Box 1: Expanding export infrastructure is supporting the outlook for the oil and gas sector
In November 2024, Bank of Canada staff held consultations in Calgary, Alberta with leaders from the oil and gas sector as well as industry experts. Participants included natural gas, conventional oil and oil sands producers. Results suggest that oil and gas production is expected to continue growing over the next one to two years. This outlook is supported by the start of commercial operations for the Trans Mountain Expansion (TMX) pipeline and the expected launch of Phase 1 of LNG Canada, a liquefied natural gas (LNG) export terminal in Kitimat, British Columbia, in mid‑2025.
Business sentiment in the sector remains robust. Oil producers expect their investment and production levels to rise in 2025 as the TMX pipeline further increases oil flow, allowing the sector to further expand exports. Firms highlighted the positive economic impact of improved access to global markets, with Canadian crude finally reaching China and other Asian countries. Moreover, firms mentioned that they now receive better prices for their products due to their access to a larger number of export markets.
Recently, the oil and gas sector has experienced price volatility and some uncertainty surrounding tariff policies of the new US administration. Nevertheless, firms generally expect the prices of West Texas Intermediate (WTI) and Western Canadian Select (WCS) to stay above firms’ production costs, with the WTI-WCS price differential remaining narrow at around US$12–US$14 per barrel in 2025. However, businesses anticipate that when export pipeline capacity in Western Canada approaches its limits over the next two to three years, the price differential might gradually widen again.
The launch of LNG Canada’s Phase 1 is also supporting the increase in natural gas producers’ capital expenditures over the coming year. Most firms expect Canadian producers of natural gas to quickly absorb all of the export terminal’s capacity. Access to global markets is expected to provide more stable prices for natural gas in Canada. Overall, robust global demand for LNG and the low domestic production cost of natural gas position Canada favourably in LNG export markets.
Announcements and quarterly reports from publicly traded oil and gas producers about their 2024–25 capital expenditures and production point to a roughly 4% increase in capital expenditure budgets and about a 5% rise in oil and gas production for 2025 (Chart 1-A). The positive outlook for capital expenditures is further supported by projections from the Canadian Association of Energy Contractors, which represents drilling and service rig companies. The association anticipates 6,604 wells will be drilled in Western Canada in 2025—a 7.3% increase over 2024.
