Market Snapshot: The Impact of Sustained Low Oil Prices in the NEB's Energy Futures Report

Release Date: 2014-12-04

The recent drop in crude oil prices has left many wondering what the implications are for Canada. The Energy Futures 2013 report includes a Low Price Case that shows how Canadian energy supply and demand may evolve in a sustained lower price environment. The Low Price Case can be compared against the Reference Case, which is considered the most likely case and includes an oil price projection consistent with consensus price expectations at the time of the report’s writing.

The 2013 Energy Futures Low Price Case has an oil price that is US$30 below the Reference Case price. In 2035, the West Texas Intermediate crude price reaches US$110 per barrel in 2012 dollars in the Reference Case, while in the Low Price Case it is US$80 per barrel.

Figure Source and Description

Source: NEB Energy Futures 2013

Description: This line chart shows annual Canadian crude oil production, from 2000 to 2035. The Reference and Low Price Cases are represented by the solid and dashed lines respectively. This chart shows Canadian crude oil production in the Low Price Case is much slower than the Reference Case.

Figure Source and Description

Source: NEB Energy Futures 2013

Description: This line chart shows annual refined petroleum product demand, from 2000 to 2035. The Reference and Low Price Cases are represented by the solid and dashed lines respectively. This chart shows refined petroleum product demand growth faster in the Low Price Case compared to the Reference Case.

The charts above show that a sustained low price environment over the long-term is likely to lead to: a) reduced Canadian oil production, and b) increased Canadian oil product demand. The Reference Case projects Canadian crude oil production to reach 5.8 million barrels per day (928 thousand cubic metres per day) by 2035. In contrast, Canadian crude oil production in the Low Price Case reaches 4.4 million barrels per day (696 thousand cubic metres per day) by 2035, 25 per cent lower than the Reference Case. Over the near term, the difference is limited as many projects that are already under construction are expected to continue. Over the longer term, however, reduced prices could lead to lower capital investment and lower production levels.

On the demand side, lower prices are expected to lead to an increasing demand for refined petroleum products (diesel, gasoline, heavy fuel, etc.). By 2035, total demand in the Low Price Case for refined petroleum products is 7.5 per cent higher than in the Reference Case.

 

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