Canada's oil producers have been struggling to grow for years. Lack of export routes outside the United States and pressure from the government and regulators have combined to stifle any serious growth ambitions in the oil sands.
All this changed earlier this month as oil prices soared to over $100 and the U.S. ban on Russian oil imports automatically triggered a surge in demand for heavy Canadian crude.
Bloomberg reported this week that demand for drilling rigs in Canada has jumped to the highest in years. Before the pandemic, Canadian drillers were moving south of the border because that's where the demand for their services was growing. Now, one industry insider expects the drilling season to start earlier this summer.
"This is certainly more activity than we were expecting even three weeks ago," Kevin Neveu, chief executive of Precision Drilling Corp., told Bloomberg.
The report mentions two oil producers in Canada that have plans to boost production, noting that both are relatively small players in conventional oil and gas rather than the oil sands. Yet, the authors insist, these plans are a clear sign of a change in Canadian oil. And that's despite continuing challenges.
The notorious pipeline shortage is still very much present, which means that a planned boost in exports to the United States would come in the form of more oil trains moving south. Canada also plans to increase oil exports to Europe as the latter seeks to diversify its supplier mix in the wake of Russia's invasion of Ukraine.
"My expectation is, by the time I go to Paris [March 23], we will have a pretty good view about what we may be able to do," Natural Resources Minister Jonathan Wilkinson told the Canadian Press earlier this week, commenting on these plans.
"I mean, we have constraints around pipeline capacity, obviously, but the ability to fully utilize that, at this point in time to help to stabilize global energy markets, and to assist our friends and allies in Europe is definitely something that we are looking at."
It's not just pipeline capacity constraints, either. Canada has one of the most ambitious emission-reduction programs in the world, and the oil and gas industry is a target of much pressure and criticism as the biggest contributor to the country's emission footprint.
The industry is pledging emission reductions, with the six largest oil sands companies last year setting up the Oilsands Pathways to Net Zero Initiative with the aim to cut their combined emissions to almost zero by 2050. These six account for 95 percent of Canada's total production. However, the industry has called on the government to help finance this reduction drive, admitting it will be hard placed to do it on its own.
Meanwhile, demand for Canadian oil is rising but most producers are still reluctant to respond to this in the usual way.
"They can sit with their feet up right now, with money flowing into their pockets, while hardly working," a portfolio manager from Canoe Financial told Reuters earlier this month. "Why would they want to be a growth business again?" Rafi Tahmazian also said.
Apparently, however, some want to be a growth business. The Canadian Association of Petroleum Producers in January forecast that investment in oil and gas is set to rise by 22 percent this year to $26 billion (C$32.8 billion). According to CAPP, that would be the second year of investment growth in Canadian oil and gas, driven by higher commodity prices.
It is a complicated situation without a doubt. On the one hand, there is the climate-ambitious government with its emission reduction goals, much of which reduction will have to come from the oil and gas industry. On the other, there is an oil-thirsty world whose options were recently reduced sharply as Western sanctions against Russia kicked in.
That many Canadian drillers are still reluctant to return to the growth path is understandable. It is unclear how long the current supply situation will last and how fast it might change. What is clear, however, is that Canada is one of few unsanctioned heavy crude producers globally and, as such, there is a solid market for its production.
The chief executive of Suncor Mark Little said at CERAWeek this month that Canada could raise oil production by 200,000 bpd in short order in response to the surge in demand. And revenues could soar, too, by as much as 46 percent, according to the ARC Energy Research Institute, per the Bloomberg report.
It seems that constraints will contribute to these revenues, too. The pipeline situation remains tight, making moving the crude to where it is wanted harder. The oil sands situation specifically is also challenging: output there cannot be raised as quickly as it can be raised in the U.S. shale patch.
What all this means is that even without trying to boost production, Canadian drillers seem to be in for a bit of a breather after years of problems and more of those ahead.
By Irina Slav for Oilprice.com
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