The Oil Sands Weekly

The Oil Sands Weekly

In the news this week:
  • MEG shareholders await better offer
  • Pipeline constraints proving good news for oil storage providers ...
    ... and rail operators
  • Enbridge provides update on ruptured BC natural gas pipeline
  • CAPP sounds the alarm on Bill C-69
  • Canadian airlines sound the alarm on pending carbon tax
  • Exxon makes big push into China
  • Total places big bet on India
  • Shell retreats from Denmark
  • US/Saudi ties prove unshakeable
  • Russia calls an end to OPEC's production quotas.
QUICK LINKS:
CDN NEWS
US NEWS
GLOBAL NEWS
UPCOMING EVENTS
CANADA

MEG Energy's Board of Directors is asking shareholders to reject Husky Energy's $6.4 billion unsolicited bid, calling the offer significantly undervalued. MEG says it is at an "exciting inflection point" and has plans in place to accelerate cash flow generation. In response, Husky Energy says they respectfully disagree, calling their $11/share offer "compelling" and beneficial to both companies. Husky says the deal is in the best interest of MEG shareholders, who have until January 16 to tender their shares. In the meantime, MEG plans to open their data books in hopes of attracting a better offer.

Gibson Energy announced plans to expand its oil storage capacity at the Hardisty terminal by another million barrels. The company says it plans to build two new 500,000 barrel tanks, which will be put into service sometime in 2020. Gibson says its has already secured a long-term contract with an "investment grade, senior oil sands customer," and will likely sanction two to four new tanks per year over the near term.

Pipeline constraints are also proving to be good news for Canada's rail operators, as CP Rail reported a 60% jump in revenues from the transport of energy, chemicals and plastics. CEO Keith Creel says he expects to transport over 200,000 bbl/day in 2019, likely surpassing the highs of 2014.

After a pipeline blast near Prince George on October 9, Enbridge says its ruptured 36 inch natural gas pipeline should return to service sometime in mid-November. Subject to regulatory approvals, the line will return to service at 80% of normal pressure. An adjacent 30 inch line, which was also shutdown during the incident, was put pack into service early last week and is already running at 80% of capacity. According to the US Energy Information Administration (EIA), the outage sent gas prices higher south of the border, as two refineries were forced to shutdown after natural gas imports from BC were reduced to zero. The EIA says it's likely the region will tap into storage volumes until Enbridge restores full exports on the line.

The consortium behind Kwispaa LNG officially submitted its project description to provincial and federal regulators this week, as it moves into the next phase of development for the 12 million t/y export terminal, to be located on Vancouver Island. The group says marine shipping will be a major focus of its environmental assessment, which will have multiple opportunities for public participation. Despite being backed by the Huu-ay-aht First Nations, who own the 475 hectare site, the project still has its opponents, who fear risks to the environment from LNG tanker traffic, earthquakes and tsunamis. Kwispaa LNG is being led by Vancouver-based Steelhead LNG. The team anticipates a FID decision on the $10 billion project sometime in 2020, subject to receiving all regulatory approvals on time.

The Canadian Association of Petroleum Producers (CAPP) added its voice of opposition against Bill C-69, asking the federal government to "pause and review its plans," taking into consideration long-term implications for the country. CAPP says although the government has good intentions, the bill, as written, it would "endanger the very things it is trying to fix." Echoing a similar sentiment from the Alberta Premier Rachel Notley, the association says the bill lacks clarity on key issues, making an already complex regulatory review process even more complicated, potentially leading to more lawsuits. CAPP would like to see a clearly defined path to project approvals, developed in conjunction with the oil and gas sector, provincial regulators and other stakeholders.

The National Airlines Council of Canada is also sounding the alarm, this time over looming carbon tax levies, which will be added to the cost of interprovincial flights. The advocacy group says the new tax, which will rise to $50/t by 2022 will force them to cut marginally profitable domestic routes, increase airfares and drive passengers to American airports located near the border. Airlines are currently exempted from provincial carbon taxes. The group would like to see Ottawa delay implementation until a national plan is put in place for carriers to purchase credits in order to meet their GHG reduction targets.

USA

The presumed death of a Washington Post journalist in Turkey prompted numerous threat of sanctions and retaliation between the US and Saudi Arabia. The journalist, a US resident and vocal critic of the Saudi government, disappeared after visiting the Saudi consulate in Istanbul. President Trump initially threatened "severe punishment" but later backtracked in light of significant trade ties between the two countries, and a US$100 million payment from the Saudi government.

Threats of legal action from American lawmakers have prompted OPEC to avoid mentioning oil prices when discussing supply targets. The proposed No Oil Producing and Exporting Cartels Act (NOPEC) legislation would leave OPEC vulnerable to anti-trust lawsuits. Although current anti-trust legislation prohibits price fixing by corporations, sovereign entities are currently exempted from the law. Previous efforts to pass the NOPEC bill have failed due to veto threats under Presidents Bush and Obama. However, President Trump appears to be far more open to the legislation, having repeatedly blamed OPEC for high oil prices.

Privately-held JupiterMLP says it has secured enough funding to move forward on the construction of a 1 million bbl/day pipeline, which will run 680-miles from the Permian Basin to three deep water ports in Texas (Houston, Corpus Christi and Brownsville), with capacity to load VLCC carriers. The company plans to build more than 2.8 million barrels of storage in Brownsville, with plans to potentially expand to 10 million barrels. The company is also planning a 170,000 bbl/day shale processing facility. Open season for the US$1.9 billion Jupiter pipeline will be launched in November, with service expected to begin in the fall of 2020.

GLOBAL

ExxonMobil continues its push into China, signing a 20-year LNG supply agreement with Zhejiang Provincial Energy Group. Last month, Exxon agreed to participate in the construction of an LNG import terminal in the Guangdong region, including the provision of gas supplies. The gas will likely be supplied from the company's Papua New Guinea and Mozambique LNG facilities, circumventing China's 10% tariff on US LNG imports. The company was also rumoured to be in talks with the city of Zhoushan on the construction of a second Chinese petrochemicals plant. A 1.2 million t/y ethylene facility is already in the works in Huizhou, China.

The head of Russia's Gazprom says his government has effectively called an end to their pact with OPEC to restrain production. At the end of 2016, Russia and OPEC agreed to reduce output by a combined 1.8 million bbl/day, including 300,000 bbl/day from Russia. Gazprom says they have been cleared to raise production by as much as 30,000 bbl/day this year and another 50,000 bbl/day in 2019. Russia produced a record 11.4 million bbl/day in September. President Vladimir Putin says output could potentially rise by another 300,000 bbl/day next year.

French energy major Total made a big push into India this week, signing an agreement with Indian conglomerate Adani Group. The companies plan to jointly develop several LNG import terminals, and build out a network of 1,500 retail gas stations throughout the country over the next 10 years. India is currently the fastest growing energy consumer in the world.

As Exxon and Total make their push into developing nations, Shell continues to exit from developed countries, this time divesting various production and pipeline assets in Denmark. The Dutch oil major sold its Olie-og Gasudvinding Danmark (SOGU) subsidiary, including its stake in the Danish Underground Consortium (DUC), to Norwegian Energy Company (Noreco) for US$1.9 billion. Shell retains a small presence in Denmark, including the Fredericia refinery and a network of retail gas stations. Shell came close to selling the 70,000 bbl/day Danish refinery late last year, but the deal fell through in January.

NEXT WEEK'S EVENTS

Monday:

  • August Wholesale Trade data released by StatsCan @8:30am ET
  • Last trading day for WTI November contract

Tuesday:

  • Q3/2018 earnings: CN Rail

Wednesday:

  • Interest Rate Decision from the Bank of Canada @ 10:00am ET
  • EIA Weekly Petroleum Status Report released @ 10:30am ET

Thursday:

  • August weekly payroll data released by StatsCan @ 8:30am ET
  • EIA Weekly Natural Gas Storage Report released @ 10:30Am ET
  • Q3/2018 earnings: Husky Energy, Precision Drilling, Crescent Point Energy, Vermilion Energy, Teck Resources, ConocoPhillips

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Advance estimate of US third quarter GDP.
The Oil Sands Weekly

The Oil Sands Weekly

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