January 21, 2015 / 4:39 PM / in 3 years

UPDATE 2-Western Canada's crude output to keep growing -industry group

(Adds quotes from McMillan)

By Nia Williams

CALGARY, Alberta, Jan 21 (Reuters) - Western Canadian crude production will ramp up in 2015 despite plunging oil prices, the Canadian Association of Petroleum Producers said on Wednesday, although the industry body trimmed its forecast by 65,000 barrels per day to 3.6 million bpd.

Despite the slight slowdown, crude output from Western Canada, which includes northern Alberta’s vast oil sands, is still on the rise thanks to the billions of dollars that producers have sunk into multi-year projects.

CAPP’s short-term review of its annual forecast underlines how plunging global benchmark crude prices are failing to dent oil sands production.

In contrast, many analysts expect the U.S. shale oil industry to stop growing by mid-2015.

CAPP’s 2015 forecast is around 150,000 bpd higher than total 2014 output of 3.5 million bpd. It expects Western Canadian production to hit around 3.8 million bpd by 2016, although that forecast is 120,000 bpd lower than the one released last summer.

“A large portion of what we are seeing in growth is oil sands growth. Those are investments that are made over as much as a decade,” CAPP President Tim McMillan said. “The current price environment wouldn’t affect whether they come on stream or not because those costs are out of the door.”

However, McMillan said conventional crude production, which includes the Duvernay and Montney shale formations in Western Canada, will be flat over the next few years at around 1.3 million bpd before starting to drop as old wells decline.

Crude prices have slumped by more than half since June in response to a global supply glut and producer group OPEC’s refusal to cut production.

To cope with weaker prices, producers are deferring new projects, trimming staff and slashing capital budgets.

CAPP estimates capital investment in Western Canada’s oil sector will total C$46 billion in 2015, down 33 percent from C$69 billion in 2014.

In the oil sands, 2015 capital expenditure is expected to be C$25 billion compared to $33 billion last year, while spending in the conventional oil sector is forecast to drop to $21 billion this year from $36 billion in 2014.

The total number of wells drilled in Western Canada in 2015 is expected to decline by 30 percent to 7,350.

McMillan said the effect of delayed oil sands investment will likely become apparent in two or three years. CAPP will release another forecast in June with more detail on the long-term impact of falling oil prices. (Editing by Chizu Nomiyama, Meredith Mazzilli and Paul Simao)

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