Until very recently, nearly any news out of the Canadian oil sands was certain to be a tale of woe. While Alberta’s oil and gas industry didn’t suffer from lack of demand nor lack of supply, a major pipeline shortage left the industry unable to connect the two. This deficit in transportation infrastructure led to a glut in oil supply, which forced Canadian oil companies to sell their oil at a severe discount. All of this has caused the Canadian oil industry to lose tens of billions of profits per year. But the worst was yet to come. Back in what some are now calling “Black April,” when the West Texas Crude intermediate benchmark famously plunged below zero for the first time in history, ending April 20th at nearly negative 40 dollars, Canadian oil actually dipped below zero hours before its neighbors to the south.
Unlike in the United States Permian Basin, however, where the pain just keeps coming, it looks like Canadian oil is finally set to turn a new page. In recent weeks and months, news out of the oil sands has changed its tune, and the prognosis for the faltering industry is now one of cautious optimism. According to projections by BMO Capital Markets, Canadian oil prices are set to rise during 2021 thanks to a decrease in competition in crude supply to refineries on the United States Gulf Coast.
Mexican heavy crude exports are down, opening up the market for Canada’s own heavy oil. “Oil sands producers will benefit from less output of competing crude from Latin America as Petroleos Mexicanos expects to cut exports while Venezuelan supplies remain off-limits due to U.S. sanctions,” Bloomerg reported back in October. Pemex, the Mexican state-owned oil company, “ is forecasting a reduction of almost 70% in exports of its flagship heavy crude between 2021 and 2023.”
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But that’s not the only good news for Alberta. In addition to this boon for Canadian oil, Wall Street is also warming up to the oil sands. “Morgan Stanley and Goldman Sachs Group Inc. are the latest firms to point out the industry’s ability to generate healthy cash flow next year as a reason to buy stocks like Suncor Energy Inc., Canadian Natural Resources Ltd., and MEG Energy Corp. That follows similar reports from BofA Securities and BMO Capital Markets,” World Oil reports.
While all of this bodes well for the long-suffering Canadian oil and gas industry, however, there are still some considerable obstacles for the sector. Perhaps the most considerable of these hurdles is the extreme dirtiness of the oil sands’ naturally occurring heavy crude bitumen. This thick, sludgy form of crude oil comes at a huge environmental cost. At a time that the world is leaning more heavily than ever into a global clean energy transition, this could be a major liability for Canada, especially if the country delivers on and enforces polluter pays principles.
A new study, however, shows that Canada is already making progress in bringing down the carbon footprint of the Albertan oil and gas industry. Using internal company data from three Albertan oil sands operations, researchers from the University of Calgary, University of Toronto and Stanford University found that these companies’ greenhouse gas emissions are on the decline. “Current emissions at the three sites are 14 percent to 35 percent lower than reported in previous studies,” The Globe and Mail reported last week, and “new technologies could further decrease those upstream emissions by 14 percent to 19 percent compared with current technology.
That being said, the oil sands’ ecological footprint will have to continue to diminish, and to do so at a brisk pace, if Canada has any hope of meeting the nation’s goal of reaching net-zero emissions by 2050. This study is therefore not an exoneration or a permission slip for increasing extraction, but an indication that Canada needs to double down on its decarbonization process.
By Haley Zaremba for Oilprice.com
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