EVS to drive mining supercycle
Like many in the energy business, I marvel at how fast the cost of producing renewable power, LED light bulbs and lithium-ion batteries has fallen over the past decade. Depending on what’s being measured, some costs are down by more than 90 per cent.
Should we assume these downward-trending cost curves are sustainable? And will this type of cost reduction be applicable to other emerging clean energy devices?
Based on advances in technology and more efficient manufacturing processes, the short answer is a qualified yes. Yet, we shouldn’t be blinded by the glow of the new economy — things like data science, process engineering, robotics and advanced materials — which, to date, have been the principal drivers for achieving these cost reductions.
“This is certainly the most exhaustively reviewed project in the history of pipelines from an environmental perspective,” Pourbaix said. “You’re already seeing the impact on thousands of workers in Canada and the U.S. It certainly was not happy news and I think unnecessary, unwarranted and damaging for both countries.”
However, Cenovus’s acquisition of Husky Energy Inc. reduces the company’s need for the Keystone XL pipeline because it will be able to send more of its own crude oil production to Husky refineries in the United States. The deal closed earlier this month.
“The large majority of our production we can find a home for and we no longer need to sell at Hardisty (Alberta) and be exposed to that light-heavy differential in the (Alberta) province,” Pourbaix said.
Barrels of Western Canadian Select heavy oil traded at US$39.81 on Thursday. By comparison, the West Texas Intermediate benchmark traded down roughly one per cent to US$52.34 per barrel by close Thursday.
The company has now become “fully integrated, from wellhead to the refinery gate,” ATB Capital Markets analyst William Lacey wrote in a Monday research note.
However, Cenovus announced on Thursday that the cost to rebuild its Superior Refinery in Wisconsin is now projected to cost US$950 million, rather than a previous estimate of US$750 million, and the project will not be finished until the first quarter of 2023, rather than previous expectations it would be completed next year. The company expects to spend between $520 million and $570 million rebuilding the Superior Refinery this year.
The refinery exploded in April 2018, less than a year after Husky purchased the 50,000-bpd facility for $435 million in Aug. 2017.
Cenovus also announced Thursday it planned to spend between $2.3 billion and $2.7 billion this year, which is almost three times what the company spent in 2020. When oil prices crashed in March last year, Cenovus slashed its budget from $1.4 billion to $950 million as the company focused its efforts on controlling costs.
The budget “reinforces the merits” of the Cenovus-husky merger because it shows the combined company can generate cash with fewer expenses than as an independent company, National Bank Financial analyst Travis Wood wrote in a research note Thursday.
Cenovus also expects to cut $1 billion in costs this year following the Husky merger, which Pourbaix said will lead to layoffs for between 20 per cent and 25 per cent of the combined company’s staff, affecting over 2,000 jobs, primarily in Calgary.