Sales of drilling rights in the oil sands of Alberta are on the decline, reversing an earlier boom. The trend, attributed to Trump’s tariffs and the consequent oil price dive, was aggravated by OPEC+’s decision to unwind its cuts faster than expected. It’s also not going to affect production outlooks for Canadian oil.
Land prices in Alberta’s oil sands are down 18% from last year to C$771 per hectare, or $561, Bloomberg reported this week. The trend reflects a wider decline in land lease prices, at 25% from a year ago, and, per the report, the impact of President Trump’s tariff offensive against trade partners on those same partners and their vital industries.
Indeed, the tariff war weighed on international prices because they were overwhelmingly expected to cause a recession and, as a result, a slump in oil demand. Canada also implemented reciprocal tariffs on U.S. goods, which added further pressure on the energy industry in terms of costs—on top of the costs they were already dealing with in terms of emission control regulations.
So far, so normal. Energy companies south of the border are also tightening their belts and hunkering down to wait out the latest price rout. And yet the outlook for the oil sands remains one that sees a substantial production increase over the near term.
S&P Platts, for instance, expects oil sands production to expand by between 500,000 barrels daily and as much as 3.8 million barrels daily between this year and 2030, per Bloomberg’s Robert Tuttle. The IEA also expects Canadian oil production to keep climbing, breaking records. The IEA said in a report from last year that “Optimization and de-bottlenecking of operations at oil sands projects will add incremental barrels.”
Of course, both reports were published before President Trump came into office, and the outlook may have changed now, but the fact remains that production is growing—and so are exports, to China—via the expanded Trans Mountain pipeline.
The expansion project suffered years of delays and relentless opposition from environmentalists and local provincial authorities. But it finally got completed last year and started shipping higher volumes of crude from the oil sands to the West Coast of Canada. From there, the oil is being shipped to Asian markets. In a sign that tariffs could be a blessing in disguise, China became the biggest market for Canadian crude as it stopped buying U.S. oil, which it tariffed in response to the Trump tariffs.
Judging by land prices in the oil sands, these flows alone are not enough to spur greater demand for drilling. Indeed, at just over 200,000 barrels daily, per data from Kpler, the flows to China only represent around a fifth of the Trans Mountain’s new, expanded capacity of 890,000 barrels daily. And yet the operator of the pipeline is already thinking of boosting that capacity further in anticipation of demand growth. Enbridge is also eyeing a capacity expansion on its Main Line by 150,000 barrels daily, per Bloomberg’s Tuttle.
So, oil prices are down, lease prices are down, but pipeline operators expect production growth. While counterintuitive on the face of it, the expectation actually makes sense—because producers could make up for lower prices with higher output where costs allow this. There is also the matter of natural gas—and Canada’s abundant untapped resources of that natural gas—during a time of strong demand growth. There will be more drilling for gas and for light crude in the Montney shale formation. Oil sands will also expand despite land lease prices—local producers have excelled at squeezing every last drop of oil from their existing operations.
By Irina Slav for Oilprice.com
