Some light amid the clouds for oilpatch
As the U.S. energy sector shifts into a higher gear with the sizzle around shale oil plays, the Canadian industry is finally seeing some encouraging signs of its own.
But across the sector, another concern is rearing its head: Canada’s competitiveness with the United States and its effect on investment.
On Tuesday, two new reports delivered a dollop of hopeful news to the sector, coming on the opening of the Global Petroleum Show at Stampede Park.
A forecast by the Canadian Association of Oilwell Drilling Contractors predicts the number of oil and gas wells to be drilled across the country this year will hit 6,842, up almost 50 per cent from last November’s projections.
Aside from more drilling, service companies say they’re looking to hire more staff and oilsands production continues to increase.
Canada, the sixth-largest crude producer in the world, should see overall oil output climb by almost a third — or 1.3 million barrels — by the end of the next decade to reach 5.1 million barrels per day, according to a study by the Canadian Association of Petroleum Producers.
For an industry that has been playing defence for almost three years, hammered by cost-cutting and relentless downsizing, it’s cautious progress.
“The sentiment in the industry now is they see the light at the end of the tunnel,” said Quinn Holtby, CEO of Katch Kan Ltd., an Edmonton-based oilfield manufacturing and services company at the petroleum show.
However, there are other clouds on the horizon: the need for more pipelines and concerns surrounding the sector’s competitiveness relative to the United States, where Donald Trump is cutting regulations and wants to lower corporate taxes.
In its drilling forecast, the CAODC pointed out action in the red-hot Permian Basin in west Texas and New Mexico is seeing activity levels close to 2014 levels.
The association noted its Canadian members with U.S. operations are shifting capital and assets south of the border to take advantage of a “more competitive marketplace.”
Likewise, CAPP’s report highlighted some longer-term challenges, including the “urgent need” for new pipelines as oil production rises.
The producers’ group expects conventional drilling in Canada will increase by 70 per cent this year after a miserable 2016.
Yet spending increases won’t be enough to make up for well decline rates and the sharp drop-off in exploration over the past two years. Conventional production in Western Canada will remain flat over the next 13 years.
However, oilsands output — the engine of Canada’s energy sector — is slated to top 3.6 million barrels a day by 2030, up from 2.4 million barrels a day last year.
Much of the growth will occur in the next three years, powered by projects already under construction, such as Suncor Energy’s Fort Hills development.
It’s worth pointing out that while Canada’s crude oil supply will grow by five per cent annually until 2020, it’s expected to downshift next decade, expanding by only two per cent each year after that until 2030.
It’s not no growth, but it’s definitely slower growth.
Critically, oilsands investment has dropped from $34 billion in 2014 to about $17 billion last year — and is pegged to decline to $15 billion this year.
CAPP president Tim McMillan calls the oilsands spending retreat “a canary in the coal mine.”
“We are also seeing this investment is increasingly going to the U.S., to plays like the Permian, because we have a divergence between Canadian policy and taxes, and U.S. policy and taxes,” he told reporters.
“We’re losing out to our American oil-producing partners.”
Exploration is certainly on the upswing in Trump’s America, with the U.S. expecting crude production will increase by 127,000 barrels a day by July, and 13 per cent between 2016 and 2018.
The ramping up of U.S. shale production is keeping a lid on crude prices, which closed Tuesday at US$46.46 per barrel.
At the petroleum show, companies with operations on both sides of the border say they’re seeing the same trend, with the U.S. industry ahead in the recovery as Canadian operations slowly regain their footing.
Holtby said his business has increased 40 per cent in the United States in the past year, and 15 per cent in Canada.
“The U.S. is always ahead of the curve,” he said. “They have better opportunities, mobile cash and better planning.”
CAPP’s forecast also shows Canada’s pipeline systems, which can move about four million barrels per day, are essentially full. By 2030, the sector will need to have the capacity to transport more than 5.5 million barrels a day, it said.
“We can produce all the oil and gas we want in this province, but we need to be able to ship it to these new customers,” said Alberta Energy Minister Marg McCuaig-Boyd.
“That’s the importance of getting the pipelines built.”
As for concerns surrounding competitiveness, the minister said the province is talking with industry about these issues, but needs more details.
Almost halfway through the year, the energy sector is starting to see some positive developments. But it’s also facing some hard realities.
Progress is slow, prices are low, and competition from the U.S. isn’t getting any easier.
We can produce all the oil and gas we want in this province, but we need to be able to ship it to these new customers.