With the world’s leading oil-producing nations likely to see their export capacity drop by some 2.5 million barrels a day by the end of the decade, Canada’s oilsands will be squarely in the investment sights of global energy giants, finds a new report from CIBC World Markets Inc.

The report notes that OPEC and other key oil producers such as Russia and Mexico are struggling not only to grow production, but to manage their own soaring rates of domestic oil consumption. This struggle will likely see their collective crude exports, which account for roughly 60% of current world oil production, to fall by as much as 7% by 2010. The outcome of this would be significantly higher oil prices.

“One of the few areas where production can be expanded significantly is the Canadian oilsands, a vast reservoir of bitumen whose extraction and refining economics are becoming increasingly attractive as world oil prices continue to set new highs,” says Jeff Rubin, chief economist and chief strategist at CIBC World Markets. “Already at over a million barrels per day, production is slated to triple over the next decade and by 2020 could well be producing over 4 million barrels per day of synthetic crude, catapulting Canada to the front ranks of oil producers.”

Rubin states that within the next decade, the expansion of Canadian oilsands production will surpass deep-water wells as the single largest source of new global supply. He notes that unlike in many other major oil-producing countries, virtually all of the increase in Canadian oil production will be slated for exports, likely in its entirety to the U.S. market. Canada’s domestic oil needs shrunk last year and are unlikely to grow significantly in the future as the Canadian economy becomes more and more subject to carbon abatement legislation and practice.

This is in sharp contrast to the situation in the major oil-producing countries, which are experiencing some of the highest jumps in oil demand in the world. Demand has grown at a soaring 5% annual rate in Iran, Saudi Arabia and the United Arab Emirates over the last half-decade.

Suddenly oil-producing countries are themselves becoming major oil-consuming countries. Last year OPEC members, along with independent producers Russia and Mexico, consumed over 12 million barrels of oil per day — roughly 60% more than China and slightly more than all of western Europe. As a group, they now represent the second-largest oil market, second only to the U.S. Much of this demand is driven by heavily subsidized prices that keep a barrel of oil down to a cost of between US$10 and US$20.

“With domestic consumption growth of nearly 5%-6% now standard in the Middle East, OPEC’s future export capacity is increasingly called into question,” Rubin says. “Particularly now that the cartel seems to no longer be able to raise production as readily as it has in the past.”

The report notes similar issues in Russia and Mexico. In recent years, Russia, now the world’s largest oil producer, has filled the supply gap created by OPEC’s growing call on itself. But now Russia too is showing much the same trends seen in many other oil-producing countries that subsidize prices.

“For most multinational oil firms, the world is rapidly shrinking,” notes Rubin. “Increasingly they are shut out of the backyards of all the state-owned oil patches and then have to bid against those state firms in places still open for investment. Canada remains one of those few places, where governments have been content to take their share of economic rents through royalties and not be concerned about the ownership per se.

“Depending on one’s view of the investment climate in Kazakhstan and Nigeria, Canada represents anywhere from 50%-70% of the investible oil reserves in the world. Increased global reliance on high cost sources of unconventional supply will be accelerated by the decline in the export capacity of traditional oil producing countries and will soon put Canada’s oilsands in the global energy spotlight.”