Is a U.S. Refining Cartel Emerging? 

Major Players Slash Production

By ZeroHedge - Aug 12, 2024

• Major US refiners, including Marathon Petroleum, are significantly reducing their refining capacity due to concerns about a global crude oil glut and weakening demand.
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• OPEC has downgraded its global oil demand growth forecasts for 2024 and 2025, further adding to the concerns about oversupply.
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• Analysts predict that Brent crude oil prices will likely decline in the coming quarters, potentially reaching as low as $64/bbl in the second quarter of 2025.
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Following the series of mega-mergers in the oil exploration and production space, a potential US refining cartel—a 'mini OPEC on American soil'—could be taking shape with some of the first coordinated policies to reduce refining capacity this quarter as demand falters and concerns about a global glut of crude mount.

Bloomberg reports that four major refiners, including Marathon Petroleum, owner of the largest US refinery, plan to reduce refining capacity at 13 of its plants to an average of 90%, down 4% from the same quarter in 2023. Similarly, PBF Energy announced plans to refine the least amount of crude in three years. Phillips 66 will operate refineries near two-year lows, and Valero Energy expects to cut oil processing soon. 

The four major refiners represent about 40% of the US capacity to refine oil into diesel, jet fuel, gasoline, and other essential crude products critical to the economy. Slowdown fears encompass not just the US economy (recession scare last Monday) but also China, thus reducing crude product demand and shrinking profit margins for refiners. 

On Monday morning, commodity firm Argus' Bachar EL-Halabi wrote on X, "Opec blinks first, downgrading for the first time since July 2023 its global oil demand growth forecasts for 2024 and 2025."  

Halabi continued:

• Opec now sees demand growth projection for 2024 to be 2.11mn b/d down from 2.25mn b/d.
• Opec has also cut its oil demand growth forecast for next year by 60,000 b/d to 1.78mn b/d.
• Opec's latest oil demand growth projections narrow the gap with other forecasters such as the IEA and EIA, but Opec's figures are still comparatively bullish.

Reminder: The IEA projects oil demand to increase by 970,000 b/d this year, while the EIA sees demand rising by 1.1mn b/d.

#Opec blinks first, downgrading for the first time since July 2023 its global oil demand growth forecasts for 2024 and 2025.

Opec now sees demand growth projection for 2024 to be 2.11mn b/d down from 2.25mn b/d.
Opec has also cut its oil demand growth forecast for next… https://t.co/BPPe0C95id pic.twitter.com/dUxAJDoMvk

— Bachar EL-Halabi |  (@Bacharelhalabi) August 12, 2024

Vikas Dwivedi, Macquarie's global oil and gas strategist, told Bloomberg recently in an interview in Houston, "Compressed refining margins are setting up the stage for another round of heavy refinery maintenance in the US during the fall season ... and that's going to weigh on balances and may add to crude builds in the US for the rest of the year." 

He said the potential for supplies to exceed demand has reduced the premium geopolitical risks festering in the Middle East, explaining, "The market is no longer willing to pay a huge premium for that because the tensions haven't so far resulted in a loss of barrels." 

Dwivedi expects Brent crude oil to average around $75/bbl in the fourth quarter and slide as low as $64/bbl in the second quarter of next year. 

In the meantime, Crude is soaring today amid geopolitical tensions...

Chief Commercial Officer Rick Hessling said Marathon "will run economically at 90%" capacity in the third quarter, a multi-year low. He pointed out that the Chinese economic recovery remains a significant concern, and OPEC could stir volatility with policy in the short term. 

The bigger story here is the possible rise of the US refining cartel after a series of mega-mergers in recent quarters.

By Zerohedge.com 

Refiners Are Reeling From Low Margins and Weak Demand

By Irina Slav - Aug 12, 2024

• Overcapacity in the petrochemical industry, especially in China, is driving down margins and profitability.
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• Weak demand and economic challenges are exacerbating the industry's problems.
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• Industry players are responding by cutting production, closing plants, and seeking more efficient operations.

During the latest profit season, U.S. oil refiners signaled they would be curbing output this quarter, pressured by lower margins and the seasonal decline in demand. Petrochemical makers are also having difficulties, mostly due to overcapacity in China. And they are changing in order to overcome them.

A forecast by Wood Mackenzie cited in a recent Reuters article on the petrochemical industry and its long-term outlook said that almost a quarter of global petrochemical capacity was at risk of permanent closure because of depressed—and depressing—margins by 2028. McKinsey added that the downturn in the petrochemicals sector would be longer than usual, which is five to seven years, because of the overcapacity in China. Reuters wrote that the refining industry and the larger oil industry were in trouble because the energy transition would reduce the need for petroleum fuels for transportation.

Of these forecasts, the last is the most uncertain. It hinges on explosive growth in electric vehicles that has so far failed to materialize, and even the recent growth in EV sales is reversing in every country that can no longer afford to subsidize the vehicles. If one looks at the energy transition and the electrification of transport as cause for concern in the oil industry, one may be overestimating the reality of the transition.

Overcapacity, however, is another matter. Back in April, Bloomberg carried a story about the petrochemical industry outside China and how it was going into a "sunset" stage because of the huge capacity gains that Chinese petrochemical makers had made in the past four years. Chinese producers were forcing prior industry majors out of the market because of that capacity, the report said. It was only a matter of time before the effect spread.

"This is yet another example—after steel, solar panels—where China's structural imbalances are clearly spilling over into global markets," Rhodium Group director Charlie Vest told Bloomberg last month in comments on the country's petrochemical industry's growth. That growth was starting to force industry players to cut back on production, Bloomberg reported at the time, with some plants running at just half of capacity amid the squeeze in margins resulting from oversupply. But just like in the solar panel business, it would take a while before the excess capacity is taken care of. In the meantime, petrochemical producers elsewhere would be, as Reuters put it, in survival mode.

The outlook is the grimmest for Asian petrochemicals makers, the report said, likely because they are too close to the behemoth in the petrochemicals room that is China. Margins on propylene in Asia are set to dip below zero this year, coming in at around minus $20 per ton, according to Wood Mac, as quoted by Reuters.

Meanwhile, some refiners are shutting down some petrochemical units. A petrochemicals joint venture between Petronas and Aramco shut its naphtha cracker at the beginning of the year, and a Taiwanese petrochemicals maker shut two of its three crackers later in the year. The situation is perhaps more problematic for petrochemical facilities that are part of refineries—these are still running, even at a loss, Reuters reported.

"Most companies' portfolios are integrated and balanced. If you want to consolidate them, you have to either kill the strengths of one company or get rid of the strengths of the other company," an executive from an unnamed South Korean refiner told Reuters earlier this month.

In Europe, meanwhile, refiners are witnessing the end of the recent rally in their business. It's falling margins and slowing demand again, with TotalEnergies and Neste warning in their latest quarterly presentations about the negative developments.

"Global refining margins, which have sharply decreased since the end of the first quarter 2024, remain impacted by low diesel demand in Europe, as well as by the market normalization following the disruption in Russian supply," TotalEnergies said in its quarterly report, as quoted by Reuters.

Essentially, the refining market in Europe, then, is returning to normal after a brief period of excessively good performance resulting from the war in Ukraine. Now that the impact of those events is weakening, things are going back to the way they were before the war—with pressure from Asia remaining unchanged. There has also been additional pressure from new refineries coming on stream in the Middle East and Africa, although the latter—the Dangote refinery in Nigeria—has been struggling to really take off.

Even so, petrochemical margins in Europe are set to rise this year, according to Wood Mac. While Asian petrochemical makers struggle with their $20 loss per ton of propylene, their European counterparts would enjoy a margin increase to almost $300 per ton, the consultancy has forecast. In the United States, petrochemical makers are set to do even better, despite all the challenges, witnessing a 25% increase in propylene margins to $450 per ton.

The petrochemicals industry may be in trouble, but most of this trouble comes from overcapacity and not transition trends that would ultimately kill the larger energy industry. And the industry is tackling the trouble and adjusting to changing realities. Survival, after all, is an imperative.

By Irina Slav for Oilprice.com

 FRACKING  BY ANY OTHER NAME

The Rise of Geothermal Power Networks

By Felicity Bradstock - Aug 13, 2024

• Governments worldwide are increasingly interested in geothermal energy as a clean, renewable source of heating and electricity.
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• The UK and US have significant untapped geothermal resources that could be developed to power communities and support decarbonization efforts.
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• Geothermal power networks, which distribute heat from underground reservoirs, are emerging as a promising solution for sustainable energy.
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As governments rapidly search for ways to accelerate the shift away from fossil fuels to renewable alternatives, there could be huge potential for developing natural geothermal resources underground. Investing in networked geothermal power could provide abundant clean heating and electricity for millions of households and businesses worldwide. Although countries with abundant geothermal resources have been tapping into the natural power source for thousands of years, governments have only recently funded greater research into the use of advanced geothermal systems aimed at expanding the use of the energy source. 

Geothermal energy is a type of renewable energy that comes from the Earth’s core. Energy can be extracted from the thermal sources stored in rocks and fluids several miles below the Earth’s surface. Underground geothermal reservoirs of steam and hot water can be used for electricity generation and other heating and cooling applications in rich geothermal regions. Accessing geothermal energy requires the drilling of a borehole at a depth of between two and three miles underground, flowing cold water at low pressures through hot rocks, and transporting the warm water to the Earth’s surface through a second borehole for use as heating or for electricity generation.  

In the U.K., a 2023 report suggested there is significant potential for the development of the country’s geothermal resources to provide clean heating and electricity. The report highlights several regions of untapped geothermal energy in the U.K., which could be developed to provide networked geothermal power. Many of these areas happen to coincide with towns and cities included in the government’s Levelling Up White Paper, which lists several deprived parts of the U.K. that require greater attention and investment. These areas include Redcar and Cleveland, Middlesbrough, East Lindsey, Hartlepool, Northumberland and Bassetlaw. Other areas of potential for geothermal energy production include Newcastle upon Tyne, Northeast Derbyshire, the East Riding of Yorkshire and Nottingham. 

The MP Kieran Mullan, who managed the production of the report, said there was a “strong overlap” between areas where investment is required and the best geothermal locations, which could encourage greater support for renewable energy development in these areas. Mullan stated of the potential to tap into the U.K.’s geothermal resources, “Unlike wind or solar this technology provides baseload – it is there constantly. And our expertise in drilling in the North Sea means we are well placed to motor ahead.” 

The U.K. has vast amounts of untapped geothermal power, with enough geothermal energy underground to heat every home for a hundred years, according to estimates. However, Mullen emphasised that there is “catching up to do because across Europe there has been much stronger government intervention to support nascent deep geothermal industries in those countries.” 

The U.S. is also looking to tap into the natural energy stored underground through investment in new technologies to tap into geothermal resources and distribute the power. Earlier this year, Eversource Energy commissioned the first networked geothermal neighbourhood in the U.S. to be run by a utility, in Framingham, Massachusetts. There is great optimism around the potential for project expansion, as much of the equipment needed to tap into geothermal sources is already in place. Utilities can use gas line equipment to deploy networked geothermal power, circulating fluid rather than gas., with the potential to set up networks anywhere. 

Audrey Schulman, the executive director of the nonprofit climate-solutions incubator HEETlabs, stated, “In the end, what we would like is if the gas utilities become thermal utilities.” Eversource is using a geothermal loop in Framingham, which could ultimately be connected to an adjacent neighbourhood and another, to expand the network. Schulman explained, “Each individual, shared loop can be interconnected, like Lego blocks, to grow bigger and bigger.”

While a shift to geothermal power may have seemed impossible just a few years ago, there is growing pressure from the White House for utilities to decarbonise. Last year, New York became the first state to ban natural gas hookups in most new buildings. This ban is expected to be rolled out in several other states in the coming years, including California, Vermont and Colorado. This gives utilities little choice other than to look for clean heating alternatives. There is also a wide range of incentives, provided by the Inflation Reduction Act and other climate policies, to invest in renewable energy and clean technologies. Eversource Energy and two dozen other utilities, which together represent 47 percent of the country’s natural gas customers, are joining forces to establish an information-sharing coalition, known as the Utility Networked Geothermal Collaborative, which is expected to encourage more geothermal power networking projects across the U.S. 

Following several decades of stagnation in the geothermal energy sector, governments are once again looking to the abundant renewable energy source to provide heating and power in place of natural gas. Greater investment in the sector could support the development of large networks of geothermal power, offering millions of households clean heating. Some countries, such as Iceland, are already well acquainted with geothermal power, with countries such as the U.K. and U.S. expected to soon follow.  

By Felicity Bradstock for Oilprice.com

The DOE Is Betting Big On A Geothermal Game-Changer In Utah

By Haley Zaremba - Aug 08, 2023

• Geothermal energy is currently limited to geographical hotspots, but enhanced geothermal seeks to produce energy from deep drilling anywhere.
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• Enhanced geothermal offers a continuous baseload power source, overcoming the intermittency challenges of solar and wind energy.
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• Despite its potential benefits, enhanced geothermal's high upfront costs pose challenges, but its low operational costs and vast potential could make it a significant player in the clean energy sector.

A huge experiment to produce electricity using enhanced geothermal energy is taking place underground in Utah. The United States Department of Energy (DOE) is funding an experimental pilot project drilling well over a mile deep into the Earth’s crust to access a continuous heat source for clean energy production. While the technology is in its infancy and there are questions about whether enhanced geothermal could ever be cost-competitive with other forms of clean energy production, the DOE is convinced that it’s a good enough idea to spend hundreds of millions of dollars on. 

Today, geothermal energy makes up a tiny fraction of energy production on a global scale. All told, it makes up less than 1% of the world’s primary energy supply. This is because currently, geothermal is only produced in geologically anomalous places where water carrying the residual heat of the Earth’s core has cracked through to the surface via hot water vents like hot springs or geysers. “Iceland, straddling two diverging tectonic plates, hits a geological jackpot and produces about a quarter of its electricity that way; in Kenya, volcanism in the Great Rift Valley helps push that figure to more than 40 percent,” Wired recently reported. “In the US, it’s just 0.4 percent, almost all of it coming from California and Nevada.”

The idea behind enhanced geothermal energy is that if you drill down deep enough, geothermal energy can be produced anywhere – not just the places where heat happens to be more accessible closer to the surface. Until recently, the idea was a bit more science fiction than fact, but drilling technologies have improved immensely thanks to the fracking boom of the last few decades. Whereas deep drilling and cracking through rock used to be a headache with little guarantee of success, it’s now a much more exact science.

What’s more, geothermal offers some extremely enticing benefits that other clean energies do not. First and most importantly, it’s a potential baseload power source, meaning that it produces steadily and continuously. This is a huge advantage over more popular renewable energies like wind and solar power, which are variable, as they depend on weather, seasons, and the time of day for production. And peaks of production rarely line up neatly with peaks of demand. This creates a huge challenge for the nascent energy storage sector, as well as our aging power grids, which were not designed with variable energy in mind. As such, a baseload clean energy source solves a number of the clean energy revolution’s most wicked problems – if it can be effectively scaled up and out. 

Second, enhanced geothermal energy takes up much less surface area than other forms of renewable energy production. Land use is currently one of the biggest hurdles for clean energy expansion as disputes and competition for land tie up industrial-scale solar and wind farms around the country and around the world. Late last year, global management consulting firm McKinsey & Company released an analytic report naming land shortages as one of three key challenges facing the renewable revolution, along with long permitting processes and gravely under-prepared power grids. “Utility-scale solar and wind farms require at least ten times as much space per unit of power as coal- or natural gas–fired power plants, including the land used to produce and transport the fossil fuels,” McKinsey reports, adding that “wind turbines are often placed half a mile apart, while large solar farms span thousands of acres.” Since enhanced geothermal’s reach is down into the earth, and not across landscapes, it could be a key workaround for such issues. 

While geothermal presents some key advantages and circumvents some of the biggest pitfalls of the renewable revolution, however, enhanced geothermal is still wickedly expensive, and by no means easy. While the up-front costs are considerable, however, the operational costs are relatively low. And once the heat source is tapped, it’s a gift that keeps on giving, forever. “The question is whether [enhanced geothermal systems] will be more or less practical than building a nuclear plant or a dam or installing carbon capture at a natural gas plant,” says journalist Gregory Barber, who has written about geothermal energy for Wired. “There are good reasons to think it will be—especially if you factor in safety and ecological concerns presented by the alternatives—but it's early.”

By Haley Zaremba for Oilprice.com

 

$84 Billion in Clean Energy Projects Are Running Behind Schedule

By Tsvetana Paraskova - Aug 13, 2024

• Nearly 40% of the announced clean energy projects under Biden's IRA, worth $84 billion, are facing delays or indefinite pauses.
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• Factors contributing to these delays include falling solar panel prices, rising costs, high interest rates, and uncertainty surrounding the upcoming presidential election.
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• Companies are concerned that a potential Trump presidency could reverse Biden's clean energy policies and incentives, further jeopardizing these projects.
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Companies have announced hundreds of billions of dollars worth of clean energy and manufacturing projects in the United States over the past two years since the Biden Administration passed the Inflation Reduction Act (IRA) in August 2022.   

The IRA has nearly $370 billion in climate and clean energy provisions, including investment and production credits for solar, wind, storage, critical minerals, funding for energy research, and credits for clean energy technology manufacturing such as wind turbines and solar panels.

In the first year since the IRA and the CHIPS Act were passed, companies announced over $220 billion worth of projects. 

But over the past few months, announcements have been rarer due to slumping solar panel prices from China’s overproduction and overcapacity, slowing EV sales growth globally, high interest rates, and last but not least, enormous domestic policy uncertainty given the U.S. presidential election in November. Company executives are reluctant to make final investment decisions because they are concerned that a Trump presidency could try to gut Biden’s clean energy initiatives and incentives. 

Other firms are waiting for clearer guidance from the Department of the Treasury on the specific terms under which clean energy projects and production of clean fuels would benefit from the IRA tax credits. 

Funding has also been a deterrent for some projects because IRA subsidies and tax credits are granted in most cases to projects that have already reached some production milestones. 

Setback for $84 Billion Projects 

Of the announced projects worth at least $100 million each, nearly 40% are facing delays or indefinite pauses, according to investigation and research carried out by the Financial Times. 

These $84 billion worth of projects face delays of between two months and several years or have been indefinitely paused, research by FT, which has also conducted over 100 interviews with company executives, showed. 

Planned solar panel factories, battery storage projects, and a lithium refinery facility are among those faced with delays, according to the FT investigation.  

Solar panel prices have tumbled globally amid overproduction in China, which could persist for another year or two until the authorities manage to rein in the quantity-over-quality output. 

Then, there are higher-than-planned costs for manufacturing facilities in the U.S., including labor and materials. These higher costs add to increased interest rates, making projects more expensive than initially budgeted. 

And finally, political uncertainty with the upcoming presidential election is now topping the list of potential risks for many companies.

Solar manufacturer VSK Energy, which planned to build a factory in Colorado, has ditched that plan and is now looking for a location in a mostly Republican state in the Midwest, to be spared from Trump’s possible axe, a company executive told FT. 

“Just in case, you probably want to be in a red state so that someone from the same party is going to fight for you and your rights,” the manager told FT.

Trump Threat To Clean Projects

Some companies are waiting to see who will ascend to the Oval Office early next year before making final decisions. 

If Donald Trump wins in November, he is set to overturn or at least try to dismantle many of President Biden’s energy and climate policies, including methane rules, the pause on new LNG export permits, EV mandates, federal oil and gas leasing, and even parts of the Inflation Reduction Act. 

The IRA is under scrutiny for possible scrapping of tax breaks, according to Trump advisers and people with whom Trump is directly discussing energy policy issues.  

However, dismantling the IRA would first need a Republican-controlled Congress with both House and Senate. And even then, it could be difficult to scale back or scrap some incentives, as they mostly benefit projects and jobs in Republican states, analysts say. 

At a rally last month, Trump attacked the green policies of the Democrats and the “ridiculous and actually incredible waste of taxpayer dollars” on “things having to do with the green new scam.” 

Trump vowed to redirect the money to infrastructure projects and not allow it to be spent on “meaningless green new scam ideas.” 

A Trump presidency could jeopardize $1 trillion in clean energy investments, Wood Mackenzie said in May. 

Although Trump—if elected—is not expected to fully repeal the IRA of 2022, he is likely to scrap major clean energy policies, including a pledge to decarbonize the power grid by 2035. He is also set to soften emission reduction goals and regulations, according to WoodMac.

The energy consultancy expects the U.S. to see $7.7 trillion in investment for the U.S. energy sector from now until 2050. But less policy support for clean energy and infrastructure improvements would reduce this base-case investment projection by about $1 trillion, Wood Mackenzie’s analysts say.

“This election cycle will really influence the pace of energy investment, both in the next five years and through 2050,” said David Brown, director of Wood Mackenzie’s Energy Transition Research.   

By Tsvetana Paraskova for Oilprice.com

Illegal mining soars near First Quantum’s idled Panama mine

Bloomberg News | August 13, 2024 

Aerial view of Cobre Panama mine. Credit: First Quantum Minerals

Illegal mining near First Quantum Minerals Ltd.’s Cobre Panama copper mine has soared since the facility suspended operations last year, an industry group warns.


More than 250 instances of illegal mining have been identified in the rainforest surrounding Cobre Panama this year, according to Zorel Morales, head of the nation’s mining chamber. That’s a 317% increase from 60 instances in 2023. The illegal miners, Morales said, are mostly searching for gold.

Morales and his trade organization, which includes First Quantum, are pushing for a quick resolution on Cobre Panama’s future. The massive mine has sat idle since November after Panama’s Supreme Court ruled that its operating contract was unconstitutional. The closure sparked mass layoffs, which have left the mine’s surroundings largely unattended while First Quantum waits for negotiations to resume under President Jose Raul Mulino’s new administration.

Mulino, however, has said he won’t start talks with the Canadian mining company until the new year, as the government is prioritizing other pressing matters like social security reform and water supply for the Panama Canal.

That timeline will clash with the mine’s need for more immediate action, Morales said in a Monday phone interview. The facility is holding about 121,000 tons of mined copper concentrate that can present environmental risks, said Morales.

“This topic cannot be left for tomorrow,” he said.

First Quantum declined to comment, and a government spokesperson did not immediately reply to a request for comment.

Panamanian officials have already raised concerns about illegal mining in the area since Cobre Panama’s closure. Security minister Frank Abrego warned that illegal miners are using unsafe procedures, as well as chemicals like cyanide, according to cabinet meeting minutes released by Mulino’s administration.

(By Valentine Hilaire and Jacob Lorinc)

Karelian Diamond wins land dispute case in Finland

Staff Writer | August 13, 2024 | 

Diamonds mined at the Lahtojoki deposit.

 (Image courtesy of Karelian Resources.)

Karelian Diamond Resources (AIM: KDR) has won a favorable court decision on its diamond project in the Kuopio Kaavi region of Finland that, once developed, would be the first diamond mine in the European Union.


Application for the mining concession over the company’s Lahtojoki deposit had previously been approved by TUKES, the Finnish mining authority, and the National Land Survey, on the order of TUKES, carried out the proceedings to establish the mine concessions.

Through this process, the Survey decided on a ground rental compensation totalling €162,815 to the land owners, which Karelian paid in cash by March 2023. However, the land owners appealed the decision with the Finnish Land Court, seeking a larger compensation as well as a change to the mine boundaries.

On Monday, the Finnish Land Court maintained the original decision on the mine boundary and rejected most of the claims brought by the land owners on the compensation. Three items were referred back to the National Land Survey for review.

Finalization of the mine boundaries, said Karelian, represents “an essential step” in relation to the proposed development of the Lahtojoki diamond deposit. A valid mining concession would allow the project to proceed through development, subject to any relevant environmental assessments or requirements.

The company believes that the Lahtojoki diamondiferous kimberlite pipe has the potential to become a profitable low strip ratio open pit diamond mine.

The deposit is said to contain high-quality colourless gem diamonds, as well as pink diamonds and other coloured diamonds, which can command prices up to 20 times that of normal colourless gem diamonds, it noted.

Cheap foreign labour soars in Canada as young workers are left jobless

By Randy Thanthong-Knight

August 12, 2024 

(Bloomberg) -- It’s getting harder for young Canadians to find a job. A post-pandemic influx of cheap foreign workers in restaurants and retail stores may be making it tougher.

Michelle Eze started actively searching for work around Toronto in October, just as the youth unemployment rate in Canada began to surge. The 22-year-old public-policy graduate sought out teaching and restaurant service jobs to help pay the bills and support her parents, but struck out.

“I was struggling. I was searching on Indeed, looking everywhere, asking friends and like — nothing,” she said. “That was really demoralizing because I had the determination but I was seeing no results.”

Eze is still searching. Her difficulty underlines a disconnect in Canada’s labor market: Entry-level jobs for students and recent graduates are much harder to find as the economy weakens, yet the country has also imported hundreds of thousands of temporary foreign workers for jobs, many of them in the food and retail sectors.

That’s contributing to a soaring rate of youth unemployment. Two years ago, the jobless rate for people 15 to 24 years old was a little over 9%. Now it’s 14.2% — the highest level in more than a decade outside of the Covid-19 pandemic.

For younger immigrants — those who’ve landed in Canada in the past five years — the unemployment rate is around 23%.

An analysis of government data by Bloomberg News shows explosive growth in the number of temporary foreign workers in food and retail over the past five years. The number of them approved to work in those two sectors jumped 211% between 2019 and 2023.

The rapid surge is partly fueled by the increase in demand for immigration to Canada after pandemic travel restrictions eased. Many newcomers saw these temporary jobs as a step to help gain permanent residency, and many employers relied on the program when the economy reopened.

Business lobby groups have argued the temporary foreign worker program — originally designed to help farmers deal with seasonal labor needs — is critical to fill vacant positions.

But in cities like Toronto, the state of the labor market is undermining their case. Canada’s largest metropolis is hardly short of young, available workers. The region had more than 120,000 unemployed people aged 15 to 24 as of July — an increase of 50% in just two years, according to Statistics Canada data.

“We’ve noticed more youths are coming to us partially because of the influx of new Canadians,” said Timothy Lang, chief executive officer of Youth Employment Services, which helps young Toronto residents get training and find jobs. “Sadly, some companies will take people with more experience so they’re knocking some youths out.”

That’s the experience of 17-year-old Alexander Clarke, who has spent months applying to grocery stores, fast-food joints and clothing shops, but never heard back from any employers.

“I think they’re looking more for older people these days,” Clarke said. “A lot less youth are getting employed — like you see a lot of older people working at places, not people my age.”

In response to public pressure, Prime Minister Justin Trudeau’s government has rolled back some of its pandemic-era measures aimed at alleviating labor shortages. For example, it has curbed the number of hours that international students are allowed to work, and it’s promising tougher enforcement against businesses that abuse the system for hiring temporary foreign workers.

Still, under current rules, companies are permitted to bring in foreign workers even in areas with elevated and rising unemployment.

Canada allowed employers to bring in roughly 240,000 workers under the temporary foreign worker program last year, nearly double the amount in 2019. About a fifth of those positions were in jobs most common in restaurants and retail stores, such as cooks, food counter attendants and cashiers.


The share of these jobs grew significantly from before the pandemic, while the proportion of foreign workers doing agricultural work declined to 41% last year, from 54% in 2019.

Collectively, major restaurant and retail chains make up the biggest group of employers using the program to hire these types of workers, but their reliance on the system is impossible to quantify due to the rampant use of numbered companies in government data.

In Ontario alone, Tim Hortons hired at least 714 temporary foreign workers last year, up from 58 in 2019. But some 92% of those positions in 2023 were listed under holding companies that didn’t bear the franchise name.

The use of the program may not only be making it harder for youths to get jobs but also suppressing wages for the entry-level positions where they compete with foreign workers

.

Canada's Temporary Foreign Work Program Has Exploded | Approved positions nearly doubled between 2021 and 2023 (Employment and Social Developmen)

“In a sense what we’re doing is we’re subsidizing those activities by allowing them to bring in low-wage workers rather than make them pay a competitive wage,” said Christopher Worswick, economics department chair at Carleton University in Ottawa, who co-wrote a peer-reviewed report showing firms prefer temporary foreign workers due to their higher efforts for the same wage.

“Wages should go up until labor supply equals labor demand,” Worswick said. “Labor shortages should be filled by wage increases. The only thing stopping a wage increase is the profitability of the firm.”

©2024 Bloomberg L.P.