The Oil Sands Weekly

The Oil Sands Weekly

In the news this week:
  • Aspen gets a green light at Imperial
  • More Alberta barrels get shut-in ...
    ... as WCS plummets to US$17
  • Trans Mountain Corp gets new board
  • Keystone XL gets squashed in Montana
  • Enbridge's Line 5 gets challenged in Michigan
  • NL breaks records in latest offshore auction
  • Washington State rejects carbon tax, for a third time
  • US crude production soars to new record highs
  • Russians/Saudis discuss output cuts ...
    ... as oil prices hit bear market territory.
ALBERTA

After finally receiving regulatory approval last week, Imperial Oil says it will go ahead with the construction of its Aspen Project, located just south of the Sunrise lease. The project will use solvent-assisted, steam-assisted gravity drainage (SA-SAGD) technology to recover bitumen, which is expected to be 25% less carbon and water intensive than traditional SAGD. The 75,000 bbl/day project has an estimated capital cost of $2.6 billion, with first oil expected in 2022. Imperial also says it may sanction another 75,000 bbl/day of production contingent on "foundational project performance and overall business and market conditions." Aspen has regulatory approvals for up to 150,000 bbl/day of output.

The Alberta Energy Regulator (AER) announced the resignation of its president and CEO, Jim Ellis, effective January 31, 2019. Ellis joined the AER in 2013, overseeing the transition from the former Energy Resources Conservation Board (ERCB). The AER says they have now embarked on a search for a new CEO.

Athabasca Oil Corp and Obsidian Energy joined CNRL, Cenovus and MEG Energy in their plans to shut-in production due to low oil prices. Athabasca says it plans to slow production out of Hangingstone and Leismer by 5,000 to 8,000 bbl/day for the remainder of this year. Obsidian Energy has delayed the start of four newly constructed wells in Peace River. Perpetual Energy and Gear Energy also announced plans to defer Q4 drilling programs to sometime next year. RBC pegs total production losses somewhere between 52,000 and 98,000 bbl/day, while investment firm Eight Capital says at least 110,000 bbl/day is offline due to lack of storage capacity in Alberta. 

According to Statistics Canada, the country produced 4.4 million bbl/day in August (the latest available data), but RBC estimates production is currently tracking closer to 4.6 million. Canada's heavy oil benchmark, Western Canadian Select (WCS), ended the week at US$17 a barrel, a full US$44 below WTI. Canadian Light isn't fairing much better, trading at a US$35 discount, or roughly US$25/bbl. Although differentials have actually narrowed in recent weeks, WTI has now declined for 10 days in a row, ending Friday at US$60/bbl, down US$16 from the highs of early October.

CANADA

Trans Mountain Corporation (TMC) got a new board of directors this week, appointed by the Canada Development Investment Corporation (CDEV). The 10 board members include former CEOs of Cenovus Energy, Shell Canada, Kinder Morgan Canada, as well as several federal politicians and members of the Indigenous community. TMC is a wholly-owned subsidiary of CDEV, a Crown corporation responsible for the management of assets owned by the federal government.

Equinor, Husky Energy and Suncor Energy were successful bidders in three exploration parcels off the coast of Newfoundland. Two fields will be operated by Equinor, the third by Suncor. A subsidiary of Australia's BHP Billiton was also awarded two parcels in the auction, with one parcel sold at a record $621 million. The five parcels are located in the Jeanne d'Arc basin, about 340 km SE of St. John's, NL. The auction raised a record $1.4 billion for the province.

USA

A Montana judge has stopped construction of TransCanada's Keystone XL pipeline, ordering the US State Department to reconsider effects of GHG emissions, impacts on Native American lands, as well project viability in light of current oil prices. President Trump called the "political decision" a "disgrace." TransCanada says it remains committed to the project. More details are expected at the company's Investor Day meeting in Toronto next week.

Meanwhile in Nebraska, two Republicans were elected to the state's Public Service Commission (PSC), one of whom is a vocal supporter of Keystone XL. Pipeline opponents, including billionaire-backed Bold Nebraska, launched a door-to-door campaign to get an anti-Keystone Democrat elected to the PSC. TransCanada is still awaiting a decision from Nebraska's Supreme Court, which could send the project back to the PSC, which remains Republican controlled.

Michigan narrowly elected a Democratic governor this week, who vows to challenge Enbridge's plan to replace a segment of its Line 5 that runs under the Straits of Mackinac. The 65-year old line was struck by a tugboat anchor last spring, prompting Enbridge to replace the underwater section of pipe. Former Gov. Rick Snyder (R) struck a deal with Enbridge to build a concrete tunnel, which would encase the pipeline, reducing the chances of an underwater spill to "near zero." Gov. Whitmer (D) promises to challenge Enbridge's easement in the state, and says she supports shutting down the line completely. Line 5 is part of Enbridge's Mainline network, carrying 540,000 bbl/day of light crude and NGLs through Michigan, connecting to refineries in the Midwest and Sarnia, Ontario. The line also supplies Michigan with more than half of its propane demand, used primarily for winter heating.

Colorado voters rejected Proposition 112, legislation that would have mandated more spacing between new wells and residential and environmentally sensitive areas, potentially cutting output in half by 2023. Opponents argued the measure would cost the state about US$200 billion over 12 years. Colorado is the fifth-largest producing state in the US.

Washington State rejected Initiative 1631, which would have imposed a US$15/t carbon tax, rising by US$2/t until the state meets its 2035 emissions target. Media outlets blamed the defeat on propaganda from Big Oil, namely BP, Phillips 66, and Marathon Oil, who all own refineries near the Canadian border. Initiative 1631 was backed by billionaires Bill Gates and Michael Bloomberg. The Evergreen State has five refineries, which produce 43% of the state's GHG emissions. This is the state's third attempt to impose a carbon tax.

According to the US Energy Information Administration, production out of the Lower 48 surged another 400,000 bbl/day last week, despite little movement in active rig counts. This increase brings total US production, including Alaska, to a new record high of 11.6 million bbl/day, an increase of 1 million barrels since last spring.

GLOBAL

The Trump Administration granted waivers to eight countries, namely China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea, allowing them to continue buying Iranian crude despite the reinstatement of sanctions. The eight countries account for 75% of Iran's exports. The waivers are valid for 180 days. The government says 20 countries have already cut imports of Iranian crude, reducing purchases by more than 1 million bbl/day, reducing revenues by more than US$2 billion, and wiping out tens of billions in investments dollars. Trump told reporters the waivers were intended to "go a little bit slower" on reducing supply out of Iran, in order to prevent a spike in oil prices. Mission clearly accomplished.

As world oil prices continue to sink from the highs of early October, Russian news agencies are reporting that Russia and Saudi Arabia have restarted talks to curb output in 2019. In late October, Russian Energy Minister Alexander Novak scoffed at the idea of cutting or capping production, calling an end to his country's pact with OPEC. Novak has since restarted talks with the country's top producers, as oil markets appear at risk of becoming oversupplied. OPEC's joint ministerial committee meets on Sunday to discuss the outlook for next year. However, no new production quotas are expected until the official OPEC/non-OPEC meeting in Vienna on December 6, 2018.

Iraq says it plans to boost output and export capacity in 2019, particularly from its southern oilfields. Iraq's oil minister says he hopes to announce a deal with BP to boost output around the northern city of Kirkuk, calling US$70 oil "a fair price" for its crude. The country currently produces about 4.6 million bbl/day, making it OPEC’s second-largest producer. The government says it is targeting about 5 million bbl/day next year, and potentially as much as 8.5 million bbl/day over the next few years after upgrading its pipeline export capacity. 

China’s crude oil imports touched all-time highs in October, topping 9.6 million bbl/day. Most of those barrels were purchased by independent refiners, commonly referred to as "teapot" refineries, who are seeing strong demand and healthy crack spreads. China recently overtook the US as the world's largest crude importer. US imports of crude continue to decline, falling to about 7.5 million bbl/day on October as  domestic production continues to reach record highs.

NEXT WEEK'S EVENTS

Sunday:

  • OPEC/NOPEC Ministerial Monitoring Committee meeting in Abu Dhabi, UAE

Monday:

  • Cdn/US bond markets & government offices closed for Remembrance Day/Veterans Day

Tuesday:

  • TransCanada Investor Day in Toronto, ON
  • RBC Capital Markets 2018 Midstream Conference kicks off in Dallas, TX
  • 2018 World Energy Outlook released by the IEA in London, UK
  • OPEC Monthly Oil Market Report
  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • Calgarians vote on 2026 Olympic and Paralympic Winter Games

Wednesday:

  • IEA Oil Market Report
  • BAML Global Energy Conference in Miami, FL

Thursday:

  • EIA Weekly Natural Gas Storage Report released @ 10:30am ET
  • EIA Weekly Petroleum Status Report released @ 11:00am ET (holiday schedule)
  • Obsidian Energy Investor Day
  • December contract expiry for WCS, Canadian Light and Edmonton Condensate.

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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