Foiled by sec­tor rules, prox­im­ity to U.S., IEA says

National Post (National Edition) - - FRONT PAGE - YADULLAH HUS­SAIN

Two major trends are un­fold­ing in global oil and gas mar­kets, but Canada seems un­able to take ad­van­tage of the first one, and is al­ready an un­for­tu­nate ca­su­alty of the other, says a new re­port.

First, the world’s energy de­mand will rise the equiv­a­lent of China and In­dia’s cur­rent energy con­sump­tion over the next three decades — but Canada has limited di­rect con­duits to con­nect those energy-hun­gry mar­kets to its store of the world’s third-largest oil re­serves.

The sec­ond de­vel­op­ment, which has al­ready dented the Cana­dian oil­patch, is the rise of U.S. tight oil and gas that is tak­ing dol­lars and fo­cus away from the Western Cana­dian in­dus­try.

The global energy mar­kets are in the midst of “ex­tra­or­di­nary times”, writes Fatih Birol, ex­ec­u­tive di­rec­tor at the In­ter­na­tional Energy Agency in its an­nual World Energy Out­look, re­leased in Paris on Tues­day.

The bench­mark re­port notes that with re­new­able energy tech­nolo­gies nip­ping at the heels of oil, nat­u­ral gas and coal and a global push by pol­i­cy­mak­ers to cut car­bon emis­sions, jux­ta­posed with near-in­sa­tiable de­mand from a global pop­u­la­tion that will hit 9 bil­lion within a few decades and the rise of U.S. as the world’s largest oil and gas pro­ducer, the energy sec­tor is ex­pe­ri­enc­ing dis­rup­tive times.

Amid these up­heavals, Canada will likely re­main a mi­nor ac­tor, its global plans dashed par­tially through self-re­straint and rules, and also by its next-door neigh­bour who is up­end­ing global mar­kets and dis­rupt­ing Canada’s plans to ex­port oil and gas in the process.

To be sure, the IEA ex­pects Cana­dian oil pro­duc­tion to rise — to 6.2 mil­lion bar­rels per day by 2040 from 4.5 mil­lion bpd in 2016, 100,000 bpd more than the IEA’s last re­port.

But that’s where the good news ends for the Cana­dian oil­patch.

The Paris-based watch­dog casts doubt over the state of the sec­tor, es­pe­cially as a num­ber of high-pro­file play­ers such as Royal Dutch Shell PLC and To­tal SA have re­duced their ex­po­sure to Al­berta.

“While other major com­pa­nies con­tinue to main­tain a pres­ence in oil sands op­er­a­tions, it re­mains an open ques­tion whether the exit of these com­pa­nies will im­pact prospects for oil sands de­vel­op­ment over the longer term,” the IEA said.

Two gov­ern­ment ini­tia­tives to re­duce green­house gas emis­sions, the car­bon tax and the GHG emis­sion lim­its, also “have im­pli­ca­tions for oil sands,” the IEA warns.

Else­where, Cana­dian shale gas de­vel­op­ment will be a ca­su­alty of rapidly ris­ing U.S. pro­duc­tion — not only de­lay­ing plans for off­shore ex­ports but even cur­tail­ing sup­ply to its tra­di­tional market south of the bor­der.

“The abun­dance of shale gas in the United States also af­fects the pace of shale gas de­vel­op­ment in Canada. Al­though Canada has po­ten­tially pro­lific shale gas plays … their es­ti­mated de­vel­op­ment cost is higher on aver­age than in the Per­mian or the Ap­palachian Basin and they are fur­ther away from the de­mand hub,” the IEA said.

While the U.S. ex­ported 100 bil­lion cu­bic me­tres of Cana­dian gas in 2005, that fig­ure fell by over a fifth in 2016.

“Over the same pe­riod, US gas com­pa­nies ramped up their ex­ports to Canada and Mex­ico, push­ing net US im­ports of pipe­line gas down to around 25 bcm in 2016, com­pared with 80 bcm some ten years ear­lier,” IEA econ­o­mists said.

With the U.S. eat­ing into Canada’s prospec­tive market share, the IEA be­lieves Canada’s liq­ue­fied nat­u­ral gas ex­port will likely not come to fruition un­til the 2030s — a decade longer than ex­pected — even as LNG will usher in a “new global gas or­der”.

“Asia’s grow­ing gas im­port re­quire­ments are largely met by LNG (by 2040), with ex­ports from the US ac­cel­er­at­ing a shift to­wards a more flex­i­ble, liq­uid global market,” the IEA said.

The sliver of hope for Cana­dian oil pro­duc­ers is that the sec­tor is not go­ing to be dis­placed by re­new­able en­er­gies and the rise of elec­tric ve­hi­cles any time soon.

“EVs are com­ing fast, but it is still too early to write the obit­u­ary for oil,” the IEA states, with global oil de­mand steady at 104 mil­lion bpd by 2040, com­pared to 94 mil­lion bpd in 2016.

Global energy needs will rise more slowly than in the past but still ex­pand by 30 per cent be­tween to­day and 2040, the equiv­a­lent of adding an­other China and In­dia.

Canada could still play a role as China’s long-held fears for its energy se­cu­rity means it would seek to di­ver­sify its sources of sup­ply.

“Canada is well placed to ex­port oil to China, al­though this is de­pen­dent on the con­struc­tion of ad­di­tional ex­port ca­pac­ity to bring in­land pro­duc­tion to the Pa­cific coast,” the IEA said.

If planned pipe­line projects come to fruition, the United States and Canada com­bined could ex­port more than 700,000 bpd to China by 2040 — a drop in the bar­rel in the coun­try’s 15.5 mil­lion bpd de­mand.

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