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Boston, MA -- (SBWire) -- 09/30/2013 --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:

- The abundance of gas production provides Canada with considerable export potential. More LNG export projects continue to emerge, with ExxonMobil the latest company to file for an export application for up to 41bn cubic metres (bcm) a year from a British Columbia (BC) site. Two smaller projects have also materialised from Woodfibre LNG in BC and H-Energy in Nova Scotia.
- Canada's oil and gas infrastructure face bottlenecks that need to be addressed to move oil and gas more effectively across the country, and out of it. Otherwise, the country will be faced with the paradox of being over-supplied with oil and gas, but prevented from exporting these due to the supply shortages that exports could pose to the domestic consumption needs of particular regions of the country. The 1.1mn barrel (bbl) Energy East pipeline now looks increasingly likely to go ahead as long as it receives the necessary approvals. This would increase the flow of western Canadian crude to the Easter refining centre.
- We are seeing a growing trend of crude-by-rail shipments to circumvent the limitations in pipeline capacity. Strong growth in Canadian crude exports by rail is playing a critical role in transporting heavy crude produced from oil sands to the refineries on the US Gulf Coast configured to process it. Our view is that this alternative mid-stream route will see strong short-term growth, at least until an alternative pipeline solution is found. Even in the mid-to-long term there will be opportunities for crudeby- rail to enhance US-Canadian oil trade.
- We continue to see a threat to growing oil reserves from oil sands projects. Due to the boom in light, sweet crude production in the US, demand for heavier Canadian crudes from oil sands has fallen. Complicated by infrastructure bottlenecks that are limiting crude flows, this has widened the discount between the prices of Canadian crudes and WTI, which has in turn hit the economics of oil sands projects.

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