Canada's crude output will surge to 5.6 million barrels per day by 2035, a 33% increase from 2017 production, even after companies slashed spending in recent years, according to the latest outlook from the nation's biggest oil industry group.

Production from the oil sands region in northeastern Alberta is forecast to jump to 4.2 MMbbl/d from 2.7 MMbbl/d in 2017, the Canadian Association of Petroleum Producers, or CAPP, said. Spending to extract the crude trapped in oil has fallen for four consecutive years, according to the report. While production of conventional oil will remain relatively flat at 1.33 MMbbl/d compared with 1.32 MMbbl/d in 2017, production off Canada's east coast will take a hit after 2025, dropping from a peak of 290,000 bbl/d to 70,000 bbl/d by 2035, the CAPP analysis found.

Companies like Suncor Energy Inc., Exxon Mobil Corp.'s Canadian subsidiaries and Canadian Natural Resources Ltd. have all trimmed spending on large oil sands projects but have continued to increase output by optimizing existing facilities and undertaking smaller add-on projects. Although global demand for oil is forecast to increase over the span of CAPP's study, the U.S. is the biggest market for Canadian oil and is becoming less reliant on imports. Because 95% of Canada's oil comes from the land-locked prairie provinces, it is vital to build pipelines to seaports to bolster world exports, CAPP said.

"It is difficult for Canadian producers to ensure fair market value for our natural resources without major pipelines or access to new, emerging markets in regions such as China, India and Southeast Asia," CAPP CEO Tim McMillan said in a press release that accompanied the report. "Canada is falling behind its competitors, losing the opportunity to supply the world with oil produced the Canadian way. The U.S. is increasing its oil exports to the same emerging markets Canada is targeting."

CAPP noted that all three of the nation's large pipeline construction projects — Kinder Morgan Inc.'s Trans Mountain expansion, Enbridge Inc.'s Line 3 expansion and TransCanada Corp.'s Keystone XL pipeline — are bogged down with regulatory and legal issues. Canada's government is in the process of purchasing Trans Mountain for C$4.5 billion after Kinder Morgan threatened to walk away from the expansion because of a regulatory impasse. The report said Canada's oil output was 4.2 million bbl/d in 2017, which exceeded existing pipeline capacity.

Despite the plateau in conventional production, CAPP sees potential growth in the shale regions that straddle the British Columbia-Alberta border. In addition to large quantities of natural gas, the Montney and Duvernay shales also produce condensate, an ultra-light oil associated with gas formations, and other liquids. The shales are expected to add 500,000 bbl/d of pentanes and condensates by 2026, CAPP estimates.