Alberta’s oil sands have emerged as one of North America’s most attractive oil plays as costs rise in competing basins like the Permian in Texas, according to a recent report. 

The oil sands hold 177 billion barrels of proved reserves, making it the largest play in North America by a wide margin.

Existing operations have some of the continent’s lowest production costs, said Trevor Rix, a director with Enverus Intelligence Research. 

“Operators have become more efficient and have tremendously low sustaining break-even costs, arguably the lowest in North America,” Rix said. 

“Some steam-assisted gravity drainage [SAGD] operations can break even at less than US$40 per barrel.”

Meanwhile, comparative costs in the Permian have risen toward US$65 per barrel, he said. 

Misunderstood economics

Kevin Birn, chief analyst for Canadian oil markets at S&P Global, said the oil sands sector’s economics have been poorly understood.

“The oil sands require upfront capital and time to bring on new facilities, so you need to be patient before your operations generate returns,” said Birn. 

“Once you pass that entry barrier, the oil sands are incredibly competitive in terms of sustaining costs. After that capital is sunk, the oil sands are a production machine compared to other conventional and unconventional plays.”

Unlike U.S. shale plays, oil sands production is long-life and low-decline, without the treadmill of ongoing investment in new wells.

Large oil sands reserves support mining projects that require no drilling, while the standard SAGD method involves about 60 per cent fewer wells than the average shale play, according to BMO Capital Markets.

Today’s lower oil sands costs come in part from improved drilling technologies, faster drill times and more precise well placement, Birn said.

Practices such as predictive maintenance on critical equipment have also reduced downtime and unplanned outages. 

“These plants are running harder and faster for longer periods of time,” Birn said.

“A lot of it is simply learning by doing.”

Heavy oil market tightening

The heavy oil produced in the oil sands is seeing strong demand as global heavy crude markets tighten.

Increased oil sands production has driven a nearly 800,000-barrel-per-day surge in Canada’s oil exports since 2021, according to Canada Energy Regulator data.

“The heavy oil segment of the [global] market is probably around nine to 10 million barrels per day, driven by refineries that have built special equipment to handle that around the world,” said Birn. 

Increased demand comes alongside continuing long-term declines in competing sources of supply, principally in Latin American producers such as Mexico and Venezuela, he said. 

“We’ve seen the heavy oil market actually tighten because more refineries are putting capacity towards processing heavier crudes around the world,” he said. 

“That increased demand has contributed to a better price for Canadian producers. And that’s before geopolitical considerations led to uncertainty around supply.”

Pipeline capacity

Enverus is calling for more pipeline infrastructure, projecting that oil sands production growth will fill current capacity in the next seven years.

“Given the historically long lead times for greenfield pipeline projects, we believe it is prudent to begin that planning and permitting process now,” analysts wrote. 

Given the rising demand for heavier crudes, Toronto-based energy analyst Rory Johnston sees several plausible options for increasing capacity to send barrels to customers in the United States and Asia.

This includes expansions and optimizations of the Enbridge Mainline, Trans Mountain system, South Bow’s proposed Prairie Connector, and the new West Coast Oil Pipeline proposed by Alberta’s government.  

“We’re in an interesting sweet spot right now in that we have competing egress options on the table for the first time since the heyday of TMX, Keystone XL and Energy East more than a decade ago,” said Johnston, publisher of the Commodity Context newsletter. 

“But we can never take this for granted as options can disappear at any moment. If we actually are coming to a place of choosing what’s the best option rather than what’s easiest to get over the line, that’s important.”

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Growing global demand for secure, reliable energy is creating a major opportunity for Canada, according to experts who say Asia’s growing needs underscore the case for more export capacity on the West Coast.

“I wish there were a few more Canadas in the world, so that we can have a much more reliable and sustainable global energy system,” the International Energy Agency (IEA)’s executive director Fatih Birol said during a recent trip to Canada.

Even before recent disruptions tied to conflict in the Middle East, the need for more Canadian energy in global markets was clear.

Growing shipments to Asia

The evidence can be seen in growing shipments from two newly completed pieces of export infrastructure: the Trans Mountain oil pipeline expansion and the LNG Canada natural gas export terminal.

In April, LNG Canada reached a key ramp-up milestone with its first exports of one million tonnes of liquefied natural gas (LNG) in a single month. Since start-up in June 2025, every shipment from the facility in Kitimat, B.C., has gone to Asia, led by South Korea, according to the Canada Energy Regulator.

Meanwhile, Trans Mountain reports that since May 2024, more than half of ocean exports from its expansion project have gone to Asia, primarily China and South Korea.

Demand growth for decades

But it’s just the tip of the iceberg, according to energy analysts and researchers who argue that rising global consumption — particularly in Asia — means Canada needs another oil pipeline to the Pacific coast, alongside new LNG export terminals under construction.

“The Pacific Basin is still underserved. Asia is the world’s biggest energy market, and Indian and Southeast Asian growth is just taking off,” said Heather Exner-Pirot, senior fellow and director of energy, natural resources and environment at the Macdonald-Laurier Institute.  

That presents a major opportunity for both Canada’s natural gas and oil resources. 

Asian markets will continue to drive growth in oil and gas demand for decades, the International Energy Agency (IEA) projects.

Asia’s need for both oil and natural gas

By 2050, natural gas demand in the Asia-Pacific region is expected to be nearly 60 per cent higher than it is today, according to the IEA’s latest outlook.

Meanwhile, regional oil demand is projected to grow by close to 20 per cent.

Globally, demand for extra-heavy oil and bitumen like what Canada produces is expected to rise by nearly 40 per cent over the next 25 years.

Many Asian refineries are configured to process heavier crude grades like those produced in Canada.

China, the world’s largest oil importer, alone represents enormous potential for export growth.

Mutually beneficial energy supply

The Asia Pacific Foundation of Canada (APF) argues that Canada is well positioned as China looks to diversify its suppliers and reduce reliance on Russia and the Middle East to feed its refineries and petrochemical sector.

In addition to being more politically stable than many global suppliers, Canada can ship oil and gas to Asia in about half the time it takes from the U.S. Gulf Coast through the Panama Canal.

“The result is mutually beneficial: Canada secures better revenues and greater market diversification while China gains a stable, low-cost oil supply,” wrote APF’s Xiaoting (Maya) Liu and Rachael Gurney.

A new oil pipeline from Alberta to the West Coast should be viewed as insurance, providing options in an uncertain world for both Canada and crude oil buyers, wrote Jackie Forrest, executive director of the ARC Energy Research Institute, in The Globe and Mail. 

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A new agreement between Alberta and Ottawa aims to address long-standing concerns about how major projects including oil sands, pipelines and carbon capture are reviewed.

It supports recently introduced provincial legislation to ensure approvals for qualified projects are completed within 120 days.

By reducing duplication without compromising environmental protection, the intent is to make Alberta projects more attractive to investors, says Brad Gilmour, partner in the Regulatory, Indigenous and Environmental Group of Osler’s Calgary office.

Here’s what Gilmour had to say about what the agreement means.

CEC: What is environmental assessment, and how does it apply to major projects?

BG: Environmental assessment is a process right at the beginning stages to gather information about a project and incorporate that into [regulatory] decision-making, but it’s not the end of the process in terms of protection of the environment. It is really the beginning. 

There has historically been a problem where we’ve got comprehensive environmental assessment legislation at the provincial level and at the federal level, and both statutes apply. You’re inevitably reviewing the same types of issues, and that creates significant inefficiencies and adds to delays, uncertainty and complexity of the process. 

The key is who really regulates these activities, generally, on a day-to-day basis. In so many cases, it’s the province, so that’s where the expertise is. We have expert regulatory authorities that oversee the life cycle of these activities, not merely at the environmental assessment stage.

The more the province and the federal government can work together to avoid duplication, create a higher degree of certainty and reduce timelines, the more that’s going to incentivize investors to look at doing projects in Alberta.

CEC: What kinds of projects does this agreement impact?

BG: It would include oil sands projects, electrical generation projects, things like carbon capture and storage projects and mining projects. 

It’s pretty much everything we do in the natural resources and energy sectors in Alberta, with the exception of things like pipelines that cross provincial boundaries or international boundaries, which are areas of federal jurisdiction. In those cases, the federal government will also cooperate with the province. 

CEC: What does this agreement change?

BG: Number one, it signals greater cooperation between the province and the federal government in terms of environmental assessment, which is ultimately a good thing. 

The regulation of environmental assessment between the two jurisdictions has been contentious over the last several years, including ongoing litigation with respect to the constitutionality of the Impact Assessment Act. 

Importantly, the agreement creates a single environmental assessment process. It follows that one-project, one-assessment model that both levels of government have been talking about. 

It makes Alberta the lead on environmental assessments for projects that are primarily regulated by the province. It places the responsibility primarily in the appropriate jurisdiction, and with the regulators that have the greatest degree of expertise over those activities. 

There are other provinces that have similar agreements with the federal government: Nova Scotia, Prince Edward Island, Ontario, New Brunswick and British Columbia.

CEC: Does the agreement make environmental protection requirements more lenient?

BG: It doesn’t, in my view, do anything to take away from environmental protection. What it does is it focuses the environmental assessment process, avoids duplication, and lets the jurisdiction with the primary expertise lead the process.

For most of what we do in the energy and natural resources sector, the environmental effects are not a mystery, and often our environmental assessment processes treat them as if they are a mystery. But they’re well understood, as well as the means to mitigate them throughout the entire life cycle of the activity. 

CEC: Does the agreement change consultation with Indigenous communities?

BG: Both levels of government are very clear in the agreement that they will continue to be committed to meaningful participation of Indigenous groups in the assessment process and to respect their rights that are protected under Section 35 of the constitution. 

What it signals is a bit of a change that is consistent with the idea that the primary regulatory authority takes the lead. It recognizes that where a project is primarily regulated by the province, that the province is best placed to undertake the consultation with Indigenous peoples in relation to that activity. 

CEC: Does the agreement impact Alberta’s constitutional challenge of the federal Impact Assessment Act?

BG: It does not. In fact, the agreement specifically acknowledges that Alberta is challenging the constitutionality of the Impact Assessment Act and that the matter is before the courts. 

The province’s concern – that the federal government was overreaching in terms of its jurisdiction over environmental matters through the Impact Assessment Act – was validated in the October 2023 decision of the Supreme Court of Canada, and now the Act has been amended. 

That is now again being challenged by the province, being heard by the Alberta Court of Appeal. A decision in that regard is pending.

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The Port of Vancouver has emerged as a lifeline for Asian oil refiners amid disruption of the vital shipping route through the Strait of Hormuz, according to ATB Cormark Capital Markets.

Tankers calling at the port’s Westridge Marine Terminal now have access to an expanded, reliable supply of oil from Alberta, thanks to the Trans Mountain pipeline. 

Not only do these barrels have clear sailing to Asian ports, analysts say they’re just the type of oil Asian refiners are increasingly looking for. 

About half the oil flowing through the pipeline is considered “heavy,” one of the grades most affected by the Strait of Hormuz closure, ATB said.

“Canadian heavy oil could become a premium global asset,” managing director of institutional equity research Patrick O’Rourke wrote on Mar. 2.

SAGD oil sands project in northern Alberta. Photo courtesy Cenovus Energy

Stability in a volatile market

It’s a sentiment that was building before the new conflict in the Middle East.

“Beyond price, Canada offers something increasingly valuable — a large, stable and reliable supply of heavy crude,” Studio.Energy director of research Carmen Velasquez wrote in November. 

“At a time when geopolitical risk is reshaping energy trade flows…this reliability is becoming a strategic differentiator, not just a commercial one.” 

Why heavy oil matters

Exported mainly from Alberta’s oil sands, heavy oil is one of Canada’s biggest energy assets. 

Thick and gooey, it requires diluent for transportation and complex processing to produce gasoline, jet fuel and petrochemicals used in everyday items.

The large-scale petrochemical refineries in Asia that are driving oil demand growth can pair well with Alberta’s heavy oil, Velasquez said.

“In recent years, [China] has invested heavily in new mega-refineries and upgraded existing ones to handle heavier and more complex crude slates,” she said.

Zhejiang Petrochemical Complex in in Zhejiang, China. Photo courtesy Zhejiang Petroleum and Chemical Co.

Asia’s growing appetite

China is Asia’s “heavy oil hub,” RBC director of energy policy Shaz Merwat wrote in a November research note. 

“China is sharply pivoting into petrochemicals, aiming to take Japanese and Korean market share,” Merwat said. 

“India, too, is expected to see oil imports grow 1.5 million barrels per day by 2035 as both countries seek steady supplies of heavy and sour crude,” he said. 

“Today, that supply originates from the Middle East, Russia and Venezuela, creating an opening for a stable, Western entrant.”

Canadian barrels gaining a foothold

Canadian heavy oil has started building a footprint in Asia thanks to the Trans Mountain expansion and “re-exports” — Western Canadian barrels shipped from terminals on the U.S. Gulf Coast.

Both China and India have purchased Canadian oil from Trans Mountain since the expanded pipeline went into service in May 2024, the company reports.

Courtesy Trans Mountain Corporation

While China leads overseas sales from Trans Mountain, India is a regular buyer of U.S. Gulf Coast re-exports, according to RBN Energy.

Courtesy RBN Energy

Demand keeps climbing

“Besides ongoing efforts to expand the Chinese customer base, India and Southeast Asia are the most promising growth markets for Canadian crude,” Studio.Energy’s Velasquez said. 

“And this is no small opportunity.”

The International Energy Agency projects oil demand in the Asia-Pacific region will rise to 41 million barrels per day by 2050, up from 35 million barrels per day in 2024.

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