Copyright of the Daily Oil Bulletin 2018
Canada Needs To Address Pipeline, Investment Issues As The World Will Need Its Oil, GPS Conference Told
As the new president of Schlumberger Canada Limited, Celine Gerson acknowledges that she has her work cut out for her as she fights for investment dollars for her company, the subsidiary of a large global corporation.
“When you are looking at the boom in the U.S. and the uncertainty here in Canada, it makes it very difficult to … put an argument forward for a dollar investment and even access,” she said this week during a panel discussion at the Global Petroleum Show business conference.
Since moving to Canada earlier this year, one of Gerson’s key activities has been analyzing the political landscape, looking at issues such as the lack of market egress and anything from public opinion to differentials.
Gerson, who confessed she loves data, noted that the only region in the world that has showed clear signs of increased activity and investment since 2015 is U.S. Land.
“Assuming this keeps going, we see that it’s unlikely that U.S. unconventional production alone can address the emerging global supply deficit,” she said. From 2008-2017, investment in light tight oil represented one-fifth of E&P investment but by 2017, only 1/20th of global production, Gerson noted.
Schlumberger is also expecting a fourth year of significant under investment globally, outside of U.S. Land, the Middle East and Russia. In 2018, E&P spending, which makes up 50 million bbls/d of production, is expected to be down 40 cent from 2014, she said.
“At no time in the past 50 years has our industry experienced such cuts of this magnitude and duration,” said Gerson.
“We as an industry need to act in Canada,” she said. “We have the third largest crude oil reserves and CAPP (Canadian Association of Petroleum Producers) is estimating 1.5 million bbls/d of additional crude requiring transport capacity by2030. We have to act and really think new to address this issue that we have on our hands.”
However, “Canada does not have a clear cut vision for the oil and gas sector,” said Chris Bloomer, president of the Canadian Energy Pipeline Association.
“We need an energy policy that addresses that oil and gas are part of the transition and part of the future of the economy,” he said. “We can have a transition in Canada to alternative resources … but the fact remains that we have the third biggest reserves in the world and the world needs more energy.”
Don Pearson, secretary of economic development for the state of Louisiana, told the conference that his state has benefited from the massive shale gas resources that are all connected by pipelines and the ability to aggregate that gas to provide low-cost feedstock for the petrochemical industry.
More than US$145 billion of value-added oil and gas investment is either constructed, under construction or in engineering and permitting. “The name of the game is not just to get into the oil exporting business and cash your cheque and be done but rather to capture that as a feedstock for … many of the basic building blocks of all the materials that are needed,” he said.
Need for certainty
A lot of that investment is coming from outside the country. “We have a very broad base of foreign direct investment that is coming to us because of the stable business environment, infrastructure, ports and railway,” said Pearson.
“At the end of the day, businesses have to have certainty. They have to be able to make that investment decision long term and be confident that the rules and the assumptions that were known at the time remain constant.”
Gerson also suggested that investment in the energy industry in Canada could have an impact on a global company. She noted that in the first quarter of 2018, there was $1.9 billion in Canadian M&A activity compared to $32 billion in the first quarter of 2017. “There is really a huge reluctance from an investor standpoint [to come in] due to the uncertainty,” she said.
One factor is “astronomical differentials,” which will reduce the price of the product, Gerson suggested.
A lot of smaller E&P companies are backed by private equity and when they look at their investment, they are going to take their dollar south of the border, she said. “It’s such a terrible story for Canada where we see so much potential.”
It’s the same story in a global company that wants to spend its money where it can get the highest return on investment. “We have to convince them of the strategic long term investment,” said Gerson. “We do think long term and I do believe that hopefully we see the light at the end of the tunnel in Canada; we still don’t see the construction of some of the pipelines.”
Clarity on consultation
Dennis McConaghy, a retired TransCanada Corporation executive, told the conference that to reduce regulatory uncertainty it’s important that the Canadian government actually clarify in legislation what represents “adequate consultation” because pipeline projects that have been approved have faced legal challenges after the fact on that issue.
“A functional country has to give clarity to that and they have to reduce the risk of the court second guessing what is adequate consultation because that is still one of the biggest doubts and risks that overhangs TXM [Trans Mountain Pipeline expansion],” he said.
“Secondly, we can’t have the situation where a project that is under federal jurisdiction can be beset by claims, even if it has a marine interface, that it is still somehow subject to a veto by one individual province.”
In a third area, “we have to get the politics out of the system early, not late,” said McConaghy. If politicians support a project, they should then delegate it to the regulators.
The regulatory process should set conditions on the construction and operation of a project, he said. It also should ensure that legitimate stakeholder and environmental impacts and safety risks have been addressed with reasonable conditions, conforming to global standards of risk/reward.
“I think if Canada could get to that sort of system we would actually have the conditions restored for private sector capital to take on the risk of these major infrastructure projects,” said McConaghy.
Bloomer also sees the need for changes to the regulatory system. “We need to fix our regulatory system to make sure that when we look forward we are able to see how these projects are going to come to the fore and develop the resources that Canada has.”