Regardless of COVID, the outlook for the oilsands gets dimmer year after year

The latest forecast for oilsands production growth was released on Tuesday, and it continues a trend over most of the last decade of industry experts having a less optimistic outlook for the sector.

The new report by IHS Markit expects oilsands production to reach 3.8 million barrels per day of oil in 2030, compared to last year's projection of production climbing to 3.9 million bpd.

It's a relatively small change to the forecast the firm released in 2019, but notable because of yet another downward revision. That pattern has occurred just about every year since 2014, when the main oilpatch industry group forecast oilsands output climbing to 4.8 million barrels per day by 2030.

For context, oilsands production at the beginning of this year was about 2.9 million barrels per day.

Analysts with IHS Markit lowered their latest forecast predominantly because of pipelines. There is still doubt about when and if new export pipelines will be built, and that uncertainty will weigh on the confidence level of companies looking to invest the significant funds needed to build new oilsands facilities.

Moving 'forward and backward'

Some projects, like the Trans Mountain expansion, have overcome court challenges and are being built, while other projects, like TC Energy's Keystone XL, face new roadblocks and further delays to construction.

"They continue to move forward and backward," said Kevin Birn, a Calgary-based analyst with IHS, in an interview.

"I think you could say they are generally getting closer to completion, but from an investment standpoint, I think what producers and investors in the sector are looking for is greater certainty and they are waiting to see these things get to the final leg."

The report points to most of the growth over the next decade coming from companies returning to full operations, finding optimization and removing bottlenecks and completing projects that were already underway but were put on hold.

Only about a third of the anticipated growth in the next decade will be from new facilities and expansion projects.

COVID-19 has without doubt had an impact on the oilsands, but it's likely only a short-term challenge and won't change the long-term health of the sector.

Posting losses

Last week, Canadian oil producers began reporting their second-quarter financial results and are again posting billions of dollars in losses as a result of the pandemic.

Besides added debt levels, many companies have slashed spending and delayed expansion plans.

Even with oil prices stabilizing in recent weeks, bringing some profitability back to the sector, many producers are uncertain about what the next year may look like.

"Uncertainty is high," said Suncor Energy CEO Mark Little during a conference call with investment analysts last week.

"You've seen ... across North America, economies starting and stopping, restarting, so I think the jury is still out and there are a lot of things that need to be resolved before we get back to what we thought was normal. So, our whole focus is to maintain flexibility."

The pandemic has resulted in a drop in demand for fuels, especially jet fuel. One reason the pandemic isn't having much of an impact on long-term projections for the oilsands is because the sector has faced major disruptions in the past and bounced back relatively quickly.

For instance, many facilities had to shut down and completely evacuate in 2016. Still, on an annualized basis, oil production still increased more than the previous year.

If the pandemic's impact on fuel demand drags on beyond analyst expectations, it could have an impact on oilsands growth projects.

Another variable is environmental pressures on the sector, according to the IHS report.