Long-cycle projects ‘not yet dead’: analyst
Canadian oilsands producers worried about international capital fleeing to the U.S. should take heart from the long-term attractiveness of the reserves, according to a senior think-tank adviser.
“We have to stop beating ourselves up as Canadians (for) how uncompetitive we are and if only we had policies like in the U.S. I think we have to focus where we are competitive,” says Robert Johnston, CEO and director of global energy and natural resources at the Eurasia Group.
“Yes, the Permian (shale basin) is great, but in the long-cycle side for liquefied natural gas and the oilsands, I believe industry investors will come flocking again as markets come back,” according to Johnston, a Canadian who advises industry and governments around the world from his base in Washington D.C. He was speaking at a conference organized by the Canadian Association of Petroleum Producers this week in Toronto.
Canadian oilsands producers should watch developments in Brazil, Mexico and Russia, rather than fretting about capital fleeing to U.S shale basins in the shortterm, he said.
“Saudi and U.S. oil will not be enough to balance the market when we look in the medium-term — 2019, 2020, 2021 — so long-cycle oil investment (is) not yet dead. And that’s good news for the oilsands in particular,” Johnston said.
The Canadian oilpatch is downcast after international oil companies Royal Dutch Shell PLC and ConocoPhillips jettisoned just over $30-billion worth of oil assets in Alberta in the past month alone, raising concerns about the attractiveness of the oilsands in an era of depressed oil prices.
While the domestic oilsands companies are left with monetizing the world’s third largest reserves in the world from a small capital base, it does the leave the industry with players more committed to the basin.
“As the market rebalances and moves into a stock-drop and the next round of final investment decisions get made again for longer cycle projects that have a 25, 30, 40-year cycle, Canada will be competing with Brazil, Mexico and Russia,” Johnston said.
While Brazil’s outlook is improving as break-even prices of its presalt basin edges closer to $30-35 per barrel, the political outlook remains a risk. However, “(Brazil president Michel) Temer’s administration will continue to prioritize industry-friendly oil and gas policies to improve terms for IOCs (international oil companies) ahead of four 2017 bid rounds.”
In Mexico, president Pena Nieto has sought industry advice to create a more business-friendly environment, but his party may be ousted by the National Regeneration Movement Party led by leftist leader Lopez Obrador in the 2018 elections, setting him up for a “fairly epic confrontation” with U.S. President Donald Trump, Johnston said.
The NAFTA members’ showdown may compel supermajors to pause on their deepwater basin investments, but Johnston believes that even the socialist Mexican government will need energy investment, despite their rhetoric.
Meanwhile, Russia may not see major overtures from supermajors as the U.S.-Russia ties fray once again, but President Vladimir Putin has already secured significant investment from deep-pocketed Asian and Arab investors that would ensure Russia remains a formidable player.
Stacked against such competitors, Canada is well placed, given the above-ground risk in some of the countries, Johnston said.
Tim McMillan, president of the Canadian Association of Petroleum Producers, said the industry appears to be in better shape than a year before with a string of positive developments over the past 12 months, including the approval of a liquefied natural gas project and approval of Kinder Morgan’s Trans Mountain pipeline.
As the market rebalances and moves into a stock-drop ... Canada will be competing with Brazil, Mexico and Russia.