By Bruce Lantz
Will they or won’t they recover? That’s the question facing Canada’s oil and gas companies as they warily eye the future — after the pandemic, after the industry recession, after whatever trials and tribulations come next.
Only the bravest dare predict it.
One of those is Tim McMillan, President and CEO of the Canadian Association of Petroleum Producers, who said, “The reality is that natural gas and oil play an unarguable role in the national economy,” in an opinion piece for Troy Media.
“Whether you focus on immediate job and revenue creation, or on a long-term strategy aimed at growth and resiliency, the natural gas and oil industry has a crucial role to play in getting us there.”
Industry detractors miss the value equation: oil and gas exports, including refined products, generated more than C$112 billion in 2019 — about 19% of Canada’s total export revenue, which is essential to keeping the national economy functioning.
So far, oil producers are being cautious, cutting production almost 800,000 barrels of oil equivalent per day which, including rescheduled turnarounds, tops 1.2 million bpd, and holding spending at reduced levels even as prices top US$40 a barrel, up from negative territory in April. They face heavy debt loads, a record for the fourth year in a row and 40% over 2019 numbers, with investment down 32% ($8.6 billion in Canada, $36 billion North America-wide). Alberta unemployment more than doubled to 15.5% in June, up from 7.2% in February, while across Canada unemployment in the resources sector topped 14.3% in June, up from 5%.
It’s understandable, given recent history. Oil prices crashed in 2014, forcing firms to cut costs and borrow to survive, then this year COVID-19 slashed oil demand, share prices fell and investors looked elsewhere. Company consolidations loom, as smaller firms face little likelihood of selling their few assets or raising new debt or equity.
Despite the gloomy numbers, McMillan said the industry’s recovery is essential to a functioning national economy, keeping dollars flowing into the country so it can grow, expand industries, create employment, and allow the importation of other goods from elsewhere. He noted that across the nation, where oil and natural gas projects operate, benefits accrue to local businesses such as hotels, restaurants, services and retail stores, which see increased consumer spending that leads to increases in staff.
“All of this translates into creating opportunity and building value for Canadians while shrinking the country’s debt,” he wrote for Troy Media. That debt is expected to hit C$1.2 trillion by the end of the fiscal year, with the deficit at a record C$343.2 billion. Ottawa is predicting a C$71.1-billion decline in tax revenue, including a C$40.8-billion loss in income taxes. Canada’s credit rating has been downgraded from AAA to AA+ and its debt-to-GDP ratio will jump to 48% this year.
But recovery will face obstacles among them the continuing assertion by anti-oil and gas activists that the industry and its pipelines are opposed by the country’s First Nations. That claim is false, according to the results of a survey of Indigenous groups by the Canadian Energy Centre. In fact, the survey found that most British Columbia and Alberta First Nations with a public position on oil and gas development actually favour it.
“Many of these projects can bring valuable economic benefits for Indigenous communities,” McMillan told Resource World, “and can help build strong, self-sustaining communities and economic reconciliation — achieved when we work together to find productive ways to share the benefits of resource development.
“Canada’s recovery cannot rely solely on government support. The pathway to rebuilding requires encouraging and attracting private investment back to Canada’s industries.”
He said that should include visible federal government commitment to work with industry to provide clarity and certainty to capital markets that Canada is a supportive and competitive jurisdiction; development and implementation of fiscal tools that enhance and level the investment playing field with 100% deductibility for capital investments; and evolving the COVID and Market Crisis Federal Joint Working Group to a Create the Path Table for investment and major projects, combining federal and industry resources to implement a recovery strategy.
Of course, that “sharing” ultimately means finding ways to get the landlocked Western Canadian product to the East Coast, a vision hindered by Quebec’s refusal to allow the $15.7-billion Energy East pipeline to cross its land. McMillan said court actions against the Dakota Access and Keystone pipelines in the United States reinforce the need for Canada “to stop relying on a single customer (the US) and take market access opportunities into our own hands.” That means completing the Trans Mountain pipeline and supporting projects like Energy East and Northern Gateway.
At present Irving Oil Ltd. is shipping oil from British Columbia 11,771 kilometres through the Panama Canal to its New Brunswick refinery, and may source oil in future from the US Gulf Coast, in an attempt to reduce Canada’s reliance on oil from states like Saudi Arabia.
“The International Energy Agency is still projecting that oil demand will recover over the next 3-5 years and will continue to rise through to 2040,” McMillan said. “There is great opportunity for Canada to gain market share within the global oil market, which is expected to be over 100 million bpd.”
“Expanding our capacity to sell to global markets will mean more jobs for Canadians, increased government revenues and a more stable future for Canada’s economy.”