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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Oil Investment In Canada To Drop Despite Rallying Prices

Canada has the world’s third-largest crude oil reserves, but the country seems determined to pretty literally keep these in the ground. This determination becomes strikingly obvious when Canada is compared with its southern neighbor, which is just what Bloomberg’s Robert Tuttle and Kevin Orland did in a recent story.

In the United States, they write, the number of oil and gas rigs are increasing—currently at its highest level since 2015, the height of the oil price crisis. In Canada, on the other hand, there has been an exodus of oil majors including Shell, ConocoPhillips, and Equinor, among others.

In the United States, capex in the oil industry is forecast by an Oil and Gas Journal poll to rise by 9.1 percent to US$132.5 billion this year alone. In Canada, total oil investment is seen falling by 2 percent to US$30.11 billion (C$40.1 billion).

Of course, there is a clear difference between the energy policies that the two neighbors’ governments are pursuing. Washington is all about energy independence, even energy dominance. Trump’s administration has been working consistently towards ensuring the best possible investment climate for oil and gas producers, much to the chagrin of environmentalists and the renewable energy industry.

Ottawa, conversely, has been clearly in favor of what might very loosely be called the green lobby. This has proven a challenge recently, as the federal government had to step in and buy the Trans Mountain pipeline expansion project from Kinder Morgan after the company refused to move forward with it in the face of strong provincial government opposition from British Columbia. Despite this move, caused as much by desperation as by any desire to have the pipeline built, Ottawa has on the whole been playing against oil.

Industry insiders interviewed by Bloomberg’s Tuttle and Orland note the regulatory regime that is slowing down investments, dampening the willingness of companies to do business in Canada. The average well-licensing procedure in Canada takes between 79 and 119 days. This compares with just 30 to 60 days for a well in Texas.

In the United States, the government last December approved a tax system overhaul that will see oil and gas producers—like every other industry—pay lower corporate taxes. In Canada, nobody is trying to make it easier for oil and gas producers to, well, produce. Taxes—federal and provincial—remain high.

There is also the question of infrastructure. Despite major opposition to two large-scale projects, pipelines are getting built in the United States. In Canada, one might think that oil pipelines are the ultimate evil for humanity. As a result, Canadian producers are struggling to sell their crude to U.S. refineries to turn in some kind of profit, instead remaining locked out of international markets.

Related: Tehran: Taking Iran’s Oil Out Of The Market Is ‘Impossible’

In fact, the picture in Canada is so grim that Canadian oil and gas drillers are moving their rigs to the United States in response to greater demand for their service there and an investment climate at home that is, according to industry insiders, only making their lives harder. “We are kind of dying by our own sword,” the CEO of the Petroleum Services Association of Canada told Bloomberg. With the wholehearted support of the government, one might add.

Even so, Canada’s oil production will continue to grow, reaching 5.6 million bpd in 2035. That’s 1.4 million bpd more than the country produces now, and this increase will be achieved in 17 years. In comparison, the United States boosted its overall production by more than a million barrels daily since the start of this year alone. While it’s true that the geology of shale oil is vastly different from oil sands, favorable regulation and available infrastructure must have helped, too.

By Irina Slav for Oilprice.com

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  • Trident on June 28 2018 said:
    Socialist governments are unstable. Canada is on the Venezuela path.

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