Oil & Gas Outlook 2023
By Bruce Lantz
In the topsy turvy world of the oil and gas sector, turbulence is almost a way of life. And 2023 promises to be no different, especially if fears of a mid-year global recession become a reality.
In the recent Covid-filled years the industry has seen more than its share of value fluctuations, and the conflict in Ukraine added to that. In addition, ongoing concerns about climate change and the best way to deal with it — can anyone say ‘electric vehicles’? — have had some pundits suggesting the energy industry is changing and oil and gas will soon be a thing of the past.
Of course, there were bright spots, as some companies registered record profits, thanks to shortages prompted by the Russia-Ukraine conflict, the global Covid pandemic, and political forces such as President Joe Biden’s anti-fossil fuels stance and Canada’s seeming abandonment of oil and gas in favour of more climate-friendly resources. But oil prices slumped for seven years from 2014-2022 as OPEC abandoned supply management to support oil prices, reaching an all-time low of US$3.50 a barrel in April 2020 but rising last May to US$101.17 — the highest in 14 years.
Amid all the turmoil and uncertainty and fears of the looming recession, the Canadian Association of Petroleum Producers (CAPP) is confident 2023 will be a good year for its members.
“CAPP is seeing some early positive indications in terms of capital investment in 2023,” CAPP spokesman Jay Averill told Resource World, adding that the industry generated nearly C$40 billion in domestic capital investment in 2022, with C$50 billion paid to Canadian governments.
“Canada’s oil and gas industry is proud to be a foundational pillar of the country’s economy and a source of opportunity and prosperity for all Canadians.”
But China’s move away from its zero-Covid policy, plus the continuing war in Ukraine, will add to the existing tension between supply and demand in 2023, says Deloitte in an outlook report. Additionally, OPEC-plus production cuts and moves to cap the price of Russian crude could lead to disturbances in global supply. The Deloitte author Andrew Botterill said although a windfall from higher energy prices normally would lead companies to increase their budgets and invest in larger projects, in 2023 companies likely will focus on shoring up their balance sheets and bracing themselves for continued volatility. He said companies may focus more on piloting and policy development this year before masking multibillion-dollar investments in longer-term projects.
Certainly, the world wants more Canadian oil and gas, and even government is beginning to recognize that voter priorities have shifted as people face energy shortages, war, inflation, and rising interest and mortgage rates. Even banks and institutional investors are reviewing their anti-oil investment policies now that fossil fuels are making money while many other sectors don’t.
The International Energy Agency (IEA) expects world oil demand will rise by 1.7 million barrels per day (bpd) in 2023, up to a total average of 101.3 million bpd. And other reports predict that by 2050 the global energy demand will increase by 47%, driven by both population and economic growth, with increasing demand for fossil fuels and natural gas as sources for energy. But experts warn that as these non-renewables may well run out one day, the oil and gas sector is looking to a mix of renewable and non-renewable energy sources. The U.S. Energy Information Administration (USEIA) projects that from 2020-2050 renewables eventually will make up 90% of the electric energy generated in developing countries, and worldwide shares in natural gas will drop slightly while coal-fired generation will decline through 2030 but will still be used to help support other energy sources. However, the IEA says that the efforts being made to decarbonize and live more sustainably are not enough.
The Canadian Association of Energy Contractors (CAOEC) sees a future rife with opportunity and plans to work drilling for the new energy mix, which will include oil, natural gas, LNG, geothermal, helium, lithium, hydrogen, and carbon capture and storage.
“We will carry on with our essential work of providing energy security while being champions of the energy transition,” CAOEC president and CEO Mark Scholz says in their State of the Industry Report. “The future of energy runs through our workforce, and we will proudly lead the way forward to be the world’s most carbon-efficient energy services industry.”
That way will require investment and “a renaissance” in the energy sector, says Tristan Goodman, president and CEO of the Explorers and Producers Association of Canada. He said “increased competitiveness in government policy and balanced, realistic policy discussions” are essential to attract investment.
“For this to happen, international investors need to stop seeing Canada as a hostile environment where projects take far too long to get approved and built and where regulatory goalposts are uncertain,” he said.
“A Canadian energy renaissance is poised to occur in a manner that all Canadians can support. There is enormous opportunity ahead as the world increasingly recognizes Canadian energy production can be a solution to climate challenges and energy security. The key to realizing this opportunity is making Canada the most competitive jurisdiction for investment.”
The industry and the federal government are aligning on key issues like indigenous reconciliation, economic prosperity, energy security and the need to address climate change, and Canadian oil and gas producers are positions as both secure suppliers of sustainable energy and global leaders in GHG emission reduction innovation and technology to address all of these issues concurrently, including meeting Canada’s climate change commitments.
“Global demand for energy will remain strong for decades and Canada has a role to play in providing safer and lower emission resources to the world’s energy mix,” said CAPP’s Jay Averill. “Working collaboratively with government, the oil and natural gas industry can be a significant part of the solution to many of the challenges we are facing today.”