Federal Natural Resources Minister Jim Carr assured Albertans on Monday that he recognizes the importance of building oil pipelines to new export markets, although analysts question how much additional capacity is needed as depressed prices result in lower forecasts for oil-sands production.
Meeting at a retreat in Kananaskis, Alta., Liberal cabinet ministers were told by Alberta Premier Rachel Notley that it is urgent that the federal government approve proposed pipelines in order to provide confidence for the industry and access to international pricing for her province's principal export.
Mr. Carr said the Premier was "very effective" at making her case. "She has an argument and a story to tell and ministers were very keen to hear it," he told reporters. Asked what the cabinet ministers learned, he said: "That Alberta is going through a tough time, [that] access to market is important."
He said the Liberals have long agreed, but critics say the government needs to be more direct in its support and ensure the approvals process does not drag on.
The National Energy Board gave the nod on Monday to Enbridge Inc.'s $7.8-billion overhaul of its aging mainline into the United States, although the company faces stiff opposition in states through which it crosses. The project would add export capacity into the American market, including the heavy-oil refining hub on the Gulf Coast. The federal cabinet will provide a final decision on it this fall.
Enbridge is also the proponent, with some oil company partners, of the Northern Gateway project, which would carry 500,000 barrels a day of oil-sands crude from Alberta to Kitimat, B.C., for export to Pacific markets.
The former Conservative government approved Gateway, but with more than 200 conditions, which the company is still trying to meet. It also faces implacable opposition from coastal First Nations and a proposed federal ban on tanker traffic, to which Transport Minister Marc Garneau recommitted on Monday.
Mr. Carr said he expects the government to decide on Kinder Morgan Canada's proposed expansion of its Trans Mountain pipeline, which would add roughly 600,000 barrels a day of capacity to a line that ends at Vancouver Harbour. The mayors of Vancouver and Burnaby, B.C. – along with local First Nations – oppose the proposal.
As well, TransCanada Corp. is planning the $15-billion Energy East project – although it has yet to finalize its application to the National Energy Board. It would deliver crude to eastern Canadian refineries and a Saint John export terminal, and has broad support from Canadian politicians. Most recently, former prime minister Brian Mulroney added his backing.
All told, the proposals would add more than two million barrels a day of pipeline capacity. But that would require substantial new investment in the oil sands to fill those pipelines – investment that is not certain to flow if prices stay too low for long.
The Alberta government argues that the lack of access to international markets has forced the province to accept a steep discount on its crude, although economists say the industry has benefited from recent pipeline expansion in Canada and the United States, as well as the U.S. decision to allow the export of oil.
"In general, for the past couple years and today, the differentials [between Alberta and world prices] are reflecting the cost of transportation," Jackie Forrest, an analyst at ARC Financial Corp., said in an interview. "So there is no extraordinary discount at this moment. But there is still more supply coming, so if we don't get new pipeline, that changes."
After 20 months of depressed crude prices, the big question is how much new pipeline capacity is needed. During the previous era of oil prices in the range of $100 (U.S.) a barrel, analysts and industry officials assumed that any and all new capacity would be required, along with increasing oil-by-rail capacity, to move projected volumes.
Since then, companies have slashed capital spending – by 62 per cent over the past 24 months, according to the Canadian Association of Petroleum Producers. It estimated output to hit 5.3 million barrels a day by 2030 – 17 per cent lower than the forecast issued in 2015. Another cut in expectations is widely anticipated this year.
Ms. Forrest said the pipelines through B.C. are the most critical. "The growth is in Asia and we can't economically access Asia," she said.
Michael Tran, oil analyst at RBC Dominion Securities Inc. in New York, said new pipeline capacity remains crucial to the industry's ability to get sufficient returns, but he agreed that those planned to run to the Pacific Coast offer the best economic returns.
"Any pipeline is just so paramount to the future of Canadian energy, but not all pipelines are created equal," Mr. Tran said. "The ones that run west to potentially serve such places as China or India, I think, are much more important, just given the proximity to key demand-growth regions."
Kuwait plans to boost oil production to more than three million barrels a day within months, doubling output from where it stood during last week's oil-worker strike.
Output will climb to 3.15 million barrels a day by June, Haitham al-Ghais, market research manager at government-owned Kuwait Petroleum Corp., said on Monday in an interview in Abu Dhabi. That would be the OPEC member's highest level of production ever, according to data compiled by Bloomberg.
A three-day strike by Kuwaiti oil workers sent crude production tumbling to 1.5 million barrels a day last week. The Oil and Petrochemical Industries Workers Confederation agreed to end the walkout after the government refused to negotiate while labour was off the job. Kuwait produced three million barrels a day before the strike, data compiled by Bloomberg show, making it the fourth-largest member of the Organization of Petroleum Exporting Countries.
"The strike is now done and production is back to normal," Mr. al-Ghais said. "We should reach our target of 3.15 million barrels in June," he said, referring to both output and production capacity.
Kuwait is targeting capacity of four million barrels a day by 2020, including 350,000 barrels a day from oil fields it shares with Saudi Arabia, he said.