06/02/2011 04:57 EDT | Updated 08/02/2011 05:12 EDT

Canada Oil Production To Rise By Nearly Two-Thirds By 2025

THE CANADIAN PRESS -- CALGARY - Canadian crude production is set to rise by nearly two-thirds by 2025, an energy industry group said Thursday as it stressed the need to tap into new markets.

The Canadian Association of Petroleum Producers said it expects the industry to churn out 2.9 million barrels of oil per day in 2011, up from 2.8 million barrels last year. That figure is set to increase to 4.7 million barrels per day in 2025.

"We continue to see the oilsands being the foundation of that growth, as it was last year," CAPP vice-president Greg Stringham said in an interview.

"But this year, for the first time in the last decade, we've actually seen a resurgence in conventional oil."

In the oilsands, production is set to grow from 1.6 million barrels per day this year to 3.7 million barrels per day in 2025.

The 2008-2009 recession halted new projects in the oilsands, but CAPP says the investment climate is improving and companies are spending again.

The group is expecting capital spending for oilsands development this year to be $16 billion, compared to $13 billion in 2010.

Techniques like horizontal drilling and multi-stage fracturing are reversing the declining trend the conventional side of the business has been experiencing for years.

About 900,000 barrels per day of conventional oil were produced in Canada last year, and that's set to rise to one million barrels per day through to 2015. A decade later, it is set to dip down to 700,000 barrels per day.

Stringham said the growth forecast underscores how important it is for new pipelines to be built so Canadian producers can access markets in the United States and Asia.

"That's why we put this (forecast) out -- so there can be a long-term notice that we can start moving on that early enough to make sure they're in place for the time that this production comes on stream," he said.

Last year, some 828,000 barrels of Canadian crude were consumed domestically each day. That was dwarfed by the 1.9 million barrels per day that were exported to the United States.

CAPP expects U.S. demand for western Canadian oil to reach 2.7 million barrels per day in 2015 as imports from Venezuela, Mexico and other countries continue to decline.

TransCanada Corp. (TSX:TRP) recently brought into service its Keystone pipeline, which delivers crude to hubs in Illinois and Oklahoma. It plans to build a major expansion called Keystone XL, which would connect to the world's largest refining hub on the U.S. Gulf Coast.

Environmental groups and some landowners have been vehemently opposed to the Keystone XL proposal, which they fear would foul key drinking water sources and increase U.S. reliance on "dirty" oilsands crude. The U.S. State Department is expected to decide whether to approve Keystone later this year.

Asia is the second-largest market for crude oil, but Canadian producers currently have limited access to it via West Coast pipelines. Enbridge Inc. (TSX:ENB) is proposing to build a pipeline connecting the oilsands to the West Coast called Northern Gateway. It, too, has been the subject of fierce criticism from environmental and First Nations groups.

Last year, 47 per cent of oilsands bitumen was extracted in open-pit mines, with the rest coming from in-situ methods like steam-assisted gravity drainage, in which steam is pumped underground to melt the thick oil. Starting in 2016, in-situ production will eclipse mining production.