Canadian oil industry bullish as prices rebound

Canada’s oil and gas industry is increasingly optimistic about its near-term future as economies recover and oil prices recover. Yet the industry faces growing challenges in the medium to long term, primarily in the form of the never-ending battle over pipeline carrying capacity and the environmental and activist emergency of shareholders to hold the oil industry accountable. of climate change. With the American reference WTI Prize Gathering this year, Canada’s largest oil companies expect more cash flow generation, which would reduce debt and increase shareholder returns. A year after the pandemic forced operators to cut oil production, production in the main oil-producing province of Alberta has returned to pre-crisis levels.

The reopening to Canada and its main oil export market, the United States, increases Canadian oil production, leaving companies confident about their short-term prospects. In addition, government and analyst estimates point to an increase in oil production in the medium term.

As bright as the short-term outlook for the Canadian oil industry is, as uncertain as it has become in the long term, in light of the ongoing pipeline problem, the global push to cut emissions and the shame of Climate activists with regard to carbon-intensive emissions from crude mining like Canada’s tar sands.

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In the short term, as economies recover from the pandemic, Canada’s energy sector is “a bit of a golden loop scenario where demand is increasing, despite what we have heard about electric vehicles and wind power. and solar: all of this is increasing, but not at a rate to replace the need for diesel and gasoline, ”said Rob Lauzon, deputy director of investments at Middlefield Capital. Bloomberg in an interview this week.

Oil’s rally to $ 70 pushed up the stock prices of Canada’s largest companies, helping the S & P / TSX Composite Index, the benchmark of the Toronto Stock Exchange, to rise. reached a record level. The index set new records at the start of the week.

Crude production in the major oil province of Alberta averaged 3.62 million barrels per day (bpd) in March. This is an increase of 1.2% from March 2020 and 4.4% from March 2019 – the best March on record, ATB Economics mentionned last month.

Despite the challenges in terms of pipeline access and OPEC + essentially dictating the price of oil right now, “Things are looking up for the Alberta oil zone as global demand rebounds from the pandemic,” ATB Economics said.

“We’re extremely excited about it and it’s probably ahead of our expectations by two to three years. We thought we would get $ 60, not $ 70, ”said Ed LaFehr, CEO of Baytex Energy. Calgary Heraldis Chris Varcoe this week.

Meanwhile, the Conference Board of Canada waits the recovery of the oil and gas industry to place Alberta ahead of Canadian provinces in economic recovery this year and next.

While industry and analysts are optimistic about Canada’s near-term oil outlook, the problem of pipeline transport capacity is once again looming around the corner, as the global net zero emissions campaign presents a challenge for the sector convince investors that it can both reduce its emissions and continue to have an “operating permit” in the decades to come.

Major companies, including Cenovus Energy, Suncor Energy and Canadian Natural Resources, have already pledged to reduce their emissions to zero by 2050.

Canada’s tar sands, however, have the heaviest CO2 footprint of oil operations in the world, according to a Rystad Energy Analysis earlier this year.

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Larger companies recently said they would focus on reducing emissions. They believe technology will help them achieve this.

“Canadian Natural has multiple pathways to achieve net zero with identified short, medium and long term actions and the strength of Canadian oil sands mining assets is that with its long life without decline and with its manufacturing operation. , he may have one. the clearest roads, if not the clearest road to achieving net zero of any global asset, ”Tim McKay, President of Canadian Natural Resources. mentionned during a call for results in March.

In addition to promises to reduce emissions, Canadian oil producers and the province of Alberta have another argument for investors: Canada has a target of net zero emissions until 2050, unlike major OPEC producers. .

In addition, Canada is one of the largest oil producers in the world not associated with the pricing policies of the OPEC + group. Alberta sees this as an advantage for the Canadian energy sector as a global supplier of resources from a democracy with a market economy.

In October 2020, Alberta Premier Jason Kenney mentionned:

“The developing world is hungry for our energy. And if we don’t get that energy, including our natural gas, to global markets, guess what? Vladimir Putin’s Russia and the OPEC dictatorships will.

By Tsvetana Paraskova for OilUSD

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