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article imageCanada oil industry will continue to see losses for much of 2017

By Karen Graham     Mar 14, 2017 in Business
The Conference Board of Canada released its 2017 report on the oil industry. The forecast is for continued losses for most of the year, even though financial conditions are better and there's the promise of greater pipeline capacity.
In its report released on Monday, the board says capital investments are expected to fall to $22 billion from a high of $27 billion in 2016. This drop is attributed to construction projects in the Alberta oilsands and offshore Newfoundland being completed, reports CBC Canada.
Board economist Carlos A. Murillo says the industry is rebounding after hitting the bottom in the first quarter of 2016, posting an overall $11 billion loss. Murillo says the sector won't see positive numbers until the fourth quarter this year. "Global demand is expected to increase in coming years, suggesting that prices will continue the upward trajectory that began late last summer."
He adds that the industry should be expected to recover enough to match its 2010 profits of $13 billion by 2021. However, industry costs are forecast to increase by 13 percent per year between 2017 and 2021, partly due to pipeline transportation constraints. This situation could force more producers to switch to "crude-by-rail options," according to Global News.
“The way we kind of look at it is because the losses have been so large over the last couple of years, it takes a bit of time to get up there to the point that you actually are starting to make money again,” said Murillo. “Of course, improving revenues will help, but there are already cost pressures.”
The Athabasca Oil Sands  Alberta Canada.
The Athabasca Oil Sands, Alberta Canada.
Good news for the industry's expansion plans
After the price of oil dipping to $40 a barrel, the sector has seen a rebound in the price of oil, coming in at over $50 a barrel for most of 2017. The board sees the price stabilizing at $55 a barrel and reaching $71 a barrel by 2021. This forecast may give many oil companies the incentive to look at expansion plans again after pulling back in 2015-2016.
Another encouraging sign is in pipeline development, with the board singling out Enbridge's Line 3 replacement and Kinder Morgan's Trans-Mountain expansion projects - Calling them good news for the industry, saying the two pipelines should add a million barrels a day capacity to Canada's pipeline network.
The board didn't dwell too long on the Keystone XL and Energy East projects because they are still up in the air, but if they are given the green light, they would add an additional two million barrels capacity.
"While approval of these projects is good news for the industry, the reality is that new capacity is needed now, and the benefits of increased market access and better prices for the industry will take time to materialize," Murillo said. "What is more, these projects are unlikely to be all needed at the same time."
More about Canada, Oil industry, jump in costs, Capital investment, pipelines
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