Canada's Pipeline Expansion Plans Clash With Cautious Oil Sands Producers

A significant disconnect is emerging between Canada's pipeline ambitions and the production plans of its major oil sands companies. While at least six pipeline projects are being proposed to boost the country's oil export capacity by 45%, or 2.25 million barrels per day (bpd), by 2035, producers are showing reluctance to commit to the large-scale output expansions needed to fill them, according to a Reuters analysis.

To utilize this proposed new infrastructure, Canadian oil supply would need to grow by more than a third by 2034, a pace that nearly doubles its current annual average growth rate. This mismatch highlights a potential challenge for Canada's energy export strategy, as producers prioritize capital discipline over aggressive expansion.

Producers Prioritize Discipline

Major oil sands operators, including Suncor Energy and Canadian Natural Resources, have indicated they are not ready to accelerate production growth. This caution was underscored when pipeline firm Enbridge announced in July it was postponing the second phase of its Mainline pipeline expansion because customers had not committed to the additional capacity.

"Producers are behaving with discipline," said Colin Gruending, Enbridge’s executive vice-president for liquids pipelines, on a conference call. The hesitancy stems from long-term uncertainty surrounding global oil demand, climate policies, and significant capital costs. Investment in Canada's oil sands peaked in 2014 at C$35 billion, falling to C$14.2 billion in 2024, according to Statistics Canada. The last major new oil sands project, Suncor's Fort Hills, came online in 2018.

A Potential Production Shortfall

Analysis suggests a substantial gap between the proposed pipeline capacity and projected oil output. Key figures illustrate the scale of the challenge:

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• Energy consultancy Novi Labs identified 19 growth projects that could add 652,000 bpd by 2037.
• Including less certain, long-term projects adds another 730,000 bpd.
• This combined potential growth still falls short of filling the proposed pipelines by more than 850,000 bpd.

Imperial Oil CEO John Whelan noted that the capital investment required to support just one major east-west pipeline and its associated carbon capture facility would exceed C$100 billion. "It’s stuff the oil sands (industry) has done in the past," said Wood Mackenzie analyst Mark Oberstoetter. "But then you had a different view on long-term oil prices... and kind of a growth-at-all-means mantra... which seems quite different today."

Policy Uncertainty Lingers

While the Canadian government has signaled a more supportive regulatory environment to speed up energy projects, oil executives remain cautious. Many of the proposed policy changes regarding carbon pricing, financial supports, and permitting timelines have not yet been finalized into legislation, adding to investment uncertainty.

Industry groups remain hopeful that the right conditions could unlock new projects. "Will we see some big projects moving ahead if we get these investment conditions right? That’s absolutely our objective," said Kendall Dilling, president of the Oil Sands Alliance. For now, however, the pace of production growth remains the critical, unresolved variable in Canada's pipeline expansion equation.