Alberta Pipeline Expansion Hinges on Uncertain Oil Production

Alberta's push for a new oil pipeline to carry 1 million barrels a day to the west coast is facing doubts over whether Canada's energy companies can produce enough oil to fill it.

Alberta Premier Danielle Smith has championed the project, one of the largest conduits for exporting heavy crude from her province. The existing pipeline operators are also expanding their capacity. Smith and Canadian Prime Minister Mark Carney believe selling more oil to growing Asian markets like India and China will allow Canada to get better prices per barrel, boosting Alberta's wealth.

However, Alberta producers, which ship a little over 4 million barrels a day, are raising doubts about whether they can increase production fast enough or want to. The economics of pumping more oil out of western Canada look less attractive today due to declining global crude prices and the resumption of Middle East exports.

Cenovus Energy Inc. CEO Jon McKenzie said that Canadian oil sands producers are not investing much beyond sustaining capital, making it difficult to grow production. He called for regulatory relief from the governments. The industry needs C$100 billion to expand oil sands projects to fill new pipelines and build a carbon-capture system.

Industry leaders and analysts have expressed skepticism about whether investors will stomach a pivot to growth. Investors have come to expect share buybacks and rising dividends, not increased capital expenditure. A TD Cowen analyst suggested that the Middle East conflict has changed investor sentiment in favor of faster production increases.