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Canada in the dumps
Capital spending plans take another setback, down almost C$14 billion from forecast
Gary Park for Petroleum News
Leaders of the Canadian oil patch have been dragged into another downward spiral as the upstream oil sector again tries to redefine “bottom.”
In revising its 2020 capital spending, the Canadian Association of Petroleum Producers estimates C$23.3 billion will be invested in the oil and natural gas production sectors, down from its C$27 billion forecast in January, which had projected a 6% increase over 2019, which was credited to a return to industry-friendly policies in Alberta and Saskatchewan.
But those hopes have been shattered despite a recent partial recovery in oil prices and a new agreement by OPEC and other producing countries to extend their 9.7 million barrels per day of production constraints through July.
Since peaking at C$81 billion in 2014, combined Canadian oil and gas investment has plunged by 71% or C$57.7 billion and the loss of tens of thousands of jobs.
Faint natural gas hope However, the Alberta Energy Regulator has dangled a faint prospect of hope in the natural gas sector, noting that “with low gas prices, abundant supply and transitions towards cleaner burning fuels, demand for natural gas is expected to grow at all levels, provincial, national and global.”
“Consumption in the oil sands, petrochemical energy diversification programs, the phase out of coal-fired electricity and Canadian liquefied natural gas export projects all have the potential to increase demand for Alberta’s natural gas,” the AER said.
AER suggests benchmark gas prices at Henry Hub could build to US$3.48 per million British thermal units and reach as high as US$4.63 in 2029, although that rate of increase depends on supply glut reductions in the United States, exports to Mexico, overseas LNG sales and a decline in byproduct gas flows from oil wells.
Alberta capex way down For Alberta - the powerhouse of Canadian production - the AER said capital spending will slide into the range of C$14.6 billion-C$16.4 billion this year from C$18.9 billion in 2019, or 70% of CAPP’s revised national outlay.
Alberta’s crude oil output rose by 1% 2019 to 3.6 million bpd, stemming mainly from growth in upgraded and non-upgraded oil sands bitumen, AER reported.
The agency said further growth in oil sands production is expected to lift volumes to 4.4 million bpd by 2029.
The AER report noted that Alberta has produced a cumulative total of 14.4 billion barrels of oil, leaving 164 billion barrels of potential oil reserves to be recovered over time.
AER said the provincial industry “is expected to face significant headwinds in 2020 largely due to the effects” of COVID-19.
The regulator said that with pipeline expansions still bogged down in regulatory delays while oil markets remain unpredictable, it is not willing to predict when or if oil sands extraction will regain its key role as a driving force of the Alberta economy.
CAPP cites uncertainty Ben Brunnen, CAPP’s vice president of oil sands and fiscal policy, said it is “helpful that we are starting to see some global energy demand numbers indicating that the worst is behind us.”
“The uncertainty about the future of COVID and whether subsequent waves will hit the economic recovery is what’s holding back investor confidence. From an oil and gas perspective, it continues to be a struggle,” he said.
Brunnen said Canadian producers have halted about 800,000 bpd of oil volumes because of weak prices, a number that could rise to 1.2 million bpd if rescheduled upgrader maintenance shutdowns (to convert raw oil sands bitumen into refinery-ready synthetic crude) are taken into account.
For many, especially hundreds of smaller service companies, the bleak outlook extends too far into the future for them to survive.
Their overheads represent a crushing burden that is likely to result in thousands more layoffs, especially in rural communities.
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