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What goes up must come down. Stock market bubbles inevitably burst. Oil is a cyclical commodity.

When it comes to Canada's oil and gas sector, there's no shortage of views about the future, a lot of them based on what came to pass in the past.

Yet the sector, which, if you believe cyclical theories, is due for a downturn after enjoying a spectacular run in the past six years, is hardly behaving as if rainy days could be around the corner.

Instead, plans for the period until 2010 are so ambitious they make 2005 look like a warmup.

From $45-billion in oilsands investments, to the $7-billion Mackenzie gas pipeline, to the re-opening of the North and the ambitious hunt for coalbed methane, the plans are underpinned by confident views of energy prices.

Virtually no one expects oil to retreat to pre-boom levels, with the new floor set by many at about US$40 a barrel -- enough to sustain a healthy sector. As for natural gas, there's little suggesting a significant pullback, since there are no major new supplies on the horizon until the end of the decade.

"We don't need US$60 a barrel prices to see this happen," said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers. "We can do this at oil prices of US$30 to US$35 a barrel. And on gas prices, in the range of US$5 to US$6 per thousand cubic feet" -- half what gas is trading at today.

Even companies like Imperial Oil Ltd., among the most conservative in its outlook for energy prices, are tackling some of their biggest projects ever, obviously comfortable that new supplies will be needed.

Canada's oil production will rise to at least 3.3 million barrels a day by 2010, according to CAPP estimates, from 2.6 million now coming out of the ground. Production from the oilsands is expected to double to two million barrels, while conventional production is seen to stay flat at one million barrels from Western Canada and decline to about 250,000 from Newfoundland's offshore.

The jump will lift Canada from the ninth largest oil producer in the world to seventh, after Saudi Arabia, Russia, the United States, Iran, China and Mexico, and ahead of Norway and Venezuela. Five years after that, in 2015, Canada is expected to rise further to fourth spot, moving ahead of Iran, China and Mexico, as oilsands volumes expand to an estimated three million barrels a day.

On the natural gas front, Canadian production is expected to rise as much as 20% to 20 billion cubic feet a day over the same period, from the current 17 billion cubic feet, firming up Canada's rank as the world's No. 3 natural gas producer after Russia and the United States, according to industry estimates. Most of the new production is expected to come from coalbed methane and the Arctic, assuming the Mackenzie gas pipeline has been completed.

The Canadian oil industry's confidence is supported by the big picture: growing global fears that the era of unlimited, cheap, easy to access energy is over, while demand for hydrocarbons will continue to rise. ExxonMobil Corp. is predicting world energy demand will increase by almost 50% in the next 25 years, with almost 80% of the growth coming from developing nations.

For many, it doesn't bode well that more future supplies will have to come from the politically volatile Middle East, because it has the largest remaining reserves and lower production costs. According to the International Energy Agency, OPEC's share of the oil market will rise from 39% in 2004 to 50% in 2030, or close to its 1973 historical peak.

As an energy producer, Canada is in a unique position. It's one of the few countries outside OPEC with the ability to expand oil volumes. It's also a secure supplier, in two ways: The Athabasca oilsands, the world's second-largest oil deposits, don't have to be found, removing exploration risk. And they are located in business-friendly Alberta within politically sensible Canada.

Canada's oilsands reserves are "now widely accepted as the largest source of OECD reserves," says Credit Suisse First Boston in a research report. "From a macro perspective, the oilsands could play a key role in resolving the current cycle as a major source of marginal production."

Canada is also a very large producer of natural gas and the biggest foreign supplier to the United States.

"As long as the world needs the energy, Calgary represents a vibrant and safe place to invest," said Heather Douglas, CEO of the Calgary Chamber of Commerce. "The chamber predicts that Calgary will soon become the financial centre of Canada and global investors will come to Calgary and help fund the development of these resources. Calgary is the most dynamic city on this continent, with a projected growth rate of 7% in 2006 and ongoing robust growth through 2010."

The sector's strong fundamentals could bring about major change, including: a continuing relocation of Canada's economy to the West as energy mega-projects draw more people and resources; a push to new geological and geographical frontiers, especially in the North; more foreign ownership; a strong comeback of the super-majors; and more industry concentration.

"It would not surprise me, barring government intervention, which is something that we have to think about, if a number of what we think of as the senior companies in Canada were taken over," said Mike Tims, chairman of energy investment bank Peters & Co. "Canada offers so many great advantages to the big majors. When you look globally, there is still in effect a major supply shortage and a lot of what people expected for new opportunities, like Russia, have proven tougher."

There will continue to be a role for juniors and trusts, but so many of Canada's future energy projects require the deep pockets and risk tolerance of the multinationals, many of which sold off their Canadian assets in the 1990s, Mr. Tims said.

"It's totally remarkable, when you think of the cycles we have seen over the last couple of decades," he said. "The biggest companies vacated here, based on costs. They couldn't justify them against the size of the prize. But at higher commodity prices and in a world that's proven more difficult elsewhere ... Canada ends up looking great again."

Not surprisingly, the rumour mill is spinning off more speculation about takeovers than at any time since the American buying spree five years ago of Canadian natural gas producers.

Acquisitions would concentrate activity among even fewer players, said Brian Maynard, also a vice-president of the Canadian Association of Petroleum Producers. Already, the top 20 companies are responsible for 80% of production.

"There is so much money out there, chasing so few opportunities, and globally you are seeing the emergence of the state-owned firms," he said. "So in order to compete in that marketplace, the bigger are going to get bigger, so there is going to be more consolidation."

The oilsands will continue to dominate the sector. By the end of the decade, the number of major oilsands projects in production around Fort McMurray, the city in the heart of the Athabasca basin, will increase to six. In addition to existing operations run by Suncor Energy Inc., Syncrude Canada Ltd. and Shell Canada Ltd., three more will be producing: Canadian Natural Resources Ltd.'s Horizon, Total SA's Joslyn and Husky Energy Inc.'s Sunrise.

"What we will consistently see is the huge capital investments," said Mike Glennon, executive director of the Athabasca Regional Issues Working Group. "We don't see that abating at all. If anything, that will increase."

Indeed, Christophe de Margerie, president of Total's exploration and production arm, is among those aiming for a faster lane. "Trying to go quicker, it's something we would like to do," he said in Calgary in September, after acquiring oilsands producer Deer Creek Energy Ltd. "We can add certainly more financial capacity. Money doesn't always solve things, but sometimes it helps."

Rising oilsands investment will fuel 8% annual population growth in Fort McMurray, to more than 80,000 five years from now. It will also make the city more culturally diverse, with the arrival of French and Chinese companies and continuing immigration of workers from around the world.

New entrants are possible, says Credit Suisse First Boston. They include mid-sized U.S. integrateds or independent refiners trading access to markets for stakes in oilsands projects, as well as mid-sized European integrateds and national oil companies such as India's Oil and Natural Gas Corp. and Korea National Oil Corp.

The natural gas side of the industry will also be running hard. With the building of the Mackenzie gas line, explorers will step up drilling in the North, Mr. Maynard said.

While much remains to be done before its backers give the project the go-ahead, Rex Tillerson, the new CEO of ExxonMobil and a partner in the Mackenzie gas line, left little doubt in a November speech that the pipeline will move forward: "My expectation is that we will ultimately get across the finish line with this thing."

Coalbed methane will grow from a sector in its infancy to a major natural gas contributor. CBM involves production of gas from coal seams, rather than conventional reservoirs.

Jon Baker, CEO of closely held Trident Exploration Corp., one of Canada's largest CBM companies, said CBM will likely represent 10% of Canadian gas volumes by 2010 from two main plays: the Horseshoe Canyon and the Mannville. Its growth will result in the emergence of new mid-sized companies, he said.

"I don't think CBM alone is enough to totally change the marketplace," he said. "For a couple of us, it will provide enough growth that we can become dominant in the niche. There will be ultimately only a few companies in Western Canada who are successful at CBM, who really develop the expertise from a technology point of view."

The pipeline sector is also gearing up for huge projects. In addition to the Mackenzie line, planning will likely be underway for the US$20-billion Alaska line. Canada's two major pipeline companies, Enbridge Inc. and TransCanada Corp., are both vying to take very significant roles. Oilsands expansions will lead to new oil pipelines to the West Coast and to the United States.

The next five years will also see the introduction of imported liquefied natural gas from foreign sources. LNG from places such as Russia and Qatar could have a big impact on the North American market, which has been constrained to domestic sources until now because of the limited reach of pipelines.

However, rising competition for LNG around the world and rising costs are expected to hold back growth. Analyst Christopher Theal of Tristone Capital Inc. predicts LNG trade will increase 6% to 8% a year, rather than the 10% expected earlier. He also expects only one regasification terminal to be in operation in Canada by 2010 -- the Canaport terminal in Saint John, N.B., developed by Irving Oil Ltd. and Spanish energy giant Repsol YPF SA -- out of a handful on the drawing board in Canada.

The East Coast's energy sector could see a boost if the Hebron Ben Nevis heavy-oil project is given the go-ahead in 2006. The project would be the fourth in offshore Newfoundland and should be in production soon after 2010.

The sector faces one major worry: the supply of new workers. With labour shortages already dogging employers across the board, even the best-laid plans could be held back without good hands.

© National Post 2005