The Canadian oil sector is not dead

The Oil Patch Report

By Bruce Lantz

To paraphrase Mark Twain, reports of the oil industry’s death have been greatly exaggerated say those in a position to know.

Green Party leader Elizabeth May and Bloc Quebecois boss Yves-Francois Blanchet recently claimed the industry is dead in Canada due to falling prices and the impacts of the COVID-19 pandemic, and urged the federal government to scrap plans to shore up the sector with financing and instead divert those funds to renewable energy projects and help oilpatch workers find other jobs.

“My heart bleeds for people who believe the sector is going to come back. It’s not,” May told reporters.”Oil is dead and for people in the sector, it’s very important there be just transition funds.”

The response from all quarters was fast – and predictable.

“The assertion that ‘oil is dead’ is foolish at any given time,” Tim McMillan, President and CEO of the Canadian Association of Petroleum Producers (CAPP), told Resource World. “It also displays ignorance when in the midst of an unprecedented global crisis, Canadians are relying on it to deliver their food, heat their homes, and it is the foundational building block of our health-care delivery.”

His words were echoed by Mike Bernier, veteran MLA for the Peace River South riding in Northeastern British Columbia and oil and gas development critic for the Opposition Liberal Party in the province.

“I find this as another example of the Green Party being out of touch with the average person and the economics that fuel a First World country,” Bernier told Resource World. “There are still tens of thousands of people working in this sector trying to keep up with the demands of a growing population reliant on oil and gas in some form.

“The Green Party continues to make misinformed comments without understanding the entire chain that is affected by this industry, and I can only assume they wish to help foreign economies provide us with energy rather than us being able to provide our own and benefit from the jobs and revenues that flow from it.”

The industry has been going through unprecedented hard times of late, slashing output to deal with the coronavirus-led crash in fuel demand which has dropped about 30% worldwide, making drastic cuts to spending and laying off thousands of workers and closing production to offset a global glut. Rig counts are at historic lows with analysts expecting that to continue through 2021 and into 2022. While consumption has increased modestly in the past few weeks, the supply surplus is likely to last for months, if not years. Oil and gas have been Canada’s most valuable exports, worth C$132.2 billion in 2018, while supporting 530,000 jobs across the country and tipping $8 billion in revenue to governments.

CAPP is expecting a rebound.

“While the dramatic shutdown in the global economy, personal freedoms and lifestyles has reduced global demand, we expect that when people get back to work and begin the visit their family and friends once again, oil demand will also rebound,” said McMillan.

“Before the pandemic, the world was using more oil and gas than ever before, for good reasons – it leads to better diet, travel and life standards. The modern welfare of essential services is supported by energy and today we’ve been producing more with less impact. One of Canada’s best opportunities for economic recovery is oil and natural gas. We agree environmental progress is important, and that is precisely what the industry is doing.”

Prime Minister Justin Trudeau has said the oil and gas sector will play a critical role in both the recovery from the virus crisis and the transition to a greener Canadian future. Less pollution and greener outcomes will be part of the recovery strategy, he said. But he said the innovation expected to come from fossil fuel companies to reduce greenhouse gas emissions is critical to getting it right.

May told CBC that the pandemic could – and should – lead to an ordered shutdown of this industry. “The pandemic, in a very real way, as horrific as this is at many, many levels, gives us an opportunity to stop and think about how we get this economy back on its feet.”

But Bernier said few take the comments of May and Blanchett seriously and would rather focus on recovery. “Hopefully most companies will continue to look for opportunities in Canada . . . We need, though, to provide certainty and optimism to our country at this time, not shoot holes in a ship that is trying to stay afloat.”

He said Canada is susceptible to global supply and demand pressures in the oil and gas sector, and COVID-19 put considerable pressure on markets that were already failing due to oversupply.

“This sector will rebound because the demand for the products will be there for years to come, albeit, I am afraid, it will take time before investors feel the confidence again to look at Canada in the short term.”

He said this will have devastating effects on communities that have grown due to the opportunities in oil and gas, and will have negative effects on provincial and federal revenues.

Bernier said Canadians and the energy companies themselves are always looking to do things to the highest environmental standards and Canada ranks at the top of the pile when it comes to that.

“Rather than discrediting the hard work and investments made that benefit all of Canada in one way or the other, like the Green Party continues to do, maybe they should understand that people still rely on this energy for now. Eventually there will be a transition of some sort, but until then the Green Party just sounds out of touch with reality.”