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There’s No Sugarcoating Canada’s Oil Crisis

There’s No Sugarcoating Canada’s Oil Crisis

Cenovus rig

Has financial disaster been averted in Canada’s oil and gas industry?

‘Disaster’ is all relative. Let’s just say 2019 is going to be a difficult year following a tough set of recent circumstances.

One thing we know is that the recent episode of bargain-basement commodity prices—triggered by a regional glut of oil and gas looking for a pipeline to call home, combined with low international oil prices—has wounded this year’s outlook for conventional oilfield activity. That’s the segment of the business, outside the oil sands, where two-thirds of the industry’s spending typically occurs.

Beyond the tight orbit of Fort McMurray’s oil sands, in the broader oil and gas fields of BC, Alberta and Saskatchewan, the overt indicator of sectoral health is drilling activity. Like counting cars on a freeway, you know the economy is bad if there are only a few commuters on the road.

It’s looking pretty bad for the first quarter. We’re entering the peak ‘rush hour’ of the winter drilling season with only 180 bits turning on active rigs. The level of activity is feeling a lot like the depths of 2016, the lowest New Year’s entry in decades (see Figure 1).

For comparison, last year at this time the rig count was climbing toward a more stable February peak of 348. But stability is hardly in the energy dictionary right now. Volatile discounts, weak international prices, illiquid equity markets and a never-ending pipeline drama has spooked those with money and hollowed those without. It’s pretty simple really: No confidence plus no money equals no drilling. That’s what was happening late last year.

Having said that, the very real potential for fiscal disaster was averted. To clear the late ’18 production glut, the government of Alberta stepped into the market with a mandatory oil curtailment (8.7 percent across the board).

…click on the above link to read the rest of the article…

Oil’s Wild Price Swings Set to Create Global Chaos

Oil’s Wild Price Swings Set to Create Global Chaos

Volatility is here to stay — and the political and economic implications will touch us all.

As the current global oil glut shakes up petro states around the world, oil prices are becoming more volatile than Donald Trump tweets.

Neither Canada, now the dumb owner of a marginal 65-year-old pipeline, nor Alberta, a key exporter of bitumen, a cheap refinery feedstock, has paid much attention to this revolution.

As a consequence Canada has no strategy to deal with the new normal of highly volatile oil prices.

Government incompetence explains the hew and cry in Alberta about its overproduction crisis and the various proposals to solve it, ranging from the purchase of rail cars (a bad idea) to the decision to order companies to cut production of heavy oil by about 325,000 barrels a day (a sensible idea).

Alberta’s panic attack is based on the idea that bitumen from the province’s oilsands producers is selling at a discount because of a lack of pipeline capacity.

The reality is that the dramatic 30-per-cent drop in oil prices since the beginning of October, from more than US$70 to US$50, is upsetting oil exporters, producers and markets around the world.

Different kinds of oil fetch different prices, based on their quality and transportation costs. And all are experiencing dramatic price drops. Alberta’s bitumen, a cheap refinery feedstock, is not the only crude languishing during a global market glut.

Refineries in Japan and Korea, for example, scooped up cheap U.S. oil earlier this year.

…click on the above link to read the rest of the article…

Alberta’s Problem Isn’t Pipelines; It’s Bad Policy Decisions

Alberta’s Problem Isn’t Pipelines; It’s Bad Policy Decisions

Bitumen prices are low because the province has ignored at least a decade of warnings.

The Alberta government has known for more than a decade that its oilsands policies were setting the stage for today’s price crisis.

Which makes it hard to take the current government seriously when it tries to blame everyone from environmentalists to other provinces for what is a self-inflicted economic problem.

In 2007, a government report warned that prices for oilsands bitumen could eventually fall so low that the government’s royalty revenues — critical for its budget — would be at risk.

The province should encourage companies to add value to the bitumen by upgrading and refining it into gasoline or diesel to avoid the coming price plunge, the report said.

Instead, the government has kept royalties — the amount the public gets for the resource — low and encouraged rapid oilsands development, producing a market glut.

With North American pipelines largely full, U.S. oil production surging and U.S. refineries working at full capacity, Alberta has wounded itself with bad policy choices, say experts.

The Alberta government and oil industry is in crisis mode because the gap between the price paid for Western Canadian Select — a blend of heavy oil and diluent — and benchmark West Texas Intermediate oils has widened to $40 US a barrel.

Some energy companies have called on the government to impose production cuts to increase prices.

The business case for slowing bitumen production was made by the great Fort McMurray fire of 2015.

…click on the above link to read the rest of the article…

In Major Defeat For Trump, Judge Blocks Construction Of Keystone XL Pipeline

In a setback for the Trump administration, a federal judge in Montana temporarily halted construction of the Keystone XL oil pipeline late on Thursday on the grounds that the U.S. government did not complete a full analysis of the environmental impact of the TransCanada Corp project and failed to justify its decision granting a permit for the 1,200-mile long project designed to connect Canada’s tar sands crude oil with refineries on the Texas Gulf Coast. The ruling came in a lawsuit that several environmental groups filed against the U.S. government in 2017, soon after President Donald Trump announced a presidential permit for the project.

The judge, Brian Morris of the U.S. District Court in Montana, said President Trump’s State Department ignored crucial issues of climate change in order to further the president’s goal of letting the pipeline be built. In doing so, the administration ran afoul of the Administrative Procedure Act, which requires “reasoned” explanations for government decisions, particularly when they represent reversals of well-studied actions.

Morris wrote that a U.S. State Department environmental analysis “fell short of a ‘hard look’” at the cumulative effects of greenhouse gas emissions and the impact on Native American land resources.  He also ruled the analysis failed to fully review the effects of the current oil price on the pipeline’s viability and did not fully model potential oil spills and offer mitigations measures.

However, the decision does not permanently block a pipeline permit. It requires the administration to conduct a more thorough review of potential adverse impacts related to climate change, cultural resources and endangered species. The court essentially ordered a do-over.

Morris, a former clerk to the late Chief Justice William Rehnquist, was appointed to the bench by President Obama.

…click on the above link to read the rest of the article…

The Real GHG trend: Oilsands among the most carbon intensive crudes in North AmericaOilsands at 50 Series – The Real Cost of Development, Part 1

The Real GHG trend: Oilsands among the most carbon intensive crudes in North America Oilsands at 50 Series – The Real Cost of Development, Part 1

The Oil-Climate Index suggests that the oilsands generate 2.2 times as many emissions per barrel than the average crude extracted in North America. Photo: Jennifer Grant

Over the past 50 years, the development of the oilsands has changed the face of Alberta, driving innovation and technology to make oilsands a reality. The oilsands are the third largest oil reserve on earth, and despite a cycle of boom and busts, contribute to the prosperity of the province. Industry, however, has not addressed many of the largest environmental impacts generated by the oilsands, and much work is still left to be done. This blog is part of a series where we look back at the last 50 years of the oilsands industry and shed light on a number of the remaining challenges. See Part 2 here and Part 3 here.

After 50 years of production, the oilsands remain among the world’s most carbon intensive large-scale crude oil operations. Studies continue to back this up. The Carnegie Endowment’s Oil-Climate Index suggests most oilsands crude is associated with 31 per cent more emissions than the average North-American crude from the point of extraction through its lifecycle to the point of end use (See Figure 1).

Figure 1. Emissions associated with the full lifecycle of a crude (from extraction to combustion) for a selection of crudes produced in North America

When looking at the carbon pollution associated with the extraction and processing, the Oil-Climate Index suggests that the oilsands generate 2.2 times as many emissions per barrel than the average crude extracted in North America (See Figure 2).

Figure 2. Emissions associated with the extraction and processing for a selection of crudes produced in North America

…click on the above link to read the rest of the article…

Five Things You Need to Know About the Cancellation of the Energy East Oilsands Pipeline

Five Things You Need to Know About the Cancellation of the Energy East Oilsands Pipeline

Alberta oilsands

Announced via press release on Thursday, the news confirmed long-held suspicions that the $15.7 billion, 4,500 km oilsands pipeline simply wouldn’t cut it in today’s economic context.

But that hasn’t stopped commentators on all sides from pouncing on the cancellation as proof of their political project. Conservative politicians have lambasted the federal Liberals for introducing carbon pricing and new rules on pipeline applications, while environmentalists have claimed the company’s decision was a direct result of their organizing.

DeSmog Canada is here to help wade through the mess. Here are five things you should know about the cancelled Alberta-to-New Brunswick pipeline.

1. Energy East was primarily for export

Perhaps the most lingering myth about Energy East was that it would be built to displace foreign oil imports in Eastern Canada.

In fact, that very notion was repeated by Alberta Premier Rachel Notley in her Facebook post about the cancellation: “We believe this nation-building project would have benefited all of Canada through new jobs, investment, energy security and the ability to displace oil being imported into Canada from overseas and the United States,” she wrote.

Except it’s never been true.

An application by TransCanada to the National Energy Board back in May 2016 indicated that it would ship an estimated 281 tankers per year of oil, equivalent to about 900,000 barrels per day. That’s more than 80 per cent of the pipeline’s planned 1.1 million barrel per day capacity, leaving around 200,000 barrels per day to be refined at New Brunswick’s Irving Oil refineries.

That’s far below the 736,000 barrels per day that TransCanada suggested is being imported from foreign countries due to a lack of a west-to-east pipeline. In addition, Irving Oil’s president suggested in 2016 that his company wouldn’t necessarily displace its use of cheaper barrels from Saudi Arabia with product from Alberta.

…click on the above link to read the rest of the article…

Royal Dutch Shell signs deals to sell oilsands assets

Royal Dutch Shell signs deals to sell oilsands assets

Anglo-Dutch energy giant shedding interests in Athabasca, Peace River and other leases

Royal Dutch Shell CEO Ben van Beurden said the deals revealed Thursday are are a 'significant step' in re-shaping Shell's portfolio in line with its long-term strategy.

Royal Dutch Shell CEO Ben van Beurden said the deals revealed Thursday are are a ‘significant step’ in re-shaping Shell’s portfolio in line with its long-term strategy. (AP Photo/Peter Dejong, File)

​Royal Dutch Shell says it has signed two agreements to sell its undeveloped oilsands interests in Canada for a net consideration of US$7.25 billion.

Under the first agreement, the Anglo-Dutch energy giant will reduce its 60 per cent interest in the the Athabasca Oil Sands Project to 10 per cent and sell its 100 per cent interest in the Peace River Complex in-situ assets, including Carmon Creek, and a number of undeveloped oilsands leases in Alberta to a subsidiary of Canadian Natural Resources Ltd.

Shell says it would remain the operator of the project’s Scotford upgrader and Quest carbon capture and storage project. Canadian Natural would be expected to operate Athabasca’s upstream mining assets.

Shell says the deal is worth approximately US$8.5 billion ($11.1 billion Cdn), comprised of $5.4 billion in cash plus around 98 million Canadian Natural shares currently valued at $3.1 billion.

Under the second agreement, which is also subject to regulatory approvals, Shell and Canadian Natural will jointly acquire and own Marathon Oil Canada Corp., which holds a 20 per cent interest in the Athabasca Oil Sands Project, for $1.25 billion each.

The transactions are expected to close in mid-2017, subject to regulatory approvals.

“These assets are an excellent fit for Canadian Natural, a highly experienced oil sands developer,” said Shell Canada president Michael Crothers in a release.

‘Significant step’

Shell CEO Ben van Beurden said the deals are a “significant step” in re-shaping Shell’s portfolio in line with its long-term strategy.

…click on the above link to read the rest of the article…

Wildfire Nears Canada’s Major Oil Sands Plants

Wildfire Nears Canada’s Major Oil Sands Plants

Alberta Wildfires

A massive wildfire raging through the northern part of Alberta has swelled in size and surged north of Fort McMurray, destroying an evacuated oil sands camp on Tuesday and it is projected to encroach on major facilities shortly.

The flames consumed a 665-room oil-sands work camp north of the city, the Blacksands Executive Lodge, Alberta Premier Rachel Notley said Tuesday. The lodge is owned by Horizon North Logistics Inc. of Calgary.

Image courtesy of Nairaland.com

Officials said Wednesday they expected the fire to move east towards plants owned by Suncor Energy (TSX:SU) and its Syncrude subsidiary, CBC News reports. They added that the operations themselves are unlikely to be damaged by the flames as they are well isolated by wide barriers of cleared firebreak and gravel, and are employing their own firefighting crews.

Image courtesy of Nairaland.com

By 6:00 am local time Wednesday, the fire had grown to approximately 422,898 hectares in size.

“It’s pretty significant growth,” provincial wildfire official Travis Fairweather said in a televised interview with CBC. “We’ve just been seeing really extreme fire conditions over the last couple of days. It’s been really burning intensely and the winds have been carrying it.”

The wildfire, which destroyed whole sections of Fort McMurray earlier this month, is also expected to reach the neighbouring province of Saskatchewan.

Image © Cameron Strandberg | Flickr CC by 2.0

So far, it has forced more than 88,000 people to leave the area, with about 8,000 of them evacuating Monday night as the resurgent fire shifted directions, posing fresh threats to oil sands complexes and worker camps.

…click on the above link to read the rest of the article…

Massive Fire Burns At Gateway Town To Alberta’s Oilsands; 30,000 Evacuated

Massive Fire Burns At Gateway Town To Alberta’s Oilsands; 30,000 Evacuated

Residents of neighborhoods in the Canadian boomtown of Fort McMurray – considered the gateway to Alberta’s oil sands as the Athabasca oil sands are roughly centered around the town – are under mandatory evacuation as a massive wildfire has jumped across Highway 63 and entered the city limits.  Homes have begun to burn in Fort McMurray as residents flee for safety from a blaze that’s doubled in size within a day.  More than 30,000 people have now been ordered to evacuate Fort McMurray communities.

The fire has already destroyed homes on the outskirts of the municipality. Bernie Schmitte, wildfire manager at Alberta Agriculture and Forestry said that the fire made a “major run” during the night and reached the Athabasca River. All Air Canada and WestJet flights to and from Fort McMurray have been cancelled

“My whole life is burning away,” Jenn Tremblett, who has left for Edmonton, told Metronews. “My home is in Gregoire (Fort McMurray neighbourhood) so it may be gone soon. “My family is trying to get out of town.” Tremblett said the community of Beacon Hill is on fire, after a nearby Shell gas station blew up.

Fire officials have extended the evacuation order to 10 communities in the city, including Beacon Hill, Abasand, Waterways, Draper, Saline Creek, Grayling Terrace, downtown, Thickwood, Wood Buffalo and Dickinsfield.

…click on the above link to read the rest of the article…

“It’s A Bloodbath” – Here Is The Biggest Casualty Of Canada’s Recession

“It’s A Bloodbath” – Here Is The Biggest Casualty Of Canada’s Recession

In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry, Calgary, as a result of the plunge in the price of oil, in posts such as the following:

Since then it has only gotten worse for Canada, and as of two it culminated with the first official recession in 7 years.

Additionally, in September we profiled the expected collapse of the Calgary commercial real estate market when we reported that in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America, with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch.

Overnight Bloomberg followed up on this stunning deterioration when it, too, reported that “office-tower owners in Canada’s energy hub are about to feel the full force of the oil-price crash.”

Using data from real estate brokers including Jones Lang LaSalle Inc. and Avison Young, Bloomberg calculates that vacancy is already at a five-year high in Calgary and rents are the lowest since 2006 after thousands of office jobs were cut. Energy company tenants have now begun to ask for rental relief and are offering subleases for as little as half the going rate.

The backlog is even worse: five new office towers with about 3.8 million square feet (353,031 square meters) of space hits the market in the next three years.

…click on the above link to read the rest of the article…

Keystone XL may be dead. The oilsands probably aren’t

Keystone XL may be dead. The oilsands probably aren’t

Low petroleum prices mean new projects are on pause, but existing production won’t disappear

The oilsands are producing more than two million barrels per day from long-term projects that are very difficult to shut in. The transport network is like a game of whack-a-mole: One access point is knocked down, others pop up.

The oilsands are producing more than two million barrels per day from long-term projects that are very difficult to shut in. The transport network is like a game of whack-a-mole: One access point is knocked down, others pop up. (Jeff McIntosh/Canadian Press)

There is some soul searching going on in the oilpatch this week in the aftermath of the U.S. rejection of Keystone XL. Would a carbon tax have changed things? A gentler hand with the politics? How much of the U.S. decision was connected to increases in their own domestic production?

What they aren’t asking is how to get oilsands product to market. Because it’s getting there, in ways both obvious and unexpected. The oilsands have lots of problems, like low prices and high costs. But right now, market access is pretty far down the list.

Mississippi River Oil Spill

Oil is even being floated on barges down the Mississippi, though this barge was hit by a tow boat in September. (The Associated Press)

A slow boat down the Mississippi

“There is sufficient capacity to move all our production,” said Greg Stringham, vice-president of oilsands and markets with Canadian Association of Petroleum Producers (CAPP). “There hasn’t been any production that has been shut in because of pipeline capacity.”

In the years since Keystone XL was first proposed in 2008, Canadian oil exports to the U.S. have increased by more than a million barrels a day. Rail has picked up some of that slack, maxing out at 165,000 barrels a day in 2014. It was around half that in the most recent quarter.

…click on the above link to read the rest of the article…

Transcanada Just Killed The Keystone XL Pipeline

Transcanada Just Killed The Keystone XL Pipeline

In an ironic twist, just hours after we discussed the record capital outflow from Canada, resulting from the plunge in oil prices and the mothballing of Canada’s energy industry, Obama’s long-desired goal of killing the Keystone XL pipeline has finally come true.

Moments ago, the WSJ reported that Alberta-based Transcanada asked to suspend its U.S. permit application, “throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections.”

Calgary, Alberta-based TransCanada Corp. sent a letter to the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska it had previously resisted.
“In order to allow time for certainty regarding the Nebraska route, TransCanada requests that the State Department pause in its review of the Presidential Permit application for Keystone XL,” the company said in the suspension request reviewed by The Wall Street Journal. “This will allow a decision on the Permit to be made later based on certainty with respect to the route of the pipeline.”

The WSJ correctly notes that “the move comes in the face of an expected rejection by the Obama administration and low oil prices that are sapping business interests in Canada’s oil reserves.” Clearly the former was never an issue before, however the collapse in oil prices and the resultant plunge in CapEx spending means that the pipeline no longer made much economic sense.

Canadian Election: A Study in Values

Canadian Election: A Study in Values

Those who work on climate change were both chuffed and chagrined by its role in Canada’s federal election campaign, which peaked last week with the victory of Liberal leader Justin Trudeau and defeat of Conservative incumbent Stephen Harper.

“The environment” – a catch-all concept that often encompasses concern about climate change – consistently ranked close to economy and healthcare on voters’ list of top priorities. Oilsands and climate change issues took up nearly a quarter of the first leaders debate, commanding more than twice the airtime they did in 2011. Several media outlets ran editorials calling on all parties to take a strong stance on reducing GHG emissions or put a price on carbon. To quote professor and commentator George Hoberg, “energy and environmental issues have become central to Canadian electoral politics.”

Despite all of this, climate change didn’t have a significant impact on the election’s outcome. Fundamentally this was a campaign about values where action on global warming was bundled into a broader set of aspirations and ideas that Canadians said yes to last Monday.

The election of Canada’s new prime minister is an important case study in the powerful potential of values-based messaging. Where the Conservative campaign sought to preserve the status quo and motivate voters with threats of an unstable or unsafe future, the Liberal campaign (and to a different extent, the New Democrats) mobilized Canadians with a vision of change centred on honesty, inclusion and fairness.

Of course, the timing couldn’t have been better. Much has been said about why Canadians’ were ready to bid farewell to one of their longer-standing leaders – corruption, fiscal mismanagement, deepening degrees of intolerance and an overt contempt for basic democratic principles being among them.

…click on the above link to read the rest of the article…

Explosion At Syncrude’s Mildred Lake Site, All Workers Are Safe

Explosion At Syncrude’s Mildred Lake Site, All Workers Are Safe

FORT MCMURRAY, Alta. — An explosion at a Syncrude oilsands processing site near Fort McMurray has interrupted operations at the facility.

Ryan Bartlett with the Alberta Energy Regulator says the blast happened early Saturday morning at Syncrude’s Mildred Lake site.

Bartlett says in an email that the company reports that all workers are safe, no product has been released and no offsite odours have been detected.

Syncrude spokesman Will Gibson says a fire broke out at the Mildred Lake Base Plant’s upgrading complex and was extinguished by Syncrude firefighters.

Gibson says there’s no word on what caused the incident, nor is there an estimate on how much damage has been done.

He says only Syncrude employees are being allowed onto the base plant site on Saturday, and the company is asking its contractors to be patient while it responds to the incident.

“Part of that response will be a thorough investigation and we will release further information when it’s available. The safety of the people at our site is our top priority,” Gibson said.

Bartlett said in his email that there have been no impacts to wildlife or water bodies.

Gibson said air quality at the site is monitored carefully and that there haven’t been any concerns.

He said production has been affected but that it’s too soon to say how seriously. Such information, he said would come from Syncrude’s owners.

“It’s too soon to tell how this is going to impact our production,” Gibson said. “Other parts of our operation are continuing. It’s a very big site up here.”

 

Oilsands companies feel the pain as Canadian oil price falls

Oilsands companies feel the pain as Canadian oil price falls

Alberta companies at break-even point or losing money as heavy crude sinks below $24 US a barrel

A drop in Canadian oil prices this week means companies in Alberta’s oilsands are breaking even or losing money on their operations.

Currently, oilsands companies are receiving about half as much money for oil compared to elsewhere in North America. That’s making it difficult for companies to cover their production and transportation expenses.

The value of oil from Alberta has dropped by 50 per cent since June.

“At today’s prices, the typical producer is just able to cover those variable costs; many producers are above the typical level and they would be losing money for each barrel that they produce, if they are selling at the spot price today,” said Jackie Forrest, a vice-president with ARC Financial, who monitors trends in the Canadian oil and gas industry.

Companies still have other costs to cover such as royalties and debt payments.

A double whammy has driven down Canadian prices since the beginning of July: North American prices have dropped and heavy oil from Canada has fallen further because of increased supply and the closure of refineries and pipelines.

This week, BP shut down one of its refineries for heavy crude. The facility in Whiting, Ind., may need one month to repair. Meanwhile, Enbridge shut down both its Line 55 Spearhead pipeline and nearby Line 59 Flanagan South pipeline, following a crude oil leak in Missouri on Tuesday.

“You have a bunch of demand for Canadian heavy crude that is gone, but it will resolve itself,” said Martin Pelletier with TriVest Wealth, which operates a Canadian energy investment fund.

Pelletier said the markets have been in flux with “selling across the board and panic and fear.”

 

…click on the above link to read the rest of the article…

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