The Oil Sands Weekly
- WCS and C5+ discounts widen to record highs
- Alberta calls on Ottawa to boost rail export capacity
- NY State takes aim at Kearl and Cold Lake
- Imperial restarts Norman Wells
- Trudeau gets tough on ON, SK, MB and NB
- Jacobs gets out of the energy business
- GM asks Trump for help selling more EVs
- Mexico imports crude for the first time in a decade
- Oil markets quickly shift from supply disruptions to being oversupplied.
The discount on Canada's heavy oil benchmark widened to a record US$47 a barrel this week, bringing Western Canadian Select (WCS) to a multi-year low of US$19.50 on Tuesday. The discount for Canadian Light also widened to US$28, up from just over US$5 in early August. Edmonton Condensate (C5+) prices, which normally trades on par or even at a slight premium to WTI, is now more than US$10 below the US benchmark. The sharp decline in recent weeks is being blamed on low demand from US Midwest refineries, the largest buyers of Canadian crude, due to an unusually busy maintenance turnaround season.
Shifting focus away from the Trans Mountain Expansion project, Alberta Premier Rachel Notley is calling on Ottawa to boost crude by rail capacity. However, it's unclear what Ottawa can do to boost rail transport in the short term. CP Rail is expecting volumes to top 200,000 bbl/day in 2019, while competitor CN Rail says they can probably hit 250,000 bbl/day next year. According to government estimates, crude-by-rail exports to the US are expected to reach 300,000 bbl/day by the end of this year and potentially 400,000 bbl/day at the end of 2019. According to the National Energy Board, Canada exported 229,500 bbl/day of crude to the US by rail in August.
The government of Alberta also introduced its new Methane Emissions Reduction Program, aimed at helping smaller oil and gas facilities "identify, reduce, improve or eliminate methane waste through energy-efficient equipment upgrades." Operators that produce less than 40,000 boe/day can quality for up to $250,000 per facility annually.
After being offline for almost two years, Imperial Oil has restarted operations at Norman Wells, located about 700 km northwest of Yellowknife, NT. The facility was shutdown at the end of 2016 after its product pipeline, Line 21, was taken out of service due to a slope stability issue near Fort Simpson, NT. The outage also cut power to the nearby town, much to the dismay of local officials, forcing the region to switch to diesel generators. Enbridge completed repairs on Line 21 at the end of September, resuming deliveries into Alberta. The company says output will gradually increase to about 10,000 bbl/day, on par with production levels before the shutdown. Imperial put the property up for sale, but has yet to find a buyer. The facility employs about 100 workers.
The federal government has followed through on its threat to impose carbon taxes on uncooperative provinces, namely, Saskatchewan, Manitoba, Ontario and New Brunswick, starting at $20/t on January 1, 2019. The government says the carbon levies are not a "tax" but rather an incentive to help the environment, advertising the program as more of a funds redistribution scheme. Ottawa expects to collect $2.3 billion in those four provinces, with 90% of revenues going back to families in the form of rebates, and the remaining 10% going to schools, hospitals and other agencies that can't pass the tax onto consumers. Other provinces are not included in the federal plan, since they already have a provincial carbon-pricing program in place. The government has yet to calculate proceeds from heavy emitters, which won't take effect until the middle of 2020.
General Motors is asking the Trump Administration to change course on zero emission vehicles, seeking a nationwide program to boost sales of electric vehicles (EVs), through government incentives and the build-out of infrastructure. Last summer, the US Environmental Protection Agency (EPA) announced intentions to cancel plans to boost national vehicle efficiency standards and revoke a waiver that allows California to go well beyond federal efficiency standards. GM says it plans to produce 20 EV models by 2023. The company says backing from the federal government could force the sale of 7 million EVs in the US by 2030, while adding jobs, reducing emissions and lowering fuel demand. Americans are expected to buy about 250,000 EVs this year.
After several years of investigation, New York's attorney general filed a lawsuit against ExxonMobil for underestimating the cost of carbon in the evaluation of its assets, particularly Kearl and Cold Lake. In recent years, several US municipalities have unsuccessfully tried to sue Exxon and other oil majors for weather-related events thought to be caused by climate change. Government lawyers have now shifted their focus to much stricter shareholder-rights regulations, that require publicly-traded companies to disclose all risks to their balance sheets. The state alleges the company failed to account for over US$25 billion in GHG-related expenses over the life of the two projects, and grossly overestimates recoverable reserves. Exxon calls this latest court challenge "baseless" and will be seeking to have the lawsuit dismissed.
Jacobs Engineering has agreed to sell its entire energy, chemicals and resources business to Australia's WorleyParsons for US$3.3 billion. The deal is structured US$2.6 billion in cash and US$700 million of shares. Jacobs says it wants to focus on "more consistent, higher-margin growth," streamlining its company into two segments - Aerospace, Technology, Environmental & Nuclear (ATEN) and Buildings, Infrastructure & Advanced Facilities (BIAF). The deal has been approved by both boards and is expected to close in the first half of 2019. Upon closing, WorleyParsons effectively doubles in size.
Phillips 66 was awarded a tender to supply Mexico's Pemex with at least 1.4 million barrels of light Bakken crude in November. This is Pemex's first crude import in over a decade. The crude is destined for the Salina Cruz refinery, which faces dwindling domestic supply. Mexico's light crude output has fallen more than expected this year, due to operational problems at the Xanab oilfield, Pemex's largest production facility. The import has been heavily criticized by Mexico's president-elect Andres Manuel Lopez Obrador, calling it a sign of the country's failed economic policies over the past 30 years.
Argentina’s state-owned YPF says it plans to significantly boost oil and gas production, aiming to raise output by as much as 7% annually. The company is investing up to US$5 billion per year over the next four year, mostly in the Vaca Muerta formation. Exxon, Chevron and Shell all have stakes in the formation, which is one of the world’s largest shale reserves. The region currently produces about 160,000 boe/day, but could easily rise to 900,000 boe/day by 2024, if the country manages to attract enough foreign investment and technical know-how. YPF also plans to begin exporting gas to Chile, and investing in offshore exploration off the southern Atlantic coast. Argentina has the fourth-largest oil reserves in South America, but produces only 500,000 bbl/day of oil due to a long history of corrupt governments and red-tape.
Jair Bolsonaro, the frontrunner in Brazil’s upcoming presidential election, promises to change the country’s fuel tax regime and replace PetroBras' CEO with someone with a military background. Last May, Brazilian trucker's staged a massive strike over rising diesel prices, crippling the economy and forcing the government to boost fuel subsidies. Bolsonaro, a right-wing candidate with strong support from retired army generals, has also rejected calls to privatize the state-owned oil major, at least not in the short term.
Oil markets have quickly shifted from concerns over supply disruptions, to concerns of oversupply this week, as latest OPEC estimates show inventories are likely to begin rising in the fourth quarter, due to slowing demand in emerging markets and rising production. Saudi Arabia says it may need to restrain its planned output increase, potentially "changing course" and reimplementing production cuts.
- November contract expiry for Henry Hub
- Q3/18 earnings: PrairieSky Royalty
- Q3/2018 earnings: AltaGas, BP, Whiting Petroleum
- August GDP by industry data released by StatsCan @ 8:30am ET
- September industrial product and raw materials price indices released by StatsCan @ 8:30am ET
- EIA Weekly Petroleum Status Report released @ 10:30am ET
- Last trading day for Brent December contract and RBOB gasoline November contract
- Q3/18 earnings: Suncor Energy, Cenovus, Anadarko Petroleum, Williams Co, Civeo
- EIA Weekly Natural Gas Storage Report released @ 10:30Am ET
- Q3/2018 earnings: TransCanada, Pembina Pipeline, CNRL, Encana, Cenovus, MEG Energy, Marathon Petroleum, Royal Dutch Shell
- October Labour Force Survey released by StatsCan @ 8:30am ET
- Baker Hughes Rig Count released @ 1:00pm ET
- Q3/18 earnings: Imperial Oil, Enbridge, Exxon Mobil, Chevron