COMMODITIES 2025: Western Canadian crude output growing as exit capacity expands

Western Canadian oil producers are looking to expand output in 2025 as midstream players work to add incremental market access to the US Gulf Coast and Asia, according to industry players.

"Oil sands production has been up year to date nearly 10%," Greg Stringham, former vice president of markets for the Canadian Association of Petroleum Producers, told S&P Global Commodity Insights. "Demand has been there and in 2025 oil sands production will continue to grow gradually rather than via large or mega projects."

Stringham quantified the gradual growth to be in bite-sized, low capital projects of nameplate capacity 15,000 b/d to 20,000 b/d entailing investment of some C$20,000 to C$25,000/flowing barrel.

Flowing barrels include production costs and expenses related to exploration, drilling, transportation, and refining.

Commodity Insights analysts expect Western Canadian crude export supply to average 4.8 million b/d in 2025 before rising to 5.13 million b/d in 2030, up from 4.5 million b/d in 2024.

MEG Energy approved a 25,000 b/d expansion of its legacy Christina Lake oil sands facility, CEO Darlene Gates said Nov. 26.

Fellow producer Imperial Oil started up the first phase of its 15,000 b/d Grand Rapids project in mid-2024 and is now progressing with construction work of its 9,000 b/d Leming oil sands facility, aiming to inject the first steam at that plant in late 2025.

Suncor said in mid-December it had outlined over 100,000 b/d of new upstream production by 2026 from its Canadian assets, with the company focused on reducing operating costs by C$8/b.

Lastly, Cenovus Energy said at the same time it would deliver on growth projects in 2025 that include first oil from Narrows Lake and steam injection into Foster Creek.

SA-SAGD growth

New well pads will start up at several in-situ facilities including MEG Energy's Christina Lake, Cenovus Energy's Sunrise and Foster Creek, and ConocoPhillips' Surmont, according to Commodity Insights analysts

The bulk of the planned growth in oil sands production will come from in-situ or the steam-assisted gravity drainage operation, rather than the mining process, the Alberta Energy Regulator said in its latest report.

"Imperial has already started the application of SA-SAGD technology that is reducing both GHG emissions and water usage by using less steam and injecting solvents into the reservoir," Stringham said.

The unlocking of new heavy oil barrels with a lower carbon footprint is coming in the backdrop of surging oil sands production.

Oil sands production in 2024 is forecast to average 3.329 million b/d and rise to 3.492 million b/d in 2025, the Alberta government said in its latest 2024-2025 Fiscal Update and Economic Statement issued late November.

In 2023, oil sands output was 3.332 million b/d in 2023, the fiscal update said.

Exit capacity rises

Western Canadian crude pipeline exit capacity expanded sharply in 2024 because of the 590,000 b/d Trans Mountain Expansion, which began commercial operations in May 2024.

That pipeline expansion allowed Canadian crude to reach refiners on the US West Coast and in Asia via the Westridge Marine Terminal in coastal British Columbia.

Total export capacity, including rail, increased to 4.8 million b/d in 2024 from 4.4 million b/d in 2023 and is expected to rise to 5.2 million b/d in 2025 as Trans Mountain reaches capacity, according to Commodity Insights data.

That increased capacity should keep a lid on price discounts for Western Canadian crude, although those discounts could widen down the road as output rises.

The Western Canadian Select crude price discount to WTI has averaged $12.77/b so far in December, narrowing from a $20.07/b average in December 2023, Platts data shows. Platts is a unit of S&P Global Commodity Insights.

The WCS discount is expected to average $14/b for fiscal 2024-25, $3/b narrower than the prior year due to TMX start-up, the Alberta government update said.

Increased flow to Asia

The start of TMX has resulted in increasing crude flows to Asia which is fast emerging as a growing destination for Canadian heavy barrels.

Through mid-November, about 56% of the cargoes have moved to Asia – mostly mainland China, according to Commodity Insights.

"Asia will remain the biggest engine of incremental world oil demand this decade and its key refining centers of mainland China, India, and South Korea together process about 1.8 million b/d of heavy, sour crudes," Commodity Insights analysts said in a report. "The shipping advantage for barrels exported from Canada's West Coast to Northeast Asia is considerable, especially compared with the USGC."

Surging production will support the next round of pipeline expansions from Western Canada, Stringham said.

"It is already time to start expanding pipeline capacity including a debottlenecking of TMX," he said. "Keystone XL is past its expiry date and has too much political baggage to ever get off the ground. However, while world oil prices will be set globally, pipeline capacity tightness can keep Alberta oil from fetching higher prices."