Oilsands production facing record annual decline; air travel won’t recover until 2024

July 28, 2020 | Last updated on July 28, 2020
3 min read
Gas flaring. Torch against the sky.
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Forecasts for two of the sectors most affected by the Covid-19 pandemic show the extent of the damage and the rocky path to recovery.

A new report predicts Canadian oilsands production will have its biggest annual decline on record this year, dropping by an average of nearly 175,000 barrels per day due to issues associated with the pandemic.

Meanwhile, the trade association for the airline industry said Tuesday that global air travel is recovering more slowly than expected and will take until until 2024 to return to pre-pandemic levels.

Research firm IHS Markit said the step back in 2020 oil production isn’t expected to greatly affect the rest of its 10-year forecast.

It expects oilsands production to reach 3.8 million barrels per day (bpd) by 2030, down slightly from a previous forecast for 3.9 million bpd, but still a 1.1-million bpd increase from the 2020 projected production.

Oilsands production is anticipated to rise over the second half of 2020 and into 2021 as barrels curtailed due to low prices come back online and capacity that has never been fully utilized ramps up.

IHS Markit suggested oilsands output by 2022 could be 300,000 bpd higher than in 2019 if the Alberta government eases its oil curtailment program introduced in early 2019 to better align production with limited pipeline takeaway capacity.

Most production growth will come from small investments in projects where some capital has already been deployed, the report said — less than one-third will come from new greenfield operations or project expansions.

“Despite the Covid-induced shocks of 2020, the longer-term expectations for Canadian oilsands are not far off from what was expected prior to the pandemic,” said IHS vice-president Kevin Birn.

“The scale of installed production capacity that exists today, the lack of material production declines from existing operations in the medium-to-long term and the ability to optimize and leverage current operations support growth.”

The recovery for air travel is going to take longer than originally thought. The International Air Transport Association pushed back its prediction by one year due to the slow containment of the outbreak in the U.S. and developing countries.

The industry is seeing a rebound from the depths of the shutdowns in April, but the bad new is that any increase “is barely visible,” IATA chief economist Brian Pearce said Tuesday during an online briefing for journalists.

Pearce said that air travel is not rebounding along with rising levels of business confidence in Europe, the U.S. and China. Traffic was down 86.5% in June from the same month a year ago, compared with a drop of 94.1% in April, measured as revenue passenger kilometres, or the distance travelled by all revenue-generating passengers.

That improvement is “nowhere near the increase in business confidence,” Pearce said. China is bouncing back more than some other places, while an upturn in the U.S. has been knocked back by the recent upsurge in Covid-19 cases in a number of states.

Besides renewed outbreaks, travel is also being held back by weak consumer confidence and constrained travel budgets at companies that are struggling.

Despite parking many of their planes, airlines are struggling to fill seats with enough people to make money. Planes were only 62.9% full on domestic flights around the world, well below levels at which airlines make money, and an abysmal 38.9% for international travel.

The U.S. is seeing more coronavirus cases after some states moved to lift restrictions on public life and business. The summer vacation season in Europe has seen more people move around and a rise in cases in Germany, which had earlier done better than many other countries in mitigating the outbreak.

The head of the Robert Koch Institute there expressed concern over the rise in cases. Germany issued a travel warning for three regions in Spain and the U.K. has imposed a 14-day quarantine for travellers returning from Spain, a popular holiday destination.