According to analysts, the highest oil prices in seven years will drive drilling, investment and employment in Canada’s energy sector, but not as much as in the last few years.
West Texas Intermediate (WTI) oil prices will exceed US $ 79.10 per barrel on October 5, and some analysts expect prices to rise further. According to the ARC Energy Institute, the last price was so high in 2014, when 11,222 oil and gas wells were drilled in Canada. Still, ARC expects only 4,247 wells to be drilled this year.
Richard Masson, Executive Fellow of the University of Calgary’s School of Public Policy, said the hesitation was due to several factors.
In an interview, Masson said, “Everyone was afraid of being stupid when prices really plunged last year, so I longed to make a promise until prices were solid for a while and found to be reliable. I haven’t. “
The average WTI oil price in 2020 was US $ 39.16 a barrel, the lowest nominal dollar since 2003. From 2011 to 2016, the sector reinvested more money in drilling and oil sands development than after-tax revenue. This year, ARC expects to reinvest 37% of its record $ 77.6 billion in after-tax cash flow.
“Both Wall Street and Bay Street are the majority of the opinion that businesses shouldn’t start spending a lot of money on production. Instead, they should return this surplus to investors. And that’s happening a lot now, “Masson said.
“If you can’t bring oil to market effectively, it doesn’t make much sense to drill new oil, and until October 1, when Line 3 started, there wasn’t much new pipeline capacity for a long time.”
Line 3, which has been in operation since 1968, sends oil from Hardisty, Alberta to Superior, Wisconsin. Embridge began replacing the entire line in 2017 and is now able to deliver 760,000 barrels of crude oil per day, an increase of 370,000 barrels from the previous line.
Kevin Birn, vice president and analyst at IHS Markit, said improving pipeline capacity would reduce oil price volatility in Alberta, giving it an investment advantage. Still, promoting net-zero emissions undermines investor enthusiasm, he said.
“”[What] Delays in pipeline infrastructure ultimately contributed to greater price volatility in Western Canada than in other cases, “Barn told The Epoch Times.
“”[Oil companies] See multiple scenarios [oil production] You need to reach the peak. To achieve net zero, we need to lower it. This is what many countries now want. … Therefore, they are increasingly discounting the future potential of these companies, which also diminishes their interest in investing. “
Birn added that drilling is now higher than before, but “not in line with historical standards.”
As foreign companies sold to oil sands, oil sands became increasingly owned by Canada. In March of this year, Calgary-based Centovus Energy Inc. Has acquired Husky Energy Inc. This is one of the reasons why Calgary’s office space has the highest vacancy rate of 30%, almost double the Canadian average and more than 21% in Edmonton.
“If you have two companies, you have one and you don’t need the same level of governance, accounting, and oversight,” Birn said.
“It definitely leads to consolidation and head office reduction. That is, the number of EMP teams, the number of geologists, and the number of captains are not the same.”
According to Byrne, Western Canada’s energy sector can now focus on optimizing its business and profits and enjoy its accumulated capabilities.
“The challenge for oil sands is to build something like this. That’s what we’ve experienced in this building cycle. But what we’re currently working on is a very large scale that can be run for a long time. It is based on installed assets and is very competitive with other sources around the world, “he said.
“Rising oil prices have a very positive effect, and certainly it depicts a significant increase in income in Alberta,” he adds.
Byrne believes that employment and investment will improve, though not as much as when prices were so high.
Masson agrees.
“We have a lot of money to make, so the company will start hiring again,” he said.
“The world needs more oil. We can see it [WTI] The price is almost $ 80. So it will come, but probably not like a big wave like a big boom. “
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Lee Harding is a Saskatchewan-based journalist and think tank researcher and contributor to The Epoch Times.