Canadian oil eh? Is the Canadian Oil Patch Nightmare Over?

Is the Canadian Oil Patch Nightmare Over?

Last year, the lack of adequate pipeline and rail export capacity to handle growing oil output drove the discount for Canadian oil prices from those in the U.S. prices to nearly $52 per barrel.  The discount drove Canadian wellhead prices below $10 per barrel, well below breakeven levels, and cost the industry and the Alberta province billions in revenues.  For the province, the impact was both from lost royalties along with smaller corporate income tax collections. 

The oil export cap resulted from years of conflict between Alberta and its neighbor to the west, British Columbia, but equally due to the province’s conflict with the federal government’s environmental policies.  The root of opposition to new pipelines was the green agendas in rising in BC and Ottawa, which are predicated on the desire to eliminate fossil fuel use.  Although BC has a meaningful oil and gas business, the industry dominates Alberta’s economy, and the downturn has taken a toll on company finances, forcing the termination of thousands of white collar and field work jobs, while depressing share prices. 

The political landscape for energy began changing with the 2013 BC election that brought a Liberal leadership antagonistic to fossil fuels to power.  That opposition became more extreme four years later with the election of a minority New Democratic Party, which gained political control with the support of the Green Party.  The minority government embraced a more extreme anti-fossil fuel platform, including fighting the construction of any new energy pipeline and export facility. 

In 2015, Alberta elected the New Democratic Party with a philosophy of limiting consumption of oil and gas, as well as developing new industry infrastructure.  The NDP struggled with its policies, as it recognized that energy remains the economic lifeblood of Alberta.  The BC and Alberta energy battles were intensified with the 2015 federal election that installed the Liberal Party, headed by Prime Minister Justin Trudeau, with its anti-fossil fuel agenda. 

The political landscape has begun shifting with the Conservative victory in this year’s Alberta election.  The new leadership promised to dismantle the NDP energy policies, and is in the early stages of doing so.  The energy battleground may be shifting.  The BC Court of Appeal ruled last week that the province cannot implement proposed restrictions on new pipelines crossing the province as that would usurp the legal regulatory power of the National Energy Board, charged with regulating all new pipelines in Canada.  The ruling will likely be appealed to Canada’s supreme court, but the twinning of the Trans Mountain Pipeline can now move forward. 

Another surprising development is the proposal by national Green Party leader Elizabeth May to get Canada off fossil fuels by 2050, but in the interim it should stop importing oil and rely totally on domestic output.  Complete Canadian energy independence is impossible without the construction of TransCanada’s Energy East pipeline, which was killed by political opposition in Ontario and other eastern provinces, to haul Alberta oil to Eastern Canada. 

Alberta’s election results, the BC court ruling, the Green Party’s proposal to rely on domestic oil, and Prime Minister Trudeau trailing in his re-election bid this fall are all signs of the public’s rejection of the extreme anti-fossil fuel political agendas that had swept the country.  Energy executives are heartened by these developments, but realize the industry’s all-clear signal has yet to be sounded.  For an energy industry beset by five years of despair, any green shoots of relief are welcomed, but not yet sufficient to stimulate increased activity.  Maybe 2020 will be the year of industry recovery. 

 

 

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Montney Play Output to Hit 20Bcfe Per Day

 

Total production in Canada’s Montney play will likely reach 10 billion cubic feet equivalent per day (Bcfe/d) this year, according to Wood Mackenzie (WoodMac).

WoodMac, which highlighted that the figure would mark an increase of 16 percent from 2018, added that output from the play is forecasted to rise to 20 Bcfe/d by 2030.

Much of the forecasted growth is being driven by the rising liquids yield across various sub-plays within Montney, according to WoodMac, which said liquids production is expected to increase by 26 percent in 2019.

"Montney specialists have made major headway on improving completion design and are being rewarded with operational performance. Liquids is driving the story,” Nathan Nemeth, senior analyst at WoodMac, said in a company statement.

WoodMac highlighted that drilling activity from 2010-2014 was led by operators with LNG export aspirations. The company added that from 2015, activity has been led by operators targeting natural gas liquids, specifically condensate. The remaining value of the play is estimated to be over $48.3 billion (C$65 billion).

The Montney formation is roughly located in northeast British Columbia, south of Fort Nelson and spread into northwest Alberta past Grande Prairie.

The potential for unconventional petroleum in the Montney formation is estimated to be “very large” with expected volumes of 449 trillion cubic feet of marketable natural gas, 14.5 billion barrels of marketable natural gas liquids and 1.1 billion barrels of marketable oil, according to Canada’s National Energy Board.

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Alberta oil sands is very profitable at current prices. We are doing fine, other then the fact that pipeline capacity is tapped out and there is no possibility of increasing production. Suncor fort hills came online adding 300,000 barrels of production while the pipelines needed to ship the extra capacity were boondoggled and not completed so now alberta has surplus capacity. The barrels that have come offline are mostly from central alberta conventional drilling and oil sands production has bumped conventional oil off the pipelines. The alberta NDP enforced mandatory production cuts last year to clear up the pipeline bottlenecks and this took crude by rail offline and storage tanks stayed full. The companies cutting  their production shut in conventional wells and SAGD production. Again oil sands production is still producing at full capacity. 

 

Every effort to shut in oil sands is failing. The  intended target remains while the collateral damage Is conventional drilling being shut in and rail going offline.

Saudi is not the only swing producer. Alberta is sitting on 2 million barrels of spare capacity. The infastructure is built except pipelines. 

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19 minutes ago, Keith boyd said:

Alberta oil sands is very profitable at current prices. We are doing fine, other then the fact that pipeline capacity is tapped out and there is no possibility of increasing production. Suncor fort hills came online adding 300,000 barrels of production while the pipelines needed to ship the extra capacity were boondoggled and not completed so now alberta has surplus capacity. The barrels that have come offline are mostly from central alberta conventional drilling and oil sands production has bumped conventional oil off the pipelines. The alberta NDP enforced mandatory production cuts last year to clear up the pipeline bottlenecks and this took crude by rail offline and storage tanks stayed full. The companies cutting  their production shut in conventional wells and SAGD production. Again oil sands production is still producing at full capacity. 

 

Every effort to shut in oil sands is failing. The  intended target remains while the collateral damage Is conventional drilling being shut in and rail going offline.

Saudi is not the only swing producer. Alberta is sitting on 2 million barrels of spare capacity. The infastructure is built except pipelines. 

If that (or when) that works out it will be great, but pipelines are part of the infrastructure essential to get the oil to the coast so it has value then.

In the mean time, any Canadian barrels I can get my hands on, I will take, very specific purpose.

 

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I forgot to add, suncor never sold a single barrel for $10. Most of their bitumen is upgraded and sold at a premium and a lot of that is used as feedstock for canadian refineries. The rest is sold by contract at a locked in price. The $10 barrels were  stranded distressed barrels  in hardisty storage tanks with no where to go and more on the way.  reverse bidding wars started to get the oil out of alberta. SAGD producers can not shut down their wells, if they do it takes months to heat them up again and get the bitumen flowing. They would rather give it away then shut in their steam injection.  If anything suncor and enbridge were playing with their storage tank levels and buying crude from other players for $10 and storing it then selling it per their contracts for full contract price. This is why CNRL came out saying that some players were gaming the system and taking advantage. They were using their abundant storage capacity to price  flip stranded oil.  

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