Low oil prices – the Canadian oil and gas industry faces continued challenges

low oil prices challenge

Sustained low oil prices mean that Canada’s oil and gas industry is facing “sustained challenges”

Canada’s oil and gas industry is facing “sustained challenges” due to low oil prices, the country’s drilling association said on Tuesday as it released its 2017 drilling forecast.

The Canadian Association of Oilwell Drilling Contractors (CAODC), which represents Canada’s drilling and service rig industry, expects 4,665 wells to be drilled next year — an increase of 1,103 from 3,562 in 2016. The total number of operating days is projected to reach 48,980, compared with 40,403 this year.

But the association commented that, after record low utilization rates in 2016, it would be difficult to suggest that 2017 could be anything but better.

“Activity is moving in the right direction, but we’re still in a depressed and desperate economic environment,” said CAODC president Mark Scholz.

The forecast also shows that the rig fleet is expected to decrease by 55 — from 665 drilling rigs to 610 — and CAODC pointed out that weak commodity prices, coupled with abnormal political and social factors, have led to sustained challenges for the industry.

Although the price of WTI crude oil is projected to stabilize somewhat, continued uncertainty surrounding pipeline infrastructure, and a planned carbon tax, continue to push Canada to the back of the line with respect to long-term investment, the association argued.

Moreover, an article in the Financial Post quoted Scholz as saying that the election of Donald Trump in the United States presents a competitive threat to Canadian drilling operators and energy producers.

A boost in US drilling activity, aided by the rollback of President Barack Obama’s environmental regulations under president-elect Trump, could cause American oil and gas production to increase sharply, Scholz explained.

He called on officials to weigh up how environmental policies like carbon taxes in Canada will affect the domestic energy industry’s competitive position relative to the United States under Trump.

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NEB lowers forecast for Canadian oil production

Canada National Energy Board oil production

Canada’s National Energy Board (NEB) has lowered its long-term forecast for oil prices and Canadian oil production, as a result of lower global industry costs and reduced demand

Canada’s National Energy Board (NEB) has lowered its long-term forecast for oil prices and Canadian production, as a result of lower global industry costs and reduced demand thanks to technology improvements and stricter regulations.

The regulator said on Wednesday that it expects inflation-adjusted oil prices to rise to around US$68 a barrel by 2020 and US$90 by 2040. That’s $12 and $17 a barrel lower, respectively, than in its January report, the Canadian Press reported.

Canadian producers have relatively high costs, so the lower prices are anticipated to mean lower production in the longer term.

“A lot of it is the ability of oil production to be sustained at lower prices,” explained Shelley Milutinovic, chief economist at the NEB. “There’s an expectation that somewhere between 40 and 60 dollars a barrel, you can get a lot of oil production around the world.”

The NEB’s updated projection shows oil production increasing from 4 million barrels a day in 2015 to 5.7 million barrels a day by 2050 — a decrease of 391,000 barrels a day from the January estimate.

So which types of production are likely to be affected, and when?

According to the Canadian Press, the lower oil prices would have a limited effect on oilsands production in the near term as projects are already under construction, but recently cancelled and deferred projects will start to hit production numbers by 2019.

Increasing prices in the longer term would bring a return to steam-extraction oilsands growth, the news agency said. Mining-based oilsands production is likely to remain flat from 2020 as the high cost of these projects makes them less economic.

The National Energy Board is an independent economic regulatory agency created in 1959 by the Government of Canada to oversee “international and inter-provincial aspects of the oil, gas and electric utility industries”. Its head office is located in Calgary, Alberta.

The NEB mainly regulates the construction and operation of oil and natural gas pipelines crossing provincial or international borders. The Board approves pipeline traffic, tolls and tariffs under the authority of the National Energy Board Act. Read more here>>

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