Why Canada’s oilpatch can’t solve the energy crisis
The Canadian industry wants to increase production, but there are questions about how much extra oil and natural gas can be pulled from the ground and what impact it could have on the world.
After meeting with his global counterparts in Paris this week, Canada’s natural resources minister pledged to pump out more oil and gas to alleviate the energy crisis in Europe.
Oil and natural gas are in short supply in parts of the world after many countries sanctioned Russia following its invasion of Ukraine.
The Canadian industry wants to increase production, but there are questions about how much extra oil and natural gas can be pulled from the ground and what impact it could have on the world, especially considering oil production in Western Canada is already near record levels.
Jonathan Wilkinson announced Thursday that Canada’s industry is expected to increase oil production by 200,000 barrels per day of oil, and the equivalent of 100,000 barrels of natural gas per day, by the end of the year.
Currently, Canada produces about 4.7 million barrels per day of oil, and exports about four million barrels per day.
World’s energy woes
Commodity prices have spiked in the last month as Russia’s exports, from oil to coal, have fallen. It’s why gasoline prices hit record levels in Canada this month.
Europe is the biggest customer for Russia’s oil and natural gas. That dependance is why European countries are having a difficult time following in the footsteps of Canada and the U.S., which both banned imports of Russian oil and gas.
WATCH | Searching for solutions as countries ban Russian oil:
Searching for solutions as countries ban Russian oil
With more countries banning Russian oil and looking to make deals on Saudi Arabia’s oil supply, it raises ethical issues considering the country’s human rights record. Plus, the opportunity this presents for countries to look at more environmentally friendly solutions. Ginella Massa talks to Deborah Yedlin, chair of the Calgary Chamber of Commerce, and Tzeporah Berman, program director for the environmental organization Stand.Earth. 8:10
“We have our European allies who are facing the prospect of not being able to heat their homes or fill up their trucks to actually service their grocery stores and their restaurants. It would be incredibly irresponsible for Canada to say ‘we don’t care,'” Wilkinson told reporters on Thursday.
Last year, Russia was exporting about 4.6 million barrels per day of crude oil, according to energy consultancy group Wood Mackenzie. Those exports have fallen because of the widespread economic and energy-focused sanctions against the country.
If Canada can boost its own oil output by 200,000 barrels per day, that in itself won’t have much of an impact on offsetting those Russian barrels. If anything, it could help the United States, which is looking to replace about 500,000 barrels of petroleum that it was importing from Russia.
“Canada on its own is not going to solve the issue,” said Wilkinson. “But Canada coming forward in conjunction with Brazil, in conjunction with the United States, and I’m sure there will be others, will help us to remove some of the tightness in the market.”
While many Canadian companies say they want to help by increasing production, there are also some critics who say the federal government hasn’t been supportive enough of the oilpatch, in terms of pipeline regulations and a proposed cap on emissions, among other policies.
“It’s a temporary respite to the negative approach the federal government has taken toward energy development,” said Robert Cooper, with the institutional sales and trading team at Calgary-based investment firm Acumen Capital Partners.
“I don’t think that anyone in downtown Calgary believes that there’s been a sudden change from the federal government as it pertains to resource development in this country,” he said.
Turning up the taps easier said than done
For Canadian oil companies to produce more oil is much easier said than done, considering production levels were already high this winter. Alberta’s oil production hit a record high in October and was also a record for the first 10 months of any year, which shows that industry hasn’t been holding back on turning on the taps.
“My initial reaction is a bit of confusion, to be honest,” said Rory Johnston, founder of the Commodity Context newsletter, about the federal announcement about increasing oil exports.
There is spare pipeline and rail capacity to boost exports, he said, the question is about the extra crude.
“It’s difficult to see right now where a substantial or material increase in Canadian oil production could actually fill those increased pipelines, at this moment,” he said.
Oil output can fluctuate
It’s also worth considering that Canada’s oil output can fluctuate from month-to-month because of cold weather, facility maintenance, and other impacts.
Last year, exports reached four million barrels per day of oil, but were as low as 3.6 million during some months. Those swings don’t have an impact on global oil markets, which shows how even if Canada is able to increase total capacity by 200,000 barrels per day, it’s a relatively insignificant amount.
The potential boost in crude also might not happen with regularity, considering the nature of the industry.
Building new oilsands facilities or expansions often take several years to develop and require billions of dollars of investment.
Oil major Cenovus has said any production increase this year will be marginal, while Suncor is expecting an increase of nearly 100,000 barrels per day from the Fort Hills oilsands facility, north of Fort McMurray.
The mine was operating at about 50 per cent capacity, but the company told CBC News the 194,000 barrel per day facility should be operating at about 90 per cent later this year.
There are opportunities to increase production to address the affordability issues in North America and the energy security problem around the world, but it’s not a certainty, said Tristan Goodman, president of the Explorers and Producers Association of Canada.
“You will need investors to have confidence that they should increase production. And if you’re not going to have investor confidence, you will not see increased production,” he said.
In recent years, investors have pushed oilpatch companies to give more cash to shareholders instead of increasing oil and gas production.
“In the long-term, or in the mid-term, there does need to be a conversation with Canadians over infrastructure related to natural gas and oil,” he said.
Where will it go?
Even though Europe is the target destination for any increases in Canadian oil and natural gas, that’s not a straightforward journey from Western Canada. The overwhelming majority of Canada’s export pipelines head south into the U.S.
If more Canadian oil is shipped to Europe, it would likely first have to travel all the way down to the Gulf Coast to be loaded onto a tanker, before setting sail across the Atlantic.
It’s a similar situation with natural gas as Canada does not have way to export to Europe without first traveling south across the border.
Still, even if all goes as planned with Canada’s promise of more energy to the world, it’s much too small on its own to move the needle when it comes to commodity prices or global supplies.
WATCH | Government looking to shore up short-term supply of crude oil and natural gas:
Minister says government looking to shore up short-term supply of crude oil and natural gas as U.S. bans Russian imports
Natural Resources Minister Jonathan Wilkinson joins Power & Politics to discuss the U.S. ban on Russian imports of oil and gas. 5:54