Canada, The Unexpected Winner in the Global Oil Boom
Canada’s oil output is booming as producers ramp up projects and extraction amid expanded market access and narrowing discounts of the Canadian heavy crude to the U.S. benchmark. The Trans Mountain Expansion Project, now finally completed and operational after years of delays, is changing the fortunes of the oil sands producers in Alberta, giving them access to markets in Asia and the U.S. West Coast. Constrained for years due to insufficient egress, Canada’s oil now has nearly 600,000 barrels per day (bpd) of additional market access. The expanded Trans Mountain pipeline is tripling the capacity of the original pipeline to 890,000 bpd from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast. And producers are taking advantage of this. They began ramping up production at the end of last year in anticipation of the Trans Mountain Expansion (TMX) start in the first half of this year. Canadian oil firms now get more bang for their buck as the discount of Western Canada Select (WCS), the benchmark for Canadian heavy crude sold at Hardisty in Alberta, has narrowed relative to the U.S. crude oil benchmark, West Texas Intermediate (WTI) in recent weeks. Moreover, the production increases in the oil sands are the result of the expansion of operational projects with existing infrastructure, so the capital expenditure – which is very high for this type of crude extraction – has been lower than for building projects from scratch. The rise in Canada’s oil sands output, mostly thanks to the Trans Mountain Expansion, is making the country one of the top non-OPEC+ contributors to growing global supply this year, alongside the United States, Guyana, and Brazil. Some analysts even forecast that Canada could be the single largest source of oil supply growth, ahead of the U.S. or Guyana. “Barring any unforeseen circumstances, Canada could be the largest source of increased oil supply across the globe in 2024,” Marc Ercolao, economist at TD Economics, wrote in a report earlier this year. This year, output growth in Canada could be 300,000 bpd –500,000 bpd, “putting the nation in the running to be the largest source of global oil supply growth,” Ercolao said. Global oil supply growth estimates vary based on differing projections from forecasters and agencies, but Canadian oil could account for 25–67% of incremental supply in 2024, the economist noted. “Canada should be able to capitalize on higher prices paid for our oil as well as the forthcoming ability to get Western oil reaching international markets,” Ercolao added. Increased Egress, Higher Prices TMX is set to boost the price of Canada’s heavy crude oil for years to come, top executives at the major energy firms say. In 2023, WCS was valued at an average of US$17.90 per barrel less than WTI. Early in 2024, that discount had widened to about US$18.50 per barrel before narrowing to less than US$13 per barrel in early April 2024, just before TMX entered in service, data from Canada Energy Regulator (CER) showed. Crude oil production has been growing in western Canada, with Alberta hitting record-high production of 4.53 million bpd in December 2023. TMX is set to increase total western Canadian crude oil export pipeline capacity by 13%, helping to relieve capacity constraints on export pipelines, the regulator noted last month. Overall, the capacity of the expanded Trans Mountain pipeline will represent 17% of the total pipeline export capacity available to Canadian crude oil shippers, CER said. While the biggest Canadian oil producers reported a mixed bag of Q1 earnings this spring, all of them expect TMX to boost Canada’s oil prices and to be a major asset for the industry for years to come. Drew Zieglgansberger, Executive Vice-President and Chief Commercial Officer at Cenovus Energy, said, “We’re pretty excited on behalf of the industry and Canada to have another great asset available to us.” Oil Sands Firms Outperform U.S. Shale Producers Investors have welcomed the renewed optimism in the industry and the higher returns to shareholders Canadian producers have started to offer. The four largest oil sands producers in Canada have seen their stocks gain 37% in the past 12 months, while the index of the biggest U.S. oil and gas firms has trailed this average gain by 19 percentage points, according to data compiled by The Wall Street Journal. While oil-sands projects are more capital-intensive and need years to start-up, they can pump crude for years and decades, unlike the shale formations in the U.S. “Oil sands are costly to produce, but there’s no shortage of the resource,” Wells Fargo equity analyst Roger Read told the Journal. Things are looking up for Canadian producers, at least in the near to medium term. And Firms have started to reward shareholders. Canadian Natural Resources, for example, said in its Q1 earnings release last month that “Commencing in 2024, we are returning 100% of free cash flow to shareholders, as per our free cash flow allocation policy, and continue to manage the allocation on a forward-looking annual basis.”
Aramco signs over $25 bn of deals for main gas network, Jafurah gas field
Saudi Arabia’s state oil company Aramco has signed contracts worth more than $25 billion for the second phase of the expansion of its Jafurah gas field and the third phase of expanding its main gas network, its CEO Amin Nasser said on Sunday. Saudi Arabia is working on developing its unconventional gas reserves, which require advanced extraction methods such as those used in the shale gas industry. Jafurah is the kingdom’s largest unconventional non-oil associated gas field and is potentially the biggest shale gas development outside the United States, with reserves reaching 229 trillion cubic feet of gas and 75 billion barrels of condensates. “By generating an anticipated 2 billion standard cubic feet per day of sales gas by 2030, this bold initiative will strengthen Saudi Arabia’s position as one of the top national gas producers in the world”, said Nasser, speaking of the Jafurah field at a contracts award ceremony in Dhahran. The main gas network expansion will add 4,000 more kilometers of pipelines, boosting capacity by around 3.2 billion standard cubic feet per day and connecting several additional cities from across the country to the network, he said. Companies awarded contracts for the expansion in Jafurah included a consortium involving Hyundai Engineering & Construction, while Chinese state energy giant Sinopec figured among the firms involved in the main gas network expansion.
World Bank approves US$ $1.5 billion loan to support India’s hydrogen initiatives
The World Bank’s Board of Executive Directors approved $1.5 billion in financing for a second operation to help India accelerate the development of low-carbon energy. The operation will seek to promote the development of a vibrant market for green hydrogen, continue to scale up renewable energy, and stimulate finance for low-carbon energy investments. India is the fastest-growing large economy in the world, and the economy is expected to continue to expand at a rapid pace. Decoupling economic growth from emissions growth will require scaling up renewable energy, especially in hard-to-abate industrial sectors. This, in turn, will require an expansion of green hydrogen production and consumption as well as a faster development of climate finance to boost the mobilization of finance for low-carbon investments. The Second Low-Carbon Energy Programmatic Development Policy Operation – the second in a series of two operations similar in size – will support reforms to boost the production of green hydrogen and electrolyzers, critical technology needed for green hydrogen production. The operation also supports reforms to boost renewable energy penetration, for instance, by incentivizing battery energy storage solutions and amending the Indian Electricity Grid Code to improve renewable energy integration into the grid. In June 2023, the World Bank approved the $1.5 billion First Low-Carbon Energy Programmatic Development Policy Operation which supported the waiver of transmission charges for renewable energy in green hydrogen projects, the issuance of a clear path to launch 50 GW of renewable energy tenders annually and creating a legal framework for a national carbon credit market.
GAIL says Urja Ganga gas pipeline completion delayed to March 2025
The construction of the Rs 12,940-crore ‘Urja Ganga’ gas pipeline, India’s most ambitious project taking environment-friendly fuel to eastern parts of the country, has been delayed by nine months and will now be completed by March 2025, state-owned GAIL (India) Ltd said. The 3,306-kilometre Jagdishpur-Haldia-Bokaro-Dhamra pipeline was originally targeted for completion by June 2024. But due to “delay in right of use (RoU) availability”, the completion schedule has been revised “from June 2024 to March 2025”, GAIL said in a stock exchange filing. The bulk of the pipeline has already been constructed, and gas has started to flow in most cities along the route. Traditionally, natural gas was available for use as fuel to generate electricity, make fertiliser or turn into CNG and cooking gas only in the western and northern parts of the country, as pipelines taking the fuel from source to users were limited to these parts. In October 2016, work on laying a pipeline from Jagdishpur in Uttar Pradesh to Haldia in West Bengal, Bokaro in Jharkhand and Dhamra in Odisha began