Suncor chief trusts pipelines will be built
Suncor Energy chief executive Steve Williams says he’s feeling more confident than he has in years that Canada will finally get new pipelines built.
But is he willing to make billion-dollar bets on that feeling ? Not yet.
Until the country resolves its long-standing pipelines problems and competitiveness challenges, the chequebook on big-ticket oilsands projects will stay holstered.
“We do not see ourselves making major investments in Canada until we can see some clarity on market access issues,” Williams said Wednesday on a conference call with analysts.
This is a familiar refrain in Canada’s energy sector.
Many companies are adopting a stand-pat approach when it comes to sinking money into new greenfield projects in Alberta’s oilsands region.
CEOs like Williams and Imperial Oil’s Rich Kruger say many hurdles stand in the way, from prolonged regulatory delays and transportation constraints to good old-fashioned competition from other countries with promising opportunities.
Oilsands production is still expected to climb by more than 300,000 barrels a day this year, but from a new investment point of view, it’s downright chilly.
During Suncor’s first-quarter conference call and at its annual meeting, discussion about these broader industry issues was a familiar theme, echoing talking points that companies like Imperial Oil, Husky Energy and Cenovus Energy have been making.
Last month, Williams met with Prime Minister Justin Trudeau at the company’s new Fort Hills oilsands mine, a $17-billion project that will eventually produce up to 194,000 barrels of oil per day.
The development was given the green light before crude prices plunged and multinational players began to sell off their oilsands assets.
Fort Hills came online earlier this year as the differential between U.S. benchmark oil prices and Western Canadian Select crude began to widen to as much as US$30 a barrel.
The company reported the average discount doubled to $24 a barrel during the first quarter from the final three months of 2017, although Williams pointed out the trend didn’t affect the integrated oil company’s bottom line.
Along with other CEOs, Williams spent several hours in April talking with Trudeau about the industry’s challenges, such as market access concerns and the state of the Trans Mountain pipeline expansion.
Discussions are ongoing between Ottawa, Alberta and Kinder Morgan to get the pipeline company’s embattled Trans Mountain project back on track. Kinder Morgan has set a deadline for the end of May to find a way with various governments to derisk the $7.4-billion project from further delay.
As the clock ticks down, Suncor’s CEO is encouraged that both levels of governments are actively working to see the project is finished. He also expects TransCanada’s Keystone XL and Enbridge’s Line 3 replacement project will proceed.
“Degree of confidence? I don’t think in the last five years I’ve had a higher degree of confidence that these lines are going to be built,” he said.
It’s one thing to be optimistic. It’s quite another to spend money based on that belief.
According to ARC Energy Research Institute, oilsands spending has fallen for four straight years, from $33.8 billion in 2014 to an estimated $12.5 billion this year as several large projects have wrapped up construction.
ARC director of research Jackie Forrest said virtually all of the oilsands spending this year is directed towards maintenance.
Pipeline constraints and more attractive shorter-cycle energy investments in the U.S. have petroleum producers looking at other opportunities.
“We really haven’t seen a major project, a new announcement, since the downturn, yet on the non-oilsands side, we have seen new investment,” she said.
That doesn’t mean production isn’t growing as new projects like Fort Hills come online. Suncor expects to increase its output by 10 per cent in 2018.
And it still plans to spend between $4.5 billion and $5 billion on its capital program this year.
In February, it applied to the Alberta Energy Regulator for approval of a new 160,000-barrel-a-day oilsands project called Lewis.
Suncor has also proposed building 10 smaller thermal oilsands projects, each one replicated to produce 30,000 to 40,000 barrels a day.
Williams wants these developments to be able to make money at relatively low oil prices. Approval for these projects could come next year or in 2020, with the first facility starting to produce oil two or three years later.
But again, the company won’t make a final investment call without seeing progress on the sector’s competitiveness concerns, he said.
Williams noted a World Bank report recently ranked Canada 34th out of 35 developed countries in terms of the speed around granting permits for new construction projects.
“Big investment in the resource industry ... is starting to move away from Canada,” he told reporters after the meeting.
“And that’s partly because of taxation, partly to do with royalties, partly to do with the uncertainty — the length of time it takes to get through these regulatory hurdles — and a general belief in the investment community that Canada is not a great place to spend money.”
Such comments are starting to garner attention in government circles.
Alberta Energy Minister Marg McCuaig-Boyd said the decline in oilsands spending is a concern and “it highlights the importance of this fight for market access.”
The province is also talking with the industry about competitiveness issues, and pressing the federal government to make its regulatory system more efficient.
The energy industry is feeling more confident that governments in Edmonton and Ottawa are beginning to understand the impediments to making major capital investments.
But it will take real progress — such as steel in the ground for new pipelines — before companies make billion-dollar decisions on building new oilsands projects.