With the dramatic rise of the Chinese economy, the stage is set for Canadian oil sands firms to capitalize on the increased global demand for oil.
But efficient transporting of Alberta crude to Asia-bound tankers on Canada’s west coast must be established, say oil industry insiders, to take full advantage of this international opportunity.
According to estimates, the lost revenue stream last year for Canada as a result of not having a diversified export market was about $19 billion, says Chris Seasons, president of Devon Canada Corporation, an oil and natural gas exploration and production company.
“That loss has an impact through the whole value chain,” Mr. Seasons says. “It is a loss for oil and gas companies, but also federal and provincial governments – lost revenue that could contribute to the Canadian economy in the form of infrastructure, jobs and investment.”
Mr. Seasons recognizes that current exports are being sent through Vancouver via the Trans Mountain pipeline. The proposed expansion of that line is meeting with some resistance. “We know there are concerns. We know British Columbians need to see the benefits,” he says. “We have work to do as an industry to gain their trust.”
Supporters of additional pipelines to the west coast say construction is critical to the industry, given the soaring energy demand in Asia and the rapid growth of Canada’s oil sands.
“The Asian market is where the growth in demand will make the investment in infrastructure worthwhile. Canada also needs billions of dollars in investment to develop its energy resources, and Asian investments should be welcomed.”
Dr. Eddy Isaacs
Dr. Eddy Isaacs, CEO of Alberta Innovates – Energy and Environment Solutions, says the dramatic rise in Asia’s demand for energy is likely to continue for several years.
From a Canadian economic perspective, he says, this demand will keep commodity prices high and lead to export growth. Canada, therefore, needs to diversify its markets for both oil and natural gas.
“The Asian market is where the growth in demand will make the investment in infrastructure worthwhile,” Dr. Isaacs explains. “Canada also needs billions of dollars in investment to develop its energy resources, and Asian investments should be welcomed.”
Investment firms such as Middlefield Group have seen clients reacting to the increase in global demand for oil. Robert Lauzon, the managing director at Middlefield for Western Canada, says increased oil demand has driven prices considerably higher over the past decade, with the strong pricing environment resulting in many Canadian oil-producing companies becoming dividend-paying entities.
“Our clients have been allocating an increasing proportion of their portfolios to these dividend-paying, oil-producing companies,” he says, adding that since 1979, Middlefield has been developing investment management expertise in the energy sector.
“In the late 1990s, we began to construct both our growth and income portfolios with an overweight energy component,” he notes. “In addition, Middlefield developed many energy-focused closed-end funds, mutual funds and flow-through limited partnerships over the last decade.”
In 2009, Middlefield opened a fully staffed Calgary office in the heart of Canada’s energy patch, he adds, in order to be close to the energy companies and management teams the company invests in.
In the next few years, Mr. Lauzon says, the capital-intensive stage of oil sands projects by major producers will slow, and the companies will start to harvest cash flow. This, in turn, will result in major increases of dividends paid to shareholders.
“Secondary businesses benefiting from the surge in oil sands production, like pipelines, should be able to provide increasing dividends,” he adds. “We anticipate seeing specialized energy funds providing high levels of dividend income to unit-holders in the future.”