‘Megatrends’ will drive world demand for oil, CEO says
CALGARY Even with the increase in renewable energy sources and the advent of electric cars, global demand for oil and gas is expected to grow for the next 25 years, says the head of one of Canada’s largest energy companies.
“What we see are global megatrends that will continue to drive the world demand for energy,” Rich Kruger, president and CEO of Imperial Oil Ltd., told investors on Wednesday.
He said he expected energy use — including from fossil fuels — would rise by 25 per cent between now and 2040 as more of the world develops. At present, he noted, one in six people do not have access to electricity.
Kruger said that a mix of energy would be needed to meet those energy requirements including oil, natural gas and renewables. “Gas will be the fastest growing major energy source,” he said during Imperial’s investor day in Toronto.
Imperial also expects that 90 per cent of the world’s transportation fuels will come from oil in 2040, which is down slightly from 95 per cent today.
Despite the continued increase in the demand for oil in the future, Imperial Oil is planning to reduce its capital spending for each of the next four years to about $1.5 billion — down from an average of $5 billion per year between 2010 and 2015.
FirstEnergy Capital Corp. analyst Michael Dunn said in a research note the market would respond positively to Imperial’s planned capital expenditure reduction. Imperial announced Wednesday it could now sustain its operations with $900 million per year, compared with last year’s estimates of $1.2 billion.
Dunn said he now expects Imperial’s capital expenditure budget will be in the range of $1 billion to $1.2 billion next year.
A report Wednesday from credit ratings agency DBRS Ltd. noted that oil and gas producers have lowered their costs by 20 per cent to 30 per cent and the financial stress on some of those firms is easing as oil prices are expected to improve next year.
“We have a better outlook for oil pricing, the whole forward curve has improved,” DBRS senior vicepresident Victor Vallance said.
“We think the probability of oil averaging above US$50 per barrel next year is higher than it was several months ago,” Vallance said. The DBRS report predicts the oil market will rebalance in the last three months of 2017.
The firm plans to review its credit ratings on a number of oilsands producers given the moderately improved outlook in the oil and gas industry. It had downgraded ratings on oilsands producers Cenovus Energy Inc. and ConocoPhillips the last time it conducted a review, when its energy outlook was considerably less optimistic.
Meanwhile, a survey of 251 people employed in the oil and gas industry showed increased optimism in the sector in the next two years.
The survey by Deloitte said that 33 per cent of respondents believed oil prices will begin to recover in 2017 and 29 per cent believed a price rebound will begin in 2018.
“Companies are generally optimistic that prices will rise to a more sustainable level next year; however, they understand that even if we see an uptick in price, the industry likely won’t fully recover until 2018 or beyond,” John England, Deloitte vice-chairman and U.S. and Americas oil and gas leader said in a release.
In Imperial’s case, the company’s budget assumptions for the next four years implies limited spending of $600 million per year if it decides to sanction new oilsands projects. It currently has two such projects — Aspen and Cold Lake Expansion projects in northern Alberta — awaiting regulatory approvals.
Asked what oil price Imperial would need to sanction those projects, Kruger said, “We’re looking for double-digit returns in a $50 per barrel world or higher and we’re looking at that as the entry point to be considered competitive.”