Canada's energy industry is grappling with peak pessimism as weak oil prices and opposition to major pipeline projects stoke uncertainty about future growth in the sector.
A key forecast on Tuesday said oil sands producers were expected to chop spending to $15-billion this year, down from an estimated $17-billion last year in what would be the third consecutive year of falling budgets. In 2014, the industry spent $34-billion.
The outlook by the Canadian Association of Petroleum Producers (CAPP) reflects deep anxiety in a sector already beset by tumbling share prices and opposition to major pipeline proposals, including Kinder Morgan Inc.'s Trans Mountain expansion and Enbridge Inc.'s Line 3 replacement project that will bring more oil to the U.S. Midwest.
Since the start of the year, U.S. oil prices have fallen roughly 11 per cent, slipping back to less than $50 (U.S.) a barrel. The Toronto Stock Exchange's energy group has slumped more than 17 per cent.
In its annual forecast, CAPP warned that new taxes and climate-change regulations in Canada risk putting the sector out of sync with the United States under President Donald Trump, who is keen to roll back environmental rules crafted by his predecessor.
The industry will cede more investment to U.S. rivals should pipeline projects approved by Prime Minister Justin Trudeau get blocked, said Tim McMillan, CAPP's president. That could exacerbate the slowdown in production growth and spending already forecast for the next decade.
"We have an opportunity, probably in the next year or two, to define what [the sector] will look like in 2020 and beyond," he told reporters on Tuesday.
The industry is counting on new pipeline projects to boost exports as a series of big-ticket expansions in northern Alberta near completion.
Mr. McMillan said even TransCanada Corp.'s controversial Energy East pipeline from Alberta to the Atlantic, which hasn't secured regulatory approvals, is needed to bring Canadian oil east, displace foreign crude imports and create new export markets.
This year, new barrels from Suncor Energy Inc.'s sprawling Fort Hills mine and Canadian Natural Resources Ltd.'s expanding Horizon operation will hit a market in which producers are already paying more in the way of transportation costs to ship growing production by train, as existing pipelines fill up.
Only a fraction of Canada's crude exports move by train today, but shipments jumped 40 per cent between the beginning of 2016 and the first quarter of this year, according to the National Energy Board. A record 5.7 million barrels of oil were shipped from Canada to the United States by train during the month of March, U.S. government data show.
CAPP said Tuesday total oil sands production is expected to climb to 3.7 million barrels a day by 2030, from 2.4 million today, with most of that bound for U.S. markets.
The industry says current pipelines can transport four-million barrels per day of oil and oil products. By 2030, the sector will need more than 5.5 million barrels a day of capacity for all the liquids products coming out of Western Canada.
Environmentalists argue pipeline space is not as tight as the industry group suggests. Greenpeace and others say production forecasts are too rosy and also assume little action on climate change, including policies that would limit demand for crude.
Even some industry executives have said not all proposed projects are needed. Indeed, the queue of new developments in the oil sands is short, with crude prices languishing well below levels analysts say are needed to justify the massive investments.
On Tuesday, West Texas intermediate crude fetched around $46 a barrel. Prices were pressured early in the session after the Organization of Petroleum Exporting Countries said the cartel's production jumped by 336,000 barrels a day in May, led by big gains in Libya, Nigeria and Iraq.
In its monthly report, the group said a long-sought market re-balancing was happening at a slower clip than expected, in part because of rising shale output in the United States.
GMP FirstEnergy analyst Martin King said there is little reason to believe the bearish mood will lift so long as U.S. oil inventories remain bloated.
Among proposed pipelines, he said the industry has the most to gain from Trans Mountain, which would enable producers to tap overseas markets in a bigger way. However, the $7.4-billion (Canadian) project faces stiff resistance from a Green-NDP alliance in British Columbia.
"I think the industry is not really holding its breath at this time. This is really coming down to a political fight now more than anything else," he said.