Calgary – After one of the most brutal years for the Canadian oilpatch, the Canadian Association of Petroleum Producers (CAPP) is forecasting a 14 per cent increase in upstream natural gas and oil investment in 2021.
However, Saskatchewan is expected to see only a five per cent increase, while Alberta and British Columbia are expected to fair better.
Capital spending nation-wide in the sector is expected to be around $3.36 billion higher this year, reaching $27.3 billion, compared to an estimated total investment of $24 billion in 2020. While that is an improvement over the most dismal year in recent memory, in comparison, in 2014, capital investment peaked at $81 billion, according to CAPP’s September 2019 Capital Investment and Drilling Forecast Update, whereas last year saw the lowest levels in more than a decade. CAPP said this year’s forecast represents a stabilizing of industry investment and the beginning of a longer-term economic recovery.
The additional spending is primarily focused in Alberta and British Columbia, while numbers in Saskatchewan show modest improvement and offshore investment in Atlantic Canada is expected to remain relatively stable compared to 2020.
Conventional oil and natural gas capital investment for 2021 is forecast at $20 billion, up from an estimated $17.2 billion last year.
Capital investment in the oil sands is forecast at $7.3 billion in 2021, up from an estimated $6.7 billion total in 2020.
CAPP president and CEO Tim McMillan said in a release, “It is a positive sign to see capital investment numbers moving up from the record lows of 2020. This can be read as the start of what we expect will be a long road to economic recovery for the natural gas and oil industry and the Canadian economy as a whole.”
“A more than $3 billion increase in planned upstream natural gas and oil spending signals that producers are invested in Canada’s economic recovery. With some hard work, we can build momentum from this positive news, and position Canada for success as economies around the world recover.”
He added, “As one of the largest private investors and employers in the country, the natural gas and oil industry can be a foundation for national economic recovery. The industry is committed to working with governments, at all levels, to create an environment where businesses can thrive and attract investment back to Canada. This is how we will maintain jobs and create new opportunities for Canadians.”
One year ago, CAPP’s initial forecast for 2020 expected investment to reach $37 billion; however, a crude oil price war between Russia and Saudi Arabia in March of 2020 and the global economic impacts of the COVID-19 pandemic contributed to an unprecedented 31 per cent drop in investment, wiping out more than $12 billion of planned spending.
The expected 2021 increase of investment into the Canadian economy is partly due to the availability of COVID-19 vaccine globally, which should lead to higher economic activity and increased energy demand, CAPP said. The International Energy Agency (IEA) projects the global economy will return to pre-COVID levels in 2021 while global energy demand is expected to reach its record high pre-crisis levels in early 2023. CAPP noted this growth offers significant opportunity for Canadian natural gas and oil producers as their access to global markets expands.
Other contributing factors to the capital spending increases are government supports introduced in 2020, including many at the provincial level.
In Saskatchewan, 2021 upstream investment is forecast at a five per cent increase, up to $2.8 billion from an estimated $2.7 billion in 2020. The Saskatchewan Party government’s Vision 2030 goal of increasing oil production by 25 per cent to 600,000 barrels per day, along with fiscal incentives that enhance investment attractiveness have laid a solid foundation for the industry, according to CAPP.
The province also implemented a Saskatchewan-wide rebate on electricity bills; a policy which assists companies with liquidity and signals to the investment community that the province is committed to the economic recovery of the business community.
In Alberta, upstream investment is expected to increase 18 per cent to total $11.8 billion in 2021 from an estimated $10 billion last year. That province announced municipal tax relief for new wells drilled, eliminated the municipal Well Drilling Equipment Tax (WDET), and accelerated its corporate income tax reduction plan. Alberta is also working on reducing red tape for the industry.
Alberta invested $1.5 billion in the Keystone XL pipeline, which lead to the starting of construction on the project. Keystone XL, along with the Trans Mountain expansion and Enbridge Line 3 pipeline projects also under construction, offer expanded market access for Canadian oil to global markets.
However, incoming President Joe Biden had promised to cancel the project.
In British Columbia, growth in upstream investment for 2021 is forecast at about 29 per cent; up to $3.9 billion from an estimated $3 billion in 2020. The province’s support for liquefied natural gas remains a driver for investment with the LNG Canada project under construction -- one of the largest capital projects in Canadian history.
CAPP noted B.C. took a step in addressing competitiveness concerns for trade exposed industries by setting benchmarks for its CleanBC Industry Incentive Program which recognizes industry’s leadership and will refund a portion of the provincial carbon tax (above $30/tonne). This is a first step to help better enable B.C. commodities to compete, CAPP said.
In 2020, BC hydro reduced industrial electricity rates by one per cent and the province delayed its scheduled increase of the provincial carbon tax.
All three provinces – Saskatchewan, British Columbia and Alberta – have also reached equivalency agreements with the federal government on methane emission reduction regulations, providing industry with predictability and a regulatory framework that allows for a solutions-focused approach while enabling industry to advance technological innovation.
In addition to provincial efforts to sustain resource development, the federal government’s Business Credit Availability Programs introduced in 2020 are now providing some companies with liquidity support. The Government of Canada also created a $1.7 billion fund focused on the remediation and reclamation of inactive and non-producing wells in Western Canada which is contributing to the increase in investment while accelerating efforts to clean up legacy assets.
CAPP forecasts 3,300 new wells to be drilled in Canada in 2021, up from 3,000 drilled in 2020 but significantly lower than the 4,250 drilled in 2019.
Capital spending in the United States upstream natural gas and oil industry fell approximately 45 per cent in 2020 and is expected to increase by 4 per cent in 2021.