An Oil Production Phaseout Would Cost Canada $74 Billion

By Irina Slav - 

A hypothetical scenario in which Canada phases out its oil production would end up costing it some $74 billion (C$100 billion), with Alberta bearing the brunt of that blow, a new report has suggested.

Produced by a non-partisan think tank, the Public Policy Forum, the report looked at two scenarios for Canada achieving a net-zero status with regard to carbon emissions.

One of the scenarios envisaged energy policies that targeted the oil industry with stricter emission regulations but without resorting to a production cap or a phaseout. The think tank called that scenario the “aggressive decarbonization model”.

The other scenario, which the Public Policy Forum dubbed the “accelerated phaseout model”, involves a phaseout of oil production.

“Both pathways arrive at net zero but with unequal economic impacts along the way,” the authors reported.

Under the accelerated phaseout scenario, Canada’s economy would grow at a rate 0.1% slower than the growth rate under the aggressive decarbonization scenario.

“This apparently small difference compounds over time, leading to $100 billion excess lost GDP in 2050, a three percent contraction of the overall economy,” the think tank also said.

“This essentially amounts to a deep recession without a recovery ever materializing. The lost output carries forward each year in perpetuity.”

The bulk of those hypothetical losses would naturally fall to Alberta given its role in Canada’s oil production. Yet, as some commentators have noted, there are no plans for a phaseout of Canada’s oil production.

"There's no phase-out going on there. There's no phase-out of the oil and gas sector either. They're talking about an emissions cap, not a production cap. And it's disappointing to see that conflated in this report," one economics professor told CTV News.

Indeed, there is no production cap on the table for now but the federal government of Canada has been squeezing the oil industry with reams of regulations aimed at making them reduce their emissions, which may at some point involve a production cut in the same way that Shell would have to cut its oil and gas output to achieve the emissions cut it was ordered to effect by court.

By Irina Slav for Oilprice.com

May 12, 2023

$70 Oil Creates Opportunity In Canadian Oil Stocks

By Alex Kimani - May 14, 2023

• Canadian energy stocks are looking increasingly cheap after the latest selloff in crude prices.
• 
  
• Wall Street still believes that Canadian energy stocks will outperform their American brethren.
• 
  
• Debt-light Canadian oil and gas producers are poised to reward shareholders again in 2023.

Earlier in the year, Wall Street was mostly bullish about the prospects of Canada’s Oil Patch with the sector expected to resist a sharp downturn in the current year. Unfortunately, expectations have now taken a turn for the worse: earnings in Canada’s energy industry are now expected to decline 19% over the course of 2023 compared to previous projections of a more modest 8% decline. The biggest reason for the poorer outlook is falling gas prices, which have hit Canadian oil and gas companies particularly hard. Natural gas prices have contracted by a third in the current year and are down 75% from their 2022 peak with an unusually warm winter followed by an equally warm autumn depressing demand. In fact, natural gas prices are now lower than year-ago levels prior to Russia’s invasion of Ukraine.

“Energy sectors around the globe are expected to pull back in 2023 off a difficult 2022 comparison, though Canada had, at the end of November, been expected to suffer the least,” Bloomberg Intelligence senior associate analyst Gillian Wolff and chief equity strategist Gina Martin Adams have said.

But the outlook has become more bearish. 

“Now, Canada is expected to decline more on par with the U.S. and Europe, with energy sectors in emerging markets taking the lead for 2023 earnings expectations,” Wolff and Martin Adams warned.

Adding to the woes, UK-based Barclays Bank has now said it will no longer provide financing for oil sands companies or oil sands projects. 

Related: Saudi Aramco Pushes Back IPO For $30B Energy Trading Unit

Still, despite the grim earnings outlook, Wall Street still believes that Canadian energy stocks will outperform their American brethren, with the S&P/TSX Energy Index expected to return 18% in 2023 compared to a 14% return by the S&P 500 Energy Index. A lot of those gains will come in the latter half of the year with the American benchmark down 6.3% in the year-to-date while its Canadian peer has lost 3.5%. That outlook is consistent with projections by BMO Capital Markets that debt-light Canadian oil and gas producers are poised to reward shareholders again in 2023 thanks to their ability to generate ample cash coupled with their diminished appetite for acquisitions.

As for the big banks beginning to balk on the fossil fuel sector, well, the sector does not appear to be in danger of running out of backers any time soon, with private equity firms gladly stepping up. Here are three TSX energy stocks to buy on the dip.

1. Enbridge Inc.

    Market Cap: $80.0B

    YTD Returns: -0.9%

Enbridge Inc. (NYSE:ENB) operates as an energy infrastructure company. Back in November, Enbridge told shareholders that it expects to generate strong business growth in 2023, forecasting full-year EBITDA of C$15.9B-C$16.5B. Enbridge attributes the gain to contribution from $3.8B of assets to be placed into service this year, as well as strong expected utilization of assets across core businesses.

Well, the company appears very much on track to keep its promise. 

A week ago, Enbridge reported impressive Q1 2023 results. Q1 Non-GAAP EPS of C$0.85, C$0.01 above the Wall Street consensus while EBITDA of $4.5 billion was good for 9.8% Y/Y growth. Distributable cash flow clocked in at $3.2 billion, representing a 3.2% Y/Y increase. The company reaffirmed its full-year EBITDA and DCF guidance, though it warned that strong operational performance is expected to be offset by higher financing costs due to increased interest rates.

2. ARC Resources Ltd

    Market Cap: $7.7B

    YTD Returns: 6.0%

ARC Resources Ltd.(OTCPK:AETUF) explores, develops, and produces crude oil, natural gas, and natural gas liquids in Canada. We like the company due to its very conservative debt level and better credit rating than most of its peers. Further, its February merger with Seven Generations Energy Ltd. for $2.7-billion in stock that made the combined entity Canada's largest condensate producer and third-largest natural gas producer has proven to be profitable. Last month, Arc Resources declared a CAD 0.15/share quarterly dividend, good for 25% increase from prior dividend of CAD 0.12. The shares now yield 4.0%.

3. Bonterra Energy Corp.

    Market Cap: $166.9M

    YTD Returns: -0.9%

Bonterra Energy Corp.(OTCPK:BNEFF) is a conventional oil and gas company that engages in the development and production of oil and natural gas in the Western Canadian Sedimentary Basin. Its principal properties include Pembina and Willesden Green Cardium fields located in central Alberta. 

Bonterra faced a severe crisis in 2020 when the COVID-19 pandemic crushed oil prices. Luckily, a government-backed loan helped the company get through the dark times. Bonterra has managed to repay the loan, along with C$150 million in debt during the past year as of the third quarter. According to Chief Executive Officer Pat Oliver, the company expects to pay off its remaining C$38 million bank debt by the third quarter 2023, after which it will have new options like initiating a dividend, raising production or repaying debt further.

Last quarter, Bonterra Energy reported strong full-year results as follows:

•  Growth production of 5% and 53% increase in oil & gas sales
• 77% Increase in funds flow and 182% growth in free funds flow contributed significantly to improving the balance sheet
• 44% lower net debt drove leverage ratio down to 0.8X while strategic debt restructuring affords Bonterra enhanced liquidity with approximately $17 million drawn on a $110 million bank credit facility

By Alex Kimani for Oilprice.com

Shell Suspends Production At The World’s Largest Floating LNG Facility

By Charles Kennedy 

Shell has halted production at Prelude LNG – the world’s largest floating liquefied natural gas facility offshore Australia – due to a trip, a spokesperson for the supermajor said on Friday without giving details when production could resume.

“Production on the Shell-operated Prelude FLNG facility has been temporarily suspended due to a trip,” a spokeswoman for Shell told Reuters on Friday.

“We are working methodically through the stages in the restart process with safety and stability foremost in mind,” the spokeswoman added.

The Prelude floating LNG production facility offshore northwestern Australia has an annual capacity of 3.6 million tons.

Friday’s incident is the latest issue that Shell has faced at Prelude LNG in the past year. Between July and September last year, production and exports at Prelude LNG were disrupted due to industrial action at the facility as trade unions demanded higher wages.

Trade unions in Australia extended their strike several times between July and September, also extending the period in which the operator Shell was not able to ship LNG from the facility.  

Shell exported some LNG cargoes from Prelude during the strike, but production was taking place at reduced rates to match storage capacity amid the disruption of the tanker berthing process for vessels to pick LNG.

After the pay dispute was settled, Shell had to shut down Prelude LNG again at the end of 2022 due to a fire that occurred on December 21. A small fire was detected on board Prelude in a turbine enclosure. While the fire was quickly contained using a hand-held extinguisher, and there were no injuries, production at the facility was shut down again. Prelude LNG resumed output around a month after the incident.

Apart from being a major LNG producer, UK-based supermajor Shell is the world’s largest trader of liquefied natural gas.

By Charles Kennedy for Oilprice.com

May 12, 2023

Justice For NordStream Attack? Highly Unlikely

By Julianne Geiger 

The chances of finding and bringing the Nord Stream attack perpetrators to justice are negligible, according to Russian Security Council Deputy Chairman Dmitry Medvedev, who added that Russia would nevertheless continue to work towards holding them accountable.

"Of course, we will continue to employ all available legal tools to hold those responsible to account, but the chances of doing this in international judicial institutions are negligible," Medvedev said at the International Legal Forum today. At the same time, Medvedev blasted Europe for its lack of progress in the investigation.

"The European countries, as if by design, have forgotten about their obligations under the UN Convention on the Law of the Sea and the Convention for the Suppression of Terrorist Bombings," Medvedev charged.

In March, Russia said it expected to mothball the Nord Stream natural gas pipelines that were damaged in an act of sabotage last fall, because there were no plans to use or repair them anytime soon due to its sour relations with the West. Originally, Germany's Uniper had said the pipeline could be repaired in a year, although it is unclear whether Germany is even interested in purchasing Russian gas at this point.

The Nord Stream pipelines were sabotaged in late September in still unexplained circumstances. Nord Stream 1 was carrying gas from Russia to Germany via the Baltic Sea, while Nord Stream 2 was never put into operation after Germany axed the certification process following the Russian invasion of Ukraine. Russia, for its part, shut down Nord Stream 1 indefinitely in early September, claiming an inability to repair gas turbines because of the Western sanctions. 

Russia has called for an international investigation into the Nord Stream sabotage after a U.S. investigative journalist wrote in February that the United States had planted explosives on the bottom of the Baltic Sea to blow up the pipelines.

By Julianne Geiger for Oilprice.com

- May 12, 2023

Nationalized German Energy Firms Paid Big Bonuses To Their Traders

By Tsvetana Paraskova - May 15, 2023

Uniper and Sefe, two energy firms Germany nationalized last year, paid some of their traders big bonuses for 2022, sources with knowledge of the matter told Reuters on Monday.

Traders at the companies have received millions of U.S. dollars in bonuses for last year, even as the German government had to intervene and rescue Uniper and Sefe with multi-billion-dollar bailouts.  

As part of the nationalization, the companies have agreed to cap salaries for the management boards, but the bonus limits did not apply to the entire staff, Reuters’ sources noted.

Sefe and Uniper have both confirmed to Reuters that some of their traders have received bonuses and performance-based remunerations for last year.

In 2022, Germany moved to save its energy companies which had been amassing losses with the lack of contracted Russian gas supply and the high price they had to pay on the spot market to replace lost Russian volumes.

Germany saved a former Gazprom unit it had expropriated in April with a multi-billion-euro loan to ensure security of supply. Gazprom Germania was renamed Securing Energy for Europe GmbH (Sefe), to secure energy supply to Germany and Europe, the government said in June. Europe’s biggest economy also granted a loan from its state investment bank KfW to the company to save it from insolvency. The money was to be used to secure liquidity and to purchase gas to replace Russian deliveries and to prevent a cascading insolvency effect on the German energy market.

Germany also nationalized in September 2022 energy giant Uniper, aimed at preventing a collapse of the German energy and gas suppliers. Germany owns 99% of Uniper after the nationalization, which involved a capital increase of $8.7 billion (8 billion euros). Since the July $15 billion bailout of Uniper, losses at the German company continued to mount as the energy crisis in Germany and Europe worsened before the start of the 2022/2023 winter.  

By Tsvetana Paraskova for Oilprice.com

EU Lawmakers Seek Revenue Cap On Power Firms If Energy Prices Soar

By Tsvetana Paraskova - May 15, 2023

The European Parliament is proposing a cap on the revenues of electricity generators in case energy prices surge again, according to a draft proposal of the Parliament's lead negotiator on the EU electricity market reform seen by Reuters.

Nicolas Gonzalez Casares—the European Parliament's lead negotiator on the reform proposed by the European Commission earlier this year – has drafted the Parliament's position on the Commission's proposals for market reforms. According to Gonzalez Casares and the Spanish Socialist Members of the European Parliament, the reform of the EU's electricity market should cap the extraordinary profits that power-generating companies reap when energy prices spike in a crisis.

"Social justice has to be above the profits of few," the Spanish Socialist MEPs say.

Gonzalez Casares's draft report, seen by Reuters, proposes a cap that would recover 90% of any revenue over $196 (180 euros) per megawatt-hour (MWh). The cap would include producers of electricity from wind, solar, and nuclear power, as well as coal. 

The money raised from the revenue cap would go to government measures to support the most vulnerable consumers, including temporary cuts in electricity tariffs for households and businesses.

"It's very important to use these revenues in order to reduce bills for people," Gonzalez Casares told Reuters, commenting on his proposal.

The European Commission in March presented a proposal to revise the rules for electricity market design and for improving the EU protection against market manipulation in the wholesale energy market.

The Commission says that the market reform is aimed at making the EU energy market more resilient and making the energy bills of European consumers and companies more independent from the short-term market price of electricity.  

The proposal has now passed to the Council and the European Parliament for debate and negotiation, with the market reform expected to be voted on later this year.  

By Tsvetana Paraskova for Oilprice.com

European Commission President Says Fossil Fuel-Centric Growth Is Dead

By Julianne Geiger - May 15, 2023

Economic growth cannot be carried by a fossil fuel energy mix, according to European Commission President Ursula von der Leyen.

“A growth model centered on fossil fuels is simply obsolete,” von der Leyen said on Monday at an event in Brussels designed to speak about coordinating economic development with environmental goals, according to Reuters.

Von der Leyen added that the EU’s Green Deal transition had a goal of creating “a different growth model that is sustainable far into the future.” That EU Green Deal has a grand plan to cut emissions by more than half by 2030 on the bloc’s way towards reaching an ambitious net-zero goal by 2050. While there is no other interim benchmark goal, the bloc is trying to implement another midpoint target for 2040, which the block would be legally required to hit.

According to Reuters, one of the highlights of Monday’s conference that was cheered on by von der Leyen was a controversial 1972 MIT-derived Limits to Growth report that discussed a computer simulation of a world destabilized by material consumption with finite resources supply.

Just a couple of weeks ago, the European Union finalized the approval of a carbon tax reform that would see polluting industries face higher costs for continuing to generate emissions. It also incentivized the switch to wind and solar. 

That tax reform extends the EU’s carbon permit regime to even more industries than before, including air and maritime transport and would look to reduce carbon permits and even phase them out by 2034. Within four years, the carbon permitting reform would extend even further to emissions from cars and buildings.

Von der Leyen has been a champion of the green deal and the EU’s hopes of becoming a leader when it comes to the energy transition, although her zeal for the movement began prior to the pandemic and prior to the war in Ukraine, which has shifted focus away from the energy transition and towards energy security.  

By Julianne Geiger for Oilprice.com

Australian Gas Giant Wants To Import Carbon Dioxide From Asia

By Irina Slav - May 16, 2023

Santos, an Australian energy major with a focus on gas, wants to import carbon dioxide from Asia and store it in local reservoirs.

The idea may have sounded somewhat eccentric a few years ago but it seems that carbon capture and storage is gaining traction thanks to government support for such projects.

The support comes despite the scarcity of such projects in operation, with Bloomberg reporting there were only 30 carbon capture and storage projects across the world last year.

Santos, however, has ambitious plans: it wants to collect carbon dioxide from Asia and ship it to a storage facility in the Cooper Basin in South Australia. At the same, Santos plans to store some 1.7 million tons of its own carbon dioxide emitted during gas production activities in the basin.

Hard to abate sectors such as fertilizer, such as cement, such as steel manufacturing, all require solutions beyond what’s being currently offered,” said Santos energy solutions president Brett Woods as quoted by Bloomberg.

He went on to add that the Moomba facility in the Cooper Basin has the capacity to store 20 million tons of carbon dioxide annually for 50 years.

One of the arguments of carbon capture critics is that the technology is too expensive to be worth the investment. Santos, however, says that the first stage of the Moomba capture facility will cost less than $150 million (A$220 million) and the cost of storing CO2 there would be as little as $16 per ton.

Despite the track record of limited success, carbon capture may be beginning to take off. Governments are providing subsidies and companies are being pressured into reducing their emissions footprints by any means available.

The schemes face criticism from environmental advocates who say that carbon removal credits do not address the problem of emissions reduction and could lead to more greenwashing from the big polluters. Some have slammed the technology as an excuse for the oil industry to continue existing.

By Irina Slav for Oilprice.com