In The Media

Oilpatch can’t match enthusiasm of U.S. industry

by Kyle Bakx (feat. Kevin Birn)

CBC News
March 6, 2018

Speaking on the first day of a major global energy conference in Houston, Sen. Daniel Sullivan of Alaska was unequivocal in his assessment of the U.S. oil and gas sector.

"There's never been a more exciting time for the American energy industry," Sullivan declared at the CERAWeek conference. "The American energy renaissance… is now in full swing."

As a Republican, he may have political motives for celebrating the industry's upswing under President Donald Trump. But politics aside, his comments reflect the widespread excitement in the U.S., where oil production is booming.

In contrast, the Canadian oilpatch continues to struggle with low prices, a lack of capital investment, and hurdles to construct new export pipelines.

You wouldn't blame Americans at the conference for high-fiving in the hallways, while Canadians might just give each other a circumspect nod as they pass.

The U.S. is far above all other countries in growing oil production according to the International Energy Agency (IEA), which released its annual five-year oil market outlook on Monday. This year alone, the U.S. will pump out an extra 1.3 million barrels per day and become the world's largest crude producer, said the Paris-based IEA, which advises most of the world's major economies.

Canada's export woes

In comparison to the U.S. energy dominance, Canadian production will grow, but at a much smaller rate. Most of the expansion will come from the oilsands and in particular, from projects that were in development before the 2014 price collapse.

Over the next five years, Canada will be in the top three around the world in growing oil production. The agency has several concerns, however.

In its report, the IEA labels both Kinder Morgan's Trans Mountain Expansion and TransCanada's Keystone XL pipeline as "uncertain." 

"One of the key uncertainties for the forecast obviously is pipeline capacity," Toril Bosoni, a senior oil market analyst with the IEA, told reporters at CERAWeek. 

"Last year we were here we were saying there is good news, pipeline projects are being approved. One year later, it's not so certain.

"The capacity constraint is one of the bottlenecks in not having more Canadian projects being sanctioned because of the uncertainty of how to get these barrels to market," said Bosoni.

Price discount

Capital spending in Alberta's oil and gas industry peaked at $58.1 billion in 2014, but is expected to fall to $22.5 billion this year, a 61 per cent drop, according to Statistics Canada.

Alberta oil always sells below the North American benchmark, West Texas Intermediate (WTI), because of its quality and the transportation costs. The pipeline space constraints are adding to the problem. WTI is trading above $60 US a barrel so far this month, while in Alberta, Western Canada Select is fetching about $36 US.

Some oilpatch investment is being lured south as the U.S. overhauls its tax and regulatory regime, according to the Canadian Association of Petroleum Producers.

There's an appetite among refineries in the U.S. to import more Canadian heavy oil because production of similar crude from Mexico and Venezuela is declining. Much of the American crude is light oil.

However, Canadian export pipelines are full, so it won't be easy or cheap to send more oil to the U.S. Gulf Coast.

"That's the real complicating factor up there. There is clearly a willing buyer with the U.S., it's just a matter of getting it out," said John Coleman, a Houston-based senior oil analyst with Wood Mackenzie, in an interview. "It's clear, for now at least, that rail is needed."

The American energy industry still has challenges of its own. Large-scale capital investment is needed to export the massive increase in oil production, according to Wood Mackenzie. At the same time, some companies are facing labour shortages.

"Certainly the U.S. is going to post some incredibly strong numbers this year," said Kevin Birn, an oilsands analyst with IHS, in an interview. "We continue to see slowing growth out of Canada, but we may be settling in to more stable growth, more manageable growth."

Add in the lack of new export pipelines and the discounted oil prices and no wonder the American enthusiasm isn't carrying north over the border.

"Definitely more muted in Canada than the United States."


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