OIL PATCH REPORT: CANADA

By Bruce Lantz

In a world turned upside down by the conflicting needs of the worldwide pandemic, the Russia-Ukraine conflict, and climate control issues, not to mention the normal supply and demand fluctuations, the oil and gas industry is doing its best to adapt.

It’s not an easy task. While oil is hovering around US$105 per barrel, consumers are facing extreme costs, seeing gasoline prices in Canada rising above $2 a litre, and diesel even higher with no end in sight, adding to the impact of rising inflation on consumers. Higher fuel coats have driven up shipping costs on food, clothing, construction materials and more, resulting in consumer anger which is either directed at the industry and/or government. Recession looms. With the rising prices on almost everything including housing/rents, job loss, etc. comes depression, desperation and anger fuelled in large part by social media rants and dialogue. Can crime and violence be far behind?

Public frustration is being fuelled by prices at the pump which are hitting about $8 a gasoline  gallon and more for diesel in Canada, despite strong oil prices averaging $105 a barrel, a 50% increase even during the pandemic. Some note than in 2008, when oil was at $147/bbl, gasoline was just $1.21 a litre; now, with oil prices much lower, gasoline there is at $2.27 a litre. Meanwhile industry firms publicize that they are paying higher dividends to shareholders along with share buybacks.

Many are placing the blame for high prices not on the industry but on government. With Canada’s oil production sitting at 5.4 billion barrels per day (bpd) people are flabbergasted that the nation consumes just 1.5 bpd. They suggest that if Canada’s vast natural resources, such as oil, gas, minerals, forests and water, which are sought worldwide, were used for the benefit of the nation’s relatively small (38 million) population, then Canada would have the lowest fuel prices in the world and the lowest tax rates. Instead provincial and federal taxes, plus the carbon tax, add a whopping 57% to the price of fuel.

And industry is stepping up. The Canadian Gas Association said in a recent news release it wants to work with government on a plan to address global energy security and take Canadian gas energy to those who need it.

“Canada has hundreds of years of natural gas supply, robust infrastructure, and industry expertise that meets the highest standards of corporate and environmental performance,” association president and CEO Timothy Egan said in the release. “We can do more for Europe and the world, and we want to.”

Industry is prepared to sit down with government and discuss how more energy could be moved to Europe in the near term. And the industry is working on a strategy to realize the short, medium and long-term opportunities for gaseous energy such as natural gas, renewable natural gas, and hydrogen. “Canadian gas infrastructure companies are second to none in moving that energy efficiently and reliably while keeping emissions down,” Egan said.

But he said for that to happen government needs to streamline its regulatory frameworks to enable rapid project development and foster investment confidence, so more domestic and more export facilities are built more quickly to move gas to markets..

SCRAMBLE FOR WORKERS

As the industry ramps up, with Q1 drilling activity strong thanks to higher than expected oil and gas prices, and with geopolitical crises like the Russia-Ukraine conflict, one challenge facing companies will be finding enough workers to fill the positions required to meet 2022-23 targets.

The most recent forecast by the Canadian Association of Energy Contractors (CAOEC) calls for 37,409 jobs, 2,484 more than estimated for this year in November 2021, to work on 6,902 wells (up 445), over 62,121 operating days (an increase of 4,010 days), on an average of 170 active rigs, (up 11). But labour shortages are expected to be a problem at least through 2022, along with the ongoing problems associated with obtaining permits, which has been a problem in British Columbia in large part due to indigenous treaty rights challenges but which hopefully will diminish going forward. Then there are supply chain challenges around the world that could affect the availability of steel casing, and the list goes on, but the forecast attempts to account for these problems.

“War, supply chain challenges and surging inflation are waking up millions of people in Canada and around the world to the importance of stable, affordably, and responsibly-produced energy,” CAOEC president and CEO Mark A. Scholz said in a news release. “Now is the time for Canada to rise up to the challenge and produce more oil and natural gas. Infrastructure projects are crucial to help us increase export capacity and meet demands now and for decades ahead.”

Scholz said the industry is evolving and offers many dynamic opportunities. “Canada could be an energy leader for decades to come . . . Not only are we supplying essential oil and natural gas, we are also at the forefront of the energy transition, drilling for emerging resources including hydrogen, geothermal, and other commodities such as helium and lithium. It is an exciting time for the industry.”

Prime Minister Justin Trudeau told Reuters news agency recently that Canada should be able to maximize the benefits of fossil fuels while tackling climate change.

“We’re looking to be good partners on energy with our European friends but we’re never slowing down in our fight against climate change,” he said. “Part of that is recognizing that the same infrastructure that can be used for LNG can also be used for hydrogen and ammonia that are possibly going to fuel the transition off of fossil fuels.”

OTTAWA PUSHING LNG

Meanwhile the Canadian government has brought liquefied natural gas (LNG) export opportunities on the east coast back to the forefront.

After prolonged neglect despite calls for support, Ottawa now wants to speed up Pieridae Energy Ltd.’s [TSX-PEA] Goldboro LNG facility and another by Buckeye Partners LP (NYSE-BPL) at Point Tupper, both in Nova Scotia. “We are looking at (these) projects and discussing these with the proponents and with (their) German and European counterparts,” Natural Resources Minister Jonathan Wilkinson told the Reuters news agency earlier this month.

“We are looking at whether there are things we can do to expedite one or more of the projects in. a manner that’s consistent with environmental considerations and a long-term transition to a lower-carbon future.”

The talks follow Ottawa’s stated intention to boost energy exports to Europe after the Russia-Ukraine conflict curtailed the continent’s oil and gas supplies. Even though Canada is the world’s sixth-largest natural gas producer, it does not have any east coast LNG facilities and only one, under construction, on the west coast.

The $13-billion Goldboro plant was to bring gas from Western Canada and ship it to Europe but the plan was shelved last year after the federal government ignored Pieridae’s request for $1 billion. After that, Pieridae considered a smaller project offshore, with a floating LNG barge where gas would be super-chilled and then shipped to Europe via tankers. But now the original proposal is back on track because it could produce more LNG, which is attractive to the federal government.

“We have to take advantage of all the work we’ve done already and try and see if we can move the project forward very quickly,” Pieridae CEO Alfred Sorensen told CBC News, adding that he’s optimistic the government will offer both financial and regulatory support. He added that Goldboro would likely not be operational until early 2027, as the company would have to resolve First Nations reconciliation issues, find a new engineering, procurement, construction and commissioning partner, and achieve the necessary upgrades to existing pipelines.

Meanwhile, Texas energy company Buckeye Partners announced it has an agreement to purchase Bear Head Energy and its proposed LNG project in Point Tupper, N.S.

The Bear Head project was in development for over 15 years, but has had difficulty getting gas suppliers and customers on board.

“Nova Scotia’s unique geographical characteristics give the region the potential to become one of the most productive renewable and green energy development areas in the world,” said Buckeye CEO Todd Russo in a news release.

“Via this acquisition, it is our intention to develop a large-scale energy production, distribution and export hub that will offer our customers lower-carbon energy solutions, including LNG or other green fuels.”

The Bear Head project aimed to bring natural gas from Western Canada or the U.S., cool it to a liquefied state at a plant in Point Tupper, then ship it to Europe.

But any oil and gas project doubtless will face opposition from people concerned about its impact on climate change and greenhouse gas reduction targets.

CLEAN ENERGY CHALLENGES

In addition to worker shortages, the industry – and indeed the entire push toward energy transition – face significant challenges if Canada is to meet its climate target of reducing emissions by 40% below 2005 levels by 2030, and reaching net-zero emissions by 2050.

Experts say such an overhaul of the nation’s energy infrastructure will cost hundreds of billions of dollars, and Canada doesn’t have a good record of completing ambitious expensive infrastructure projects. Consider the Northern Gateway pipeline; the Energy East pipeline; the Keystone XL pipeline; and the Coastal GasLink pipeline, all cancelled largely due to environmentalists’ opposition or regulatory hurdles; Pacific Northwest LNG; and the ballooning cost of the TransMountain pipeline expansion, now at $21.4 billion. And it’s not just oil and gas projects. Clean energy projects such as wind farms, hydro lines, and even cellphone towers have been cancelled due to opposition.

To meet its net-zero goals, Canada will have to double or even triple the size of its electricity grid, requiring massive new infrastructure and previously unheard-of interprovincial co-operation, plus expanding production of essential minerals such as copper, aluminum and lithium – all of which have a footprint likely to be challenged.

It’s a similar story in the U.S. and Europe, leaving a risk that clean energy companies will look to jurisdictions where the rules aren’t as tight and the public doesn’t get as much say in where and how things are built.