic slowdowns and fluctuations in price differentials are factors that will be closely monitored in the coming year.