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Vol. 23, No.25 Week of June 24, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Looking beyond US

Canadian governments, industry, turn attention to more pipelines amid trade spat

Gary Park

for Petroleum News

A U.S.-Canada trade fight being spearheaded by unparalleled hostility between President Donald Trump and Prime Minister Justin Trudeau has prompted talk of new pipelines in Canada to unlock Alberta’s oil sands by opening routes to new crude oil markets beyond North America.

Spurring that debate is a new forecast by the Canadian Association of Petroleum Producers that Canadian crude output should grow by 33 percent from 2017 levels to 5.6 million barrels per day in 2035.

Eager to take advantage of global oil prices and lower Canada’s dependence on the U.S. for its exports, Alberta Premier Rachel Notley appealed to all Canadians to support the Trans Mountain pipeline expansion and “diversify our markets,” indirectly pointing to the 1.1 million bpd Energy East project that was shelved last year by TransCanada.

Speaking to a business audience in Calgary, she suggested the Trans Mountain project could be a vital bulwark against Trump’s imposition of tariffs on steel and aluminum from Canada, Mexico and the European Union, to which Canada retaliated with a bundle of dollar-for-dollar counter-tariffs on a variety of imports from the U.S.

G7 summit

That led to a series of scathing and bitter exchanges at the G7 summit in Quebec, with Trump accusing Trudeau of being a “weak” leader, culminating with Trump trade adviser Peter Navarro suggesting there is a “special place in hell” for leaders like Trudeau.

In the process, Trump has warned he is prepared to widen the trade war to curb auto imports from Canada, currently estimated at C$62 billion a year, ignoring the fact that the U.S. currently enjoys an overall trade surplus with Canada.

Notley said these events have made the U.S. status as a “monopoly buyer” of Canadian energy “harder and harder to stomach.”

“If the last days and weeks tell us anything, it’s that we, as Canadians, need to take control of our economy density. That means being strategic with our resources, our wealth and our energy security,” she said.

“We simply must diversify our markets and build our independence accordingly. It has never been more important for Canada to get a Canadian pipeline built to a Canadian coast.”

Trudeau on markets

Trudeau echoed Notley’s views, saying that a pipeline to open new markets is “something we can all agree is probably a good idea,” while Trudeau’s Natural Resources Minister Jim Carr said the strained relationship with the Trump White House underscores the importance of having “more than one customer for our main natural resource.”

Alberta Economic Development and Trade Minister Deron Bilous said the trade hostility with Trump puts more pressure on Trudeau to “engage with China on free-trade talks because there is such significant potential in that market. (Because of the dispute) Canadians in general are ... acutely aware that we need to do more to expand our markets.”

He said Canada “can’t be pushed around (by Trump’s threats). It’s unfortunate a trade war starts to escalate like this ... our hope is that cooler heads will prevail.”

CAPP report

The sense of urgency is captured in the CAPP report that emphasizes the need for Canada to become more competitive and build more pipelines if it wants to get that additional oil to market.

“We don’t build freeways for traffic jams, we build them to have efficient flow of traffic,” CAPP President Tim McMillan told reporters. “We should be looking at (ways) to reach the most profitable markets in the most efficient way possible and build the infrastructure to meet that need.”

Of the projected output of 5.6 million bpd, 4.2 million bpd is estimated to come from the oil sands (up 1.5 million bpd from today), while conventional output in Western Canada is forecast to remain static at 1.33 million bpd, leaving offshore Newfoundland to contribute 220,000 bpd.

The greatest prospect for growth is identified as the Montney and Duvernay formations in northern Alberta and British Columbia, which are expected to add 500,000 bpd of pentanes and condensates by 2026.

Negative impact

CAPP warned that the struggle to get major pipelines built, Canada’s regulatory policies and uncertainty related to provincial and federal climate change policies, as well as a series of cancelled projects, have had a negative impact on investor confidence.

McMillan said Canada needs the Trans Mountain expansion, Enbridge’s Line 3 into the U.S. and TransCanada’s Keystone XL to the Texas Gulf Coast if it wants to succeed as a global supplier.

“The U.S. has growing supplies (to the point) where they are self-sufficient in gas already and is looking to become self-sufficient in oil in the next decade,” he said. “Today, Canada has only one customer for crude oil (beyond its domestic market) and growing markets around the world want Canadian product, so there’s just a natural incentive for us to be building to new markets.”

But the loss of foreign investors is the biggest concern, with David McKay, chief executive officer of the Royal Bank of Canada, fretting that investment is flowing out Canada’s energy and clean-technology sectors “in real time,” while tax and regulatory changes are making the U.S. more competitive.

Peter Tertzakian, chief energy economist at Calgary-based ARC Financial, wrote in the Financial Post that Canada’s oil and gas industry, rated as the world’s fifth largest, “ranks high on many performance dimensions, including corporate governance, transparency, environmental stringency and innovations. All these qualities are desirable amidst an unstable Middle East, a wily Russia and an oil-addicted world (which needs 100 million bpd) to achieve any sense of sustainability.”

He said Berlin-based Transparency International gives Canada top marks for low corruption, placing Canada behind only Norway among 28 oil-production countries that meet 90 percent of the world’s demand, while facing extreme pressure to “divest from, entrap and shut down production,” at the same time those consumers give a “thumbs up to suppliers that bear the least accountability or respect for the planet.”



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