Investment In North American Upstream Increasing, But Pipeline Permitting Issues Slowing Growth

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Image: Cenovus

Global upstream oil and gas investment fell from a peak of just under $900 billion in 2014 to less than $400 billion in 2021, according to the annual Gas Market Report of the Gas Exporting Countries Forum (GECF).

But investment recovered in 2022 to $500 billion and is likely to grow again to $560 billion in 2023.

North America is leading the charge, being responsible for 37 per cent of all global upstream oil and gas spending in 2022 — a share that the GECF says will be maintained even as total investment grows this year.

North American gas production is expected to rise by five per cent to 20.9 million boe/d in 2023, the report says.

Data drill

Where is this rising production coming from?

Of the 52 domestic U.S. producers providing 2023 guidance, 34, or 65 per cent, said they plan production increases this year, according to the Daily Oil Bulletin’s corporate guidance report, which uses data sourced from Evaluate Energy.

The biggest increases come from:

  • EOG Resources, Inc.: 77,633 boe/d
  • Permian Resources Corporation: 65,791 boe/d
  • Marathon Oil Corp.: 52,500 boe/d
  • Diamondback Energy Inc.: 48,995 boe/d
  • Chord Energy Corporation: 48,966 boe/d
  • Devon Energy Corporation: 42,333 boe/d
  • ConocoPhillips: 42,333 boe/d

Meanwhile, of the 46 domestic Canadian producers for which 2023 production guidance is available, 40 (77 per cent) say they will increase production in 2023.

The biggest increases come from:

  • Canadian Natural Resources Limited: 70,566 boe/d
  • Cenovus Energy Inc.: 33,800 boe/d
  • Crescent Point Energy Corp.: 30,718 boe/d and
  • Tourmaline Oil Corp.: 29,168 boe/d

The bulk of Canadian and U.S. producers are increasing production in 2023, according to guidance.

Data from the firms that have submitted production guidance so far indicate a 6.6 per cent U.S. production increase year-on-year in 2023 and a 6.4 per cent Canadian increase over the same period.

(These figures are subject to change because some large producers such as Chevron Corporation are in the minority of companies that are yet to provide production guidance.)

“The year 2023 may be one of the most pivotal moments in time for Canada’s oil and natural gas industry,” Lisa Baiton, chief executive office of the Canadian Association of Petroleum Producers (CAPP), said earlier this month. “Canada is positioned to play a much larger role in providing responsibly produced energy resources to the world.”

However, capex data shows that Canadian firms still have some way to go to catch up with U.S. spending.

Evaluate Energy data for the same 46 domestic Canadian producers that have reported forecasts shows C$24.2 billion of capex investment in 2023, an almost 11 per cent ($2.4 billion) increase on 2022.

This compares to US$93.8 billion for the U.S. firms, a 19 per cent ($15 billion) increase on 2022.

Problems in the pipeline

Lack of adequate pipeline capacity is still a key obstacle to production increases in both countries.

However, a few key pipeline projects are progressing in Canada that will go some way towards addressing the problem.

By late 2023, TC Energy Corporation aims to complete work on its West Path Delivery Program that will add approximately 119 kilometres of natural gas pipelines to both the NGTL and Foothills systems. And Enbridge Inc.’s expansion of the T-South Pipeline will add 300 mmcf/d of capacity between Chetwynd, British Columbia, and the U.S. border from 2028.

“Increasing cross-border pipeline capacity will allow Canadian producers to raise production,” says a recent report on the Canadian upstream from credit ratings agency Fitch Solutions.

Also key is the nearing completion of TC Energy’s Coastal GasLink project, a pipeline that will feed the country’s first LNG export terminal at Kitimat on Canada’s West Coast.

TC Energy has recently faced rising costs on the project from the previous estimate of C$11.2 billion (US$8.39 billion) to C$14.5 billion (US$10.89 billion).

Meanwhile the U.S. has faced similar problems getting natural gas from the Appalachian and Permian basins to demand centres, as several large pipeline projects have been scrapped in recent years.

“We keep standing in our own way to get critical infrastructure built,” said Alan Armstrong, the chief executive officer of pipeline company Williams last year.

The almost-complete Mountain Valley Pipeline (MVP) will bring two bcf/d of additional takeaway capacity to Appalachia, but the pipeline has faced strong resistance that has resulted in multiple delays.

Permitting reforms were eventually excluded from the U.S. Inflation Reduction Act during negotiations but have resurfaced in the Lower Energy Costs Act, which contains measures designed to make pipelines faster and easier to build.

The bill has passed the Republican-controlled House of Representatives, but will face more opposition in a Democrat-controlled Senate, where majority leader Chuck Schumer said it would be “dead on arrival.”

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