Projects gaining support: Producers
Despite losses in the billions, some positive signs emerge
CALGARY • While lacklustre Canadian federal energy policy in recent years has contributed to declining levels of investment and job losses in Alberta, the coming recession from the coronavirus will force a reckoning and encourage a new approach, according to the founder of private equity giant ARC Financial Corp.
“It’s going to force more realism, more pragmatism,” said Mac Van Wielingen, the long- time CEO of ARC Financial and who now sits on a panel advising the Alberta government on how to prepare its economy for an eventual recovery.
Prime Minister Justin Trudeau warned during his daily briefing Wednesday that new jobless numbers out Thursday would mark “a hard day for the country.”
The pandemic has led to record numbers of Employment Insurance claims in recent weeks and would likely force the federal government to take a more jobs- first approach to major energy projects in the country, Van Wielingen said Wednesday, speaking at the Canadian Association of Petroleum Producers annual investor conference, which was held virtually.
Mainstream opposition to pipeline projects such as Keystone XL or Trans Mountain is likely to wane as “Canadians will be much more receptive” to projects that deliver well-paying jobs during a period of high unemployment, he said.
However, entrenched opposition from environmental groups are likely to continue. On Wednesday, Stand. Earth attempted to push Boston- based insurance company Liberty Mutual to cancel insurance policies for the Trans Mountain and Keystone XL project, which are currently under construction.
Meanwhile, a group of British Columbia First Nations is seeking to challenge the federal government’s second approval of the Trans Mountain pipeline expansion project in Canada’s highest court.
The pipelines are currently under construction to con
DAMAGE TO EVERY SECTOR OF OUR ECONOMY.
nect oil projects in Alberta, which is now projecting a 25 per cent unemployment rate, with overseas markets and the heavy-oil refinery cluster on the U.S. Gulf Coast.
On Wednesday, The Canadian Association of Petroleum Producers said it was seeking clarity from Ottawa on liquidity for companies and access to existing or new credit support. It praised the government’s wage subsidy program which would support jobs in the sector.
“Urgent action is needed to provide a measure of certainty for Canadian energy producers during exceptionally uncertain times,” Tim Mcmillan, president and CEO of the oilpatch lobby group, said in a statement. “Since we began our discussions with the Government of Canada three weeks ago, we have lost between $6 billion to $ 8 billion of investment in the Canadian energy sector. This has resulted in job losses across the country and further damage to every sector of our economy.”
While global oil prices have tumbled sharply as the coronavirus pandemic shut down major economies and the oil price war between Saudi Arabia and Russia compounded the collapse, Canadian oil prices have fallen further.
On Wednesday, a rare up day for the domestic oil price, the Western Canadian Select benchmark price for heavy Canadian oil traded up 13 per cent by midday to US$ 4.43 per barrel — below break even operating costs for more oilsands producers and also below transportation costs to the move the oil to other markets.
In a television address Tuesday night, Alberta Premier Jason Kenney warned the price for WCS is likely to fall into negative territory over the course of the crisis, meaning that Canadian oil producers would need to pay customers to take away their oil.
Kenney said the double threat of the pandemic and collapsed oil prices is likely to usher in the most challenging economic time since the 1930s for the oil- producing province, which is now likely to see a budget deficit of $20 billion this year — or three times higher than previous projections.
The current crisis, he said, follows “five years of economic fragility” and outlined part of his government’s plan for a recovery, which includes the announced investment last week in 830,000 - barrels- per- day Keystone XL pipeline to move Alberta oil to the U. S. Gulf Coast.
Raymond James analysts warned Wednesday that Canadian oil and gas producers are having their loans cut as a result of the falling value of their oil and gas reserves, which would prevent some companies from spending during a potential recovery.
“We are most concerned about the reduced financial flexibility available to these producers into a potential price recovery. In most cases, we believe this will have the effect of limiting the capacity of these firms to quickly redeploy capital in a recovery environment,” Raymond James analyst Chris Cox and Jeremy Mccrea wrote in a research note Wednesday.
In addition, last week the Raymond James analysts warned that oil storage inventory builds and market pressures mean low oil prices will persist beyond the end of the pandemic.
“It’s easy to conclude that Brent crude in the mid-$20s is unsustainable and therefore a rebound is inevitable. But analysts and investors need to consider that oil prices could remain at ‘ unsustainably’ low levels for 6, 12, 18 months or longer,” they wrote.