Several pipeline projects now under construction to deliver Alberta oil to export markets, are helping fuel CAPP’s rosier forecast for the oil and gas sector in 2021. (Flickr photo)

Several pipeline projects now under construction to deliver Alberta oil to export markets, are helping fuel CAPP’s rosier forecast for the oil and gas sector in 2021. (Flickr photo)

CAPP forecasts ‘the beginning of longer-term economic recovery’ for Alberta’s oil and gas sector

More inventment is leading to more projects

It’s a long road to economic recovery for Alberta’s oil and gas industry — but some positive signs indicate the journey has already started.

The Canadian Association of Petroleum Producers (CAPP) is forecasting a 14 per cent increase in upstream natural gas and oil investment in 2021.

Capital spending 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.

Planned investment for 2021, while increasing from the lowest levels in more than a decade, would halt the dramatic decline seen since 2014, when investment sat at $81 billion. This year’s forecast represents a stabilizing of industry investment and the beginning of a longer-term economic recovery.

CAPP found 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.

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 in 2020.

A year ago, CAPP’s forecast was for 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 investment increase in 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.

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 believes this growth offers “significant opportunity for Canadian natural gas and oil producers as their access to global markets expands.”

Other contributing factors are government supports. In 2020, the Government of Alberta announced municipal tax relief for new wells drilled, eliminated the municipal Well Drilling Equipment Tax (WDET), and accelerated its corporate income tax reduction plan.

Upstream investment in Alberta is expected to increase 18 per cent to total $11.8 billion in 2021 from an estimated $10 billion last year.

The Alberta government has invested $1.5 billion in the Keystone XL pipeline. Along with the Trans Mountain expansion and Enbridge Line 3 pipeline projects, which are also under construction, it will offer expanded market access for Canadian oil to global markets.

Tim McMillan, president and CEO of CAPP said, “It’s 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.”

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.

The Canadian Association of Petroleum Producers (CAPP) represents companies, large and small, that explore for, develop and produce natural gas and oil throughout Canada.

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