Canada has gone from potential energy superpower to global laughingstock over the past several years.

The highly successful anti-oilsands environmental campaign has choked Western Canada of significant new crude pipeline capacity, while the U.S. light tight oil (LTO) revolution has capped global crude prices at moderate levels, barring geopolitical cataclysm in the Persian Gulf region. In turn, this has shifted capital spending away from high-cost long-cycle resource such as the oilsands towards mid-cost short-cycle resource, contributing to an exodus of  oil company spending from Canada to the U.S.

Despite the age of oilsands megaprojects having come to an end, Canada still has a chance of achieving energy superpower status, at least on the oil front, given Western Canada’s massive tight rock potential. The U.S. LTO revolution is widely expected to grind to a halt in the first half of next decade, and if we can get our ducks in a row in the interim, we could redirect North American industry activity back home and possibly on a larger scale than during the oilsands boom.

Tight rock potential and impediments

 “The potential tight oil resource of the Western Canadian Sedimentary Basin is immense, possibly on par with U.S. resource or even Alberta’s oil sands,” says Neil Watson, director of geology at Calgary-based Enlighten Geoscience. The U.S. Geological Survey estimates America’s technically recoverable LTO resource at 113 billion bbls, with almost half of that in the prolific Permian Basin, while the Alberta Energy Regulator (AER) estimates there to be 164 billion bbls of remaining oilsands reserves.

But as of now, western Canadian tight oil resources face numerous impediments to its development, some hopefully transitory and others more permanent. Speaking to PwC Canada’s Energy Visions Business Forum in Calgary on May 22, Doug Suttles, president and CEO of Encana Corporation discussed the resource’s potential and positive attributes, as well as its more transitory stumbling blocks.

 “We understand the shale industry as well as anyone on earth,” Suttles said. “The quality of the resources here are incredibly competitive. The size is massive, we have a highly capable workforce here, we operate to the highest standards in the world, not only environmentally but ethically … So we should be a global leader in meeting energy demand in the future.”

On the flip side, Suttles highlighted three key factors that must be overcome to support more rapid development of Western Canada’s tight rock. “[T]he cost structure is a little bit higher [in Canada than the U.S.] but not a lot, and the industry is working on that, but the complexity and the uncertainty in the regulatory process is orders of magnitude higher,” Suttles said. “We are not talking about changing standards, we are talking about regulatory efficiency, [and] clearly for big longer-term growth we have to have infrastructure to get our products to the coast.”

Fortunately, more permanent impediments to developing Western Canada’s tight oil resource will become irrelevant as U.S. basins play out, and companies look for the next best place to develop this sort of resource in earnest. “U.S. LTO has some inherent cost advantages, including negative cost of capital, and in the case of the Permian and Eagle Ford significantly lower access costs to both refineries and coastal waters,” says Enlighten Geoscience’s Watson.

Energy superpower?

How much oil does an energy superpower produce? In 2018, the Big-3 — Russia, Saudi Arabia and the U.S. —produced between 11.4 million and 15.3 million bbls/d of oil — crude and NGLs. In contrast, Canada produced 5.2 million bbls/d in 2018, placing it a distant fourth place in the global standings.

To join the ranks of Russia and Saudi Arabia on the oil front, the U.S. has seen phenomenal growth in crude and NGL production from tight rock over the past decade or so. For example, U.S. LTO production has increased from 1.4 million bbls/d in 2007 to 7.3 million bbls/d in 2018, jumping more than five times over this 11-year period. U.S. NGL output has increased 2.6 million bbls/d courtesy of shale gas development, almost a third the total increase in oil production.

But assuming Western Canada overcomes its egress and regulatory issues and oilsands production increases incrementally as forecast by the Canadian Association of Petroleum Producers (CAPP), Canadian oil production could break the 10 million bbls/d mark by 2030 if LTO and NGLs derived from source rock achieve roughly half of America’s recent growth.

To achieve this growth, Western Canada would need capacity from basically every major crude pipeline project presently on the books, including the Indigenous-led Eagle Spirit Energy Corridor. Enbridge Inc.’s Line 3 replacement, TC Energy Corporation’s Keystone XL and the federal government-owned Trans Mountain expansion have the potential to add 1.8 million bbls/d of pipeline capacity. The two crude lines of the Eagle Spirit project another four million bbls/d.

As the old saying goes, “He who laughs last, laughs best.” Canada and the Canadian oil industry could still have the last and best laugh, but it would require some radical actions by federal and provincial regulatory authorities and the feds to quash their idiotic northern B.C. tanker ban — as the North American market is already inundated with light oil.