Boston, MA -- (SBWIRE) -- 05/15/2013 -- BMI View: Increasingly challenging economics could slow the growth of oil-sands driven production, although we note that liquid-rich shales could be the new engine of crude output. Exploration in the country's offshore acreage and unconventional resources could unearth more oil and gas reserves to support the country's long-term growth prospects. The outlook for Canada's oil and gas industry is still a rosy one, though its upstream potential needs more support from infrastructure development.

The main trends and developments we highlight for Canada's oil and gas sector are:

- We see a threat to growing oil reserves from oil sand projects. Unfavourable economics have seen some projects put on hold as the discount between Western Canadian Select and WTI widen due to a boom in light, sweet Bakken crude and infrastructure bottlenecks depress demand for heavy Canadian crude.
- Canada's proven oil reserves are expected to fall from 173.6bn barrels (bbl) in end-2012 to 158.0bn bbl in 2017 due to a slowdown in oil sands investment, but a reversal of this trend is expected, with proven reserves climbing back up to 162.0bn by 2022 thanks to additions from liquid shale developments.
- Proven gas reserves will increase from 1.7tcm in end-2012 to 1.9tcm in 2017 and pushed further to 2.1tcm by 2022 as discoveries, mainly from shale deposits, are booked as reserves. Exploration breakthroughs if favourable economics lead to an increase in offshore drilling activity pose upside risks to our forecasts.
- The industry rush into the Arctic may benefit Canada. The Globe and Mail reported that Imperial Oil is looking to submit drilling plans in the Arctic, possibly in 2013.
- We have slightly downgraded our forecasts for oil production growth, based on expectations that a difficult market for heavy Canadian crude would slow the rate of production from oil sands deposits but expect growth to be sustained on the back of potential liquid shale production as unconventional drilling heats up. This could drive production to 4.17mn b/d in 2017 and 4.73mn b/d by 2022.
- The slack from Western investors in oil sand developments could be picked up by Asian companies eager to secure oil supply for the energy-hungry region. This is exemplified by Japan Petroleum Exploration Co (Japex)'s decision to commit CAD1.4bn (US$1.4bn) in the Hangingstone oil sands expansion project in December 2012, even as its western counterparts take a more cautious approach.
- Gas production will initially fall owing to declining conventional output - especially in Alberta and Saskatchewan - from an estimate of 140.3bcm in 2012 to 138.9bcm in 2013, but see an uptick from 2014 to reach 151.9bcm by 2017. We expect production to hit 200bcm by 2022, supported by gas production in British Columbia to feed proposed LNG projects and emerging shale gas production from Alberta.

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