Canadian Production Growth to Benefit Midstream

• New outlets for Canadian energy are supporting increased producer activity, which is set to drive meaningful production growth across hydrocarbons.
• Production growth benefits midstream companies with operations in Canada.
• Incremental output can support expansions of existing midstream systems or fill assets operating below maximum utilization rates, resulting in capital-efficient growth.

What does Canada have in common with the US, Brazil, Guyana, and Argentina? These are the non-OPEC+ countries driving an increase in global oil supplies for 2024 and 2025, according to the International Energy Agency (IEA). Canada is known for its significant oil and gas resources, but getting energy to end markets has been challenging. With new oil and gas pipeline capacity and other demand drivers under development, Canadian oil and gas production is poised for incremental growth. Today’s note looks at the expected growth in Canadian energy production and why it matters for midstream.

In the last 18 months, two major pipeline projects have been completed in Canada providing critical access to seaborne export markets. Accessing global markets, particularly demand in Asia, is an attractive alternative to shipping hydrocarbons exclusively to the US. (At writing, the status of potential tariffs on Canadian crude imports remains unclear, but if implemented, these would be costly for US refiners in the Midwest that have been geared to run Canadian crudes and may struggle to find alternative supplies. Tariffs would likely result in higher gasoline prices.)

For crude, the Trans Mountain Expansion Project was completed in 1H24, increasing the system’s capacity from 300 thousand barrels per day (MBpd) to 890 MBpd. Trans Mountain transports heavy crude, refined products, synthetic crude, and light oil from near Edmonton, Alberta, to Canada’s western coast, near Vancouver. The expansion included new berths at the related marine terminal to facilitate more exports. The Canadian government purchased Trans Mountain from Kinder Morgan (KMI) in 2018, and the expansion cost over $30 billion CAD.

On the natural gas side, TC Energy (TRP) completed Coastal GasLink in late 2023. The 416-mile pipeline transports natural gas from northeastern BC to LNG Canada in Kitimat, BC. LNG Canada will be Canada’s first LNG export facility and is expected to come online in the middle of this year. Coastal GasLink will also supply Cedar LNG through the Cedar Link project. LNG projects are being developed on Canada’s western coast to help meet growing LNG demand in Asia with convenient shipping routes representing a key advantage for Canadian projects (read more).

Beyond these pipeline additions and growing LNG export capacity, incremental demand sources can also support production growth. Namely, Altagas (ALA CN) is expanding its propane and butane export capacity on the west coast. Long-term capacity could reach 175 MBpd compared to current exports of 120 MBpd. Dow (DOW) is also expanding its petrochemical facilities at Fort Saskatchewan, with expected startup in phases from 2027 to 2029. Pembina (PPL) will supply 50 MBpd of ethane to Dow under a long-term agreement.

With new takeaway capacity and sources of demand, Canadian producers are better positioned to increase their output with less worry of putting pressure on prices. Selling into international markets can also support stronger price realizations. Producers are expecting to grow their output in 2025, with larger players mostly pointing to 3-5% growth. Notably, the Canadian rig count was at 245 as of January 24, 2025, which is the highest level seen since February 2023.

Upstream activity is expected to support production growth. As shown below, the International Energy Agency forecast in October (latest publicly available report) that Canadian oil production would grow by 160 MBpd (2.7%) in 2024 and would increase another 130 MBpd (2.2%) in 2025. For context, Canada would represent about 9% of the expected 1.5 million barrels per day (MMBpd) of non-OPEC+ supply growth for 2025.

For natural gas, at mid-2024, the Alberta Energy Regulator was forecasting over 6% growth in marketable natural gas production in 2024 and another 1.7% in year-over-year growth for 2025. Plains All American (PAA/PAGP) has forecasted that natural gas production from Western Canada will increase to 20.7 billion cubic feet per day (Bcf/d) in 2027 from 17.3 Bcf/d in 2023. Alongside oil and natural gas, production of natural gas liquids (NGLs) is also expected to increase. NGLs are produced with natural gas, separated from the gas stream, and then fractionated into components like propane, ethane, and butane.

Taking a longer view, Alberta’s government recently announced a goal of doubling oil and gas production. Alongside this initiative, Alberta has signed a letter of intent with Enbridge (ENB) to form a working group to support expanded takeaway capacity for Alberta’s production by leveraging ENB’s existing network.

Energy production growth creates opportunities for midstream companies with operations in Canada. Incremental output can support expansions of existing systems or fill assets operating below maximum utilization rates. This tends to be more capital-efficient growth relative to newbuild projects.

For example, Keyera (KEY) has guided to a 7-8% compound annual growth rate in fee-based adjusted EBITDA for 2024 to 2027, mostly driven by filling available capacity at natural gas processing plants and in pipeline systems (read more).

Meanwhile, Pembina (PPL CN) has guided to 4-6% growth in adjusted EBITDA per share for 2023 to 2026 and is advancing a number of expansion projects. Pembina is currently increasing its NGL and natural gas processing capacity. The company is also evaluating pipeline expansion projects to serve growing output from northeastern BC. PPL recently restarted the ~120-mile Nipisi crude pipeline in Alberta and is looking to contract more of its available capacity.

Plains All American (PAA/PAGP) is currently expanding its NGL processing capacity at Fort Saskatchewan by 30 MBpd and improving connectivity for its complex. The project is expected to come online in 2Q25 (read more).

Canadian companies are a key component of the North American midstream landscape. There is significant integration between assets in the US and Canada, with Southbow’s (SOBO) Keystone crude system from Alberta to Houston providing a prime example. Canadian companies represent 26.5% of the Alerian Midstream Energy Select Index (AMEI) as of January 24.

New outlets for Canadian energy are supporting increased producer activity, which is set to drive meaningful production growth. Rising output creates growth opportunities for midstream as existing assets are filled or expanded to facilitate additional volumes.

AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the Alerian Energy Infrastructure Portfolio (ALEFX).

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For more news, information, and analysis, visit the Energy Infrastructure Channel.

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