Home June 2018 Waiting to Exhale

Waiting to Exhale

Behind the soap opera-esque headlines, Alberta’s oil and gas executives wait with baited breath for political action on the pipeline front.

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The first months of 2018 have been truly stranger than fiction for Alberta’s oil and gas industry. The year began with two NDP premiers going nose to nose like Ali and Frazier over expansion of the Kinder Morgan Trans Mountain Pipeline System, with the Alberta government attempting to strong-arm its neighbour to the west with a temporary ban on BC wine and threats to turn off the tap on the province’s oil supply. In mid-April, Rick Orman, former Alberta PC cabinet minister and current senior counsel for the Canadian Strategy Group, raised eyebrows when he argued that Prime Minister Trudeau ought to deploy the military to prevent protesters from blocking the project’s completion.

If that wasn’t enough drama for everybody, mid-April also saw a furore erupt over the University of Alberta’s nomination of the Alberta oil sands’ fiercest critic, David Suzuki, for an honorary PhD, a move that Premier Notley characterized as “tone-deaf” and which the provincial media widely decried as a slap in the face to Albertans. All the while, rising global oil prices, rail bottlenecks in Chicago, and delayed refinery maintenance caused by unusually cold temperatures across North America in March conspired to produce some of the highest gas prices seen by Albertans in a long time.

Such is life these days in Alberta’s beleaguered oil and gas industry.

“Canada’s oil and gas industry is really falling behind at present,” says Ben Brunnen, vice president oil sands at the Canadian Association of Petroleum Producers (CAPP).

“We’ve seen a 50 per cent drop in capital investment in oil and gas since 2014. In the oil sands sector we’ve seen a decline by nearly two thirds in investment, but even conventional oil investments are down. Meanwhile we’re expecting global demand to continue to increase until 2040 while the United States, Brazil, Iran, and African countries continue to expand their global market share.”

It is easy to understand the prevailing frustration among Alberta’s oil and gas industry leaders. With the world’s population expected to reach 9.2 billion by 2040, global demand for all forms of energy – from oil and gas to renewables and nuclear – is expected to grow in leaps and bounds in the coming decades, especially in emerging markets in Asia and elsewhere. While renewable energy sources will continue to grow in importance, oil is expected to remain the dominant source of energy at least until 2040, with experts expecting global consumption to reach 105 million barrels per day, up from 94 million in 2016. Meanwhile, natural gas consumption is expected to climb commensurately to 199 trillion cubic feet by 2040, up from 129 in 2016.

Given the expected rises in demand across the globe for the coming decades, the perceived lack of cohesive vision for Canada’s energy future among the country’s political leaders is a major source of frustration for the industry.

“Canada has an opportunity to ensure growing energy demand will be met by the most responsibly produced fuels possible,” says Tim McMillan, CAPP president and CEO.

“However, government costs and regulatory barriers are on the rise – making it harder to grow our industry and support employment for Canadians. Investment in Canada’s energy industry, and jobs for Canadians, will continue to leave for other countries unless there are changes to regulatory policies to enable growth industry can build on. We operate in one of the world’s most stringent regulatory environments. It’s important we have a robust regulatory framework that meets environmental goals, but we must pay attention to added costs, delays and inefficiencies so we do not risk falling behind.”

Aside from declining government investment, the main problem bedeviling Alberta’s oil and gas industry remains access to market. The proposed doubling of the Trans Mountain Pipeline (TMPL) system, which has led to interprovincial acrimony which Calgary Herald columnist Don Braid likened to negotiations between North and South Korea, would be the first expansion of this kind to the only oil pipeline between BC and Alberta since its inauguration in 1956. The system, which connects the oil refineries in Sherwood Park with Vancouver’s Westridge Marine Terminal, in turn moves Alberta crude to marketing terminals and refineries in central BC, the Greater Vancouver area and the Puget Sound area in Washington state, as well as to other markets such as California, the US Gulf Coast, and overseas.

Experts assert that the system’s current capacity of 48,000 cubic meters per day represents a major bottleneck.

“The TMPL project is critical to Canada and the future of its oil and gas industry, which contributes billions of dollars to the national economy each year and is one of the country’s largest job creators,” says Brett Harris, external communications manager at Cenovus Energy in Calgary.

“Kinder Morgan’s decision to suspend all non-essential work on Trans Mountain and set a deadline of May 31 to find a reasonable pathway forward should concern all Canadians. Trans Mountain was approved by the federal government following more than two years of exhaustive review and the attachment of nearly 200 environmental and legal conditions.

Harris also commends the Trudeau government for its willingness to intervene on behalf of the project amid the ongoing interprovincial dispute.

“We’re pleased that the Prime Minister has committed the federal government to taking the necessary legal and legislative actions to ensure Trans Mountain is built. Immediate, clear and decisive action must be taken to ensure that this vital project proceeds without further delay. If the rule of law is not upheld and this project is allowed to fail, it will have a chilling effect on investment not just in British Columbia, but across the entire country.”

CAPP’s Brunnen concurs, but also expresses frustration over the lack of a coherent vision for the industry’s future on the part of the federal government.

“We would really like the feds to explicitly acknowledge the future of oil and gas and articulate a clear policy structure around investment. We’re the most responsibly developed oil and gas jurisdiction in the world, and a viable one in the long term. Oil sands oil is competitive at between $47 and $52 a barrel and is more than capable of competing at current market prices, but it’s a long-term investment that requires stable investment over time as well as better market access,” he says.

Brunnen adds that other jurisdictions are taking decisive action on this front, and are by consequence leaving Canada in the dust.

“The US has reformed its tax code in a way that supports long-term growth in oil and gas, and this is putting Canada at a disadvantage. For now we’re hearing a lot of good messages from the federal government, particularly vis-à-vis Trans Mountain, and a willingness to listen. Now we would like to see more concrete action to shore up investment.”

For the time being, however, the interprovincial pipeline soap opera continues while Alberta’s oil and gas executives – together with the many thousands of Albertans whose livelihood depends on the province’s single largest industry – wait with baited breath to see whether fortune will once again smile on their beleaguered sector.

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