Canada NewsEnergyNews

Enbridge sees oilsands spending rising after a year-long freeze

Companies poised to generate large amounts of cash this year amid ‘greenshoots’ in terms of new interest in pipelines

Article content

CALGARY – North America’s largest pipeline company Enbridge Inc. believes spending is projected to ramp back up in the oilsands, after taking a hit during the height of the COVID-19 pandemic.

“Did COVID change the oil markets? I think it did, yes,” Enbridge president and CEO Al Monaco said Wednesday at an investment conference hosted virtually by Scotiabank and the Canadian Association of Petroleum Producers.

“It did drive consolidation, capital and operating discipline and that’s probably what the industry needed,” Monaco said, referring to a wave of mergers and acquisitions across the upstream oil and gas industry in recent months, including Cenovus Energy Inc.’s purchase of Husky Energy Inc., ARC Resources Ltd.’s purchase of Seven Generations Energy Ltd. as well as multiple deals by active acquirers Whitecap Resources Ltd. and Tourmaline Oil Corp.

Monaco said the amount of capital available to oil and gas companies was cut “pretty much in half” over the course of the last year, and this has forced producers to focus on reducing costs and living within their means. Those companies are now poised to generate large amounts of cash this year and there are some “greenshoots” in terms of new interest in pipelines.

Advertisement

Story continues below

This advertisement has not loaded yet, but your article continues below.

Article content

“On the oilsands and whether they have an advantage, I think they’re always starting from a tougher spot, given the distance from market but I think it’s going to be strong because there’s an inherent advantage in a couple of areas,” Monaco said, noting that oilsands projects produce for a longer period of time than shale oil wells, and oilsands companies have been on a multi-year cost cutting drive.

“They’re going to need to see more transparency in terms of long-term price stability before any major ramp up in capital and also the egress picture needs to be fully solved and we’re helping with that,” he said.

Al Monaco, president and chief executive officer of Enbridge Inc., in 2015.
Al Monaco, president and chief executive officer of Enbridge Inc., in 2015. Photo by Aaron M. Sprecher/Bloomberg files

The International Energy Agency expects Canadian oil production to average 5.69 million barrels per day this year, compared to 4.96 million bpd during the height of the global lockdowns in the third quarter of 2020.

Values for crude oil barrels have traded steadily upwards over the last six months as more economies either reopen or are expected to reopen soon following the rollout of coronavirus vaccines. The West Texas Intermediate benchmark price rose 1.2 per cent on Wednesday to reach US$59.33 per barrel while the price of a heavy oil barrel of Western Canadian Select was up a quarter of a percentage point, to reach US$49.55 per barrel.

ARC Energy Research Institute predicts oilsands spending should rebound 17 per cent from a low of $6.5-billion in 2020 to roughly $7.7 billion in 2021 — a level which is still the second lowest capital spend in the sector in the past 10 years.

Advertisement

Story continues below

This advertisement has not loaded yet, but your article continues below.

Article content

For heavy oil, Monaco said that he does expect oilsands players to resume spending on growth projects in the future once new pipelines are in service because there’s a relative shortage of heavy oil in global refining centres.

“The egress picture, which has always been the issue for the last decade or so, I think that’s going to improve and obviously we can help with that,” Monaco said, adding that he expected oilsands spending would increase once there are more pipelines built and if there is longer-term oil price stability.

Monaco said his company’s $7.6-billion Line 3 replacement project is on track and the bulk of the winter construction work for the project through Minnesota is done. The company expects to begin flowing oil through the pipeline later this year. Line 3 continues to face on-the-ground opposition from environmental groups in Minnesota. The company is also fighting to rebuild its Line 5 pipeline through Michigan where the state’s governor wants the line shut down as soon as next month.

The 590,000-barrels-per-day, federally owned Trans Mountain pipeline expansion project is also under construction and is expected to be operational late next year, further improving market access for Canadian oil producers.

  1. Alex Pourbaix, President and CEO of Cenovus Energy Inc.

    Foreign buyers show fresh interest as asset sales resume in Canadian energy sector

  2.  signpost marks the presence of Enbridge's Line 5 pipeline, which Michigan Governor Gretchen Whitmer ordered shut down in May 2021, in Sarnia, Ont.

    Enbridge to Biden: Line 5 tunnel under Lake Michigan is building back better

  3. The combined CP/KCS railway network could introduce some competition among the railways to move oil barrels.

    Canadian oil producers see new route to Gulf Coast refineries coming from CP Rail deal

  4. Suncor president and CEO Mark Little. Alberta’s three largest oil producers have said their priority this year would be focused on paying down debt and paying shareholders rather than growing production.

    Why skyrocketing oil prices won’t usher in boom times in Alberta’s oilpatch — just yet

Advertisement

Story continues below

This advertisement has not loaded yet, but your article continues below.

Article content

Both projects have been challenged and opposed by environmental organizations but are proceeding after years of delays. However, TC Energy Corp. has halted work on its 830,000-bpd Keystone XL project after U.S. President Joe Biden withdrew a cross-border permit for the project earlier this year.

The company now says it will focus on smaller expansions in the future but has not yet made a long-term decision on Keystone XL.

“We’re going to be focusing on smaller, in-corridor expansions going forward,” TC Energy president and CEO Francois Poirier said at the CAPP conference.

“It’s taken us about 10 years of development to get to the point where we had commenced construction, so it’s going to take us a few months to think through all of the various issues and come to some long-term decisions,” Poirier said.

Financial Post

• Email: [email protected] | Twitter:

Advertisement

Story continues below

This advertisement has not loaded yet, but your article continues below.

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

View Article Origin Here

Related Articles

Back to top button