Monday, February 26

Canada plans to boost oil exports five per cent to ease energy supply crisis


Enbridge, North America’s largest pipeline company, confirms it has been in talks with governments

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Natural Resources Minister Jonathan Wilkinson says his government has assured European allies that Canadian energy producers will be able to boost crude oil exports by around five per cent this year to help ease tight oil markets rocked by Russia’s invasion of Ukraine — but the increase won’t come at the expense of Canada’s climate goals.

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Wilkinson made the announcement March 24 following a second day of meetings at the International Energy Agency’s (IEA) annual ministerial gathering in Paris. He said Canadian industry has the pipeline and production capacity to incrementally increase oil and gas exports this year by 300,000 barrels per day (bpd) — comprising 200,000 bpd of oil and 100,000 barrels of oil equivalent per day in natural gas.

“Canada wants to help our European friends and allies at a time of crisis,” Wilkinson said. “But of course we are looking to be sensitive to, and consistent with, the commitments we’ve made with respect to climate change. Climate change is not going away. It is an existential threat to the world.”

Added Wilkinson: “We can be part of actually helping them in the short term and we can be part of actually helping them to accelerate the transition to a green future where we all want and need to go.”

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The increase in exports will come from a mix of oilsands and conventional crude sources, Wilkinson said. Canada currently exports around four million bpd of oil to the US, a portion of which is then re-exported overseas.

The additional volumes will come from producers who already intended to ramp up production, but who have indicated they will accelerate those efforts this year, Wilkinson clarified.

Wilkinson acknowledged the increase in exports represents a relatively small displacement of Russian oil and gas, but said the move in conjunction with efforts in Brazil and the United States would begin to address Europe’s energy requirements. “It will take time to fully move away from Russian oil and gas for some of these countries like Germany that are quite heavily dependent, so any additional amounts can help to start that process,” he said.

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Prime Minister Justin Trudeau said March 23 that a joint Canada-EU working group will be struck to increase co-operation between governments on energy security and the transition to net-zero. Wilkinson elaborated, saying that one of the key issues that will be discussed is the potential for Europe to import Canadian LNG or low-carbon hydrogen in the future.

Canada also announced that it will provide $8 million for the IEA’s Clean Energy Transition Programme, to help emerging economies develop clean energy.

Discussions between governments and industry about the security of energy supplies have ramped up in recent weeks as Moscow has faced crippling economic sanctions and global importers have come under increasing pressure to stop trading in Russian oil and gas. The IEA said Wednesday that oil markets could lose three million barrels per day (bpd) of Russian crude and refined products from April.

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Reacting to Ottawa’s announcement, Alberta Energy Minister Sonya Savage said Canada could “do a lot better” than 200,000 bpd of crude oil, but the federal government would have to allow provinces to manage their own natural resources.

“We can increase production if we can get more infrastructure built and I think that’s what was missing in the conversation,” Savage said. “It’s really not ambitious to talk about a short term potential of 200,000 barrels when we sit on top of the third largest reserves in the world.”

Savage said pipeline and rail export capacity could support a short-term increase of up to 400,000 bpd. But further investments in Canadian energy infrastructure, including pipelines and export facilities, could see exports grow by one to 1.5 million barrels per day in the long term “We could be a lot more ambitious,” said Savage.

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Since Russia’s invasion of Ukraine one month ago, Canadian energy firms have been approached by governments seeking potential solutions to the crisis.

North America’s largest pipeline company, Calgary-based Enbridge Inc., confirmed March 23 that it has been in talks with governments.

“At the moment, both our liquids and natural gas systems are at or near capacity but we’re exploring options that may be taken to provide more energy throughout North America and Europe,” the company said in a statement to the Financial Post. “ That includes using export facilities on the Gulf Coast for crude and natural gas.”

North American producers have so far been reluctant to increase output after years of pressure from investors to avoid costly expansion projects. A shortage of workers and equipment has also made it difficult for companies to ramp up production. And, in Canada, infrastructure constraints remain a barriers to increasing oil and gas exports.

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“There’s not much more we can do right now,” said Peter Tertzakian, managing director of ARC Financial, in an interview this week. “We can’t do very much other than supply more oil to the US, and, indirectly, the US can export more to Europe. It’s an indirect contribution.

“Our conventional oil and gas is basically level and is difficult to grow. Oilsands are not building any more facilities. There’s mild increases in production across the board, but not very much.”

In its statement, Enbridge said recent events have been a reminder that Canada has a role to play in improving energy security.

“We produce the most ESG-friendly energy in the world and we are committed to doing what we can to help stabilize the energy supply the world requires,” the company said.

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The war in Ukraine has exacerbated existing global problems around limited output capacity.

Top OPEC+ producers Saudi Arabia and United Arab Emirates, which are rare among global producers in having surplus capacity, are not fully opening their taps and the IEA does not expect output increases from Canada, the US and others to eliminate global undersupply.

The world is set for a supply deficit of 700,000 bpd in the second quarter of 2022, the IEA said.

Storage levels in OECD countries in January stood at their lowest levels since April 2014, it said.

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financialpost.com