AI
Saturday, May 21, 2022 11:28:35 AM
Canada is becoming less and less of an oil producing country. At least in the eyes of foreign investors.
In the past, things used to be different. Normally, a global economic recovery and an increase in oil prices, such as those experienced in recent months, would have led to a rush of investment, especially foreign investment, into the Canadian oil sector. This should be particularly the case after the invasion of Ukraine and the pressing need for many countries to turn their backs on Russian oil and source it from more presentable countries.
In addition to stimulating Canadian economic growth, this massive influx of foreign capital into Canada would have had the effect of inflating the value of the Canadian dollar, often referred to as the "petrodollar. This appreciation of the loonie would, of course, be bad news for Canadian exporters, who would automatically see the price of their goods and services become less competitive in foreign markets. But conversely, everything Canadians buy from abroad would also be cheaper, which would be welcome news in these times of runaway inflation.
This is what happened, for example, after the crisis of the early 1990s and after the crisis of 2008-2009. But now, "the Canadian economy's response to rising commodity prices appears to be more muted than usual," said Bank of Canada Deputy Governor Toni Gravelle last week at the annual conference of the Association des économistes québécois in Montreal. "In fact," he continued, "the oil and gas sector has been holding back overall investment growth [in Canada] since 2015. [And the] increase in investment levels due to the recent rise in commodity prices is expected to be less than half of what our models generally predict based on historical relationships."
As for the vaunted Canadian petrodollar, it can't exactly be said that it's running amok, having been at US$0.82 12 months ago, $0.79 earlier this year, and $0.78 on Thursday. This is a far cry from the parity it was flirting with just before the Great Recession of 2008 as well as the $0.90 it was still posting in 2014.
Why?
Yet the current economic and strategic context is not lost on anyone, and all indications are that investments in the oil and gas sectors will increase significantly this year worldwide, estimated last month by the specialized research firm Rystad Energy. Out of a total investment of US$2.1 trillion, oil is expected to take the lion's share again this year, with US$658 billion (+16%), followed by natural gas, with US$401 billion (+15%), and other fossil fuels, with US$396 billion (no increase). Green energies will benefit, in some cases, from even higher increases, such as solar (+64%), wind (+24%) and hydrogen (+37%), but will together account for just under a third (31%) of total investments.
So what's the story? Why are all these investors less interested than they were in a country like Canada, which has one of the world's largest fossil fuel reserves under the ground?
The situation is all the more incomprehensible given that Canada is a much safer and more trustworthy country than Russia or Saudi Arabia, Alberta Premier Jason Kenney told a U.S. Senate committee on Tuesday just before he resigned from his post. He blamed the aberration on the Canadian and U.S. federal governments, including Joe Biden for blocking the Keystone XL pipeline project between the two countries.
Investor disenchantment
The problem with this version of the story is that it ignores the fact that foreign investors had begun to turn their backs on Alberta oil long before the Democratic president was elected. Today, most major foreign oil companies and a growing number of large investors have pulled out or are in the process of pulling out all their marbles because their shareholders are demanding that they improve their carbon footprint, and the Alberta oil sands are doing particularly poorly in this regard.
It's also that beyond the recent surge in global demand, "investors expect demand for fossil fuels to slow over the medium to long term," Gravelle said in his speech, as the world moves through the green transition. The last thing they want to do is pour billions into what are likely to become "stranded assets".
Investors are thus faced with the short-term challenge of finding new sources of fossil fuels to replace Russia's and the long-term goal of reaching the zero emissions target by 2050, International Energy Agency Director General Fatih Birol explained last week. The best solutions in this context are those that can be deployed and be cost-effective quickly, such as shale oil and gas projects, extending the life of existing facilities and recovering flared or lost gases from refining.
New oil sands and pipeline projects are the opposite, requiring a lot of money and time.
https://www.ledevoir.com/economie/713454/analyse-le-canada-mis-sur-la-touche-dans-la-course-au-petrole?utm_medium=Social&utm_campaign=Autopost&utm_source=Facebook&fbclid=IwAR1cv8WLozUXzGcsw8j-N7ye6SeIxdALtpxrW8jPREwkJAz9d76SoMJdkI4#Echobox=1653042296
Translated with www.DeepL.com/Translator (free version)
In the past, things used to be different. Normally, a global economic recovery and an increase in oil prices, such as those experienced in recent months, would have led to a rush of investment, especially foreign investment, into the Canadian oil sector. This should be particularly the case after the invasion of Ukraine and the pressing need for many countries to turn their backs on Russian oil and source it from more presentable countries.
In addition to stimulating Canadian economic growth, this massive influx of foreign capital into Canada would have had the effect of inflating the value of the Canadian dollar, often referred to as the "petrodollar. This appreciation of the loonie would, of course, be bad news for Canadian exporters, who would automatically see the price of their goods and services become less competitive in foreign markets. But conversely, everything Canadians buy from abroad would also be cheaper, which would be welcome news in these times of runaway inflation.
This is what happened, for example, after the crisis of the early 1990s and after the crisis of 2008-2009. But now, "the Canadian economy's response to rising commodity prices appears to be more muted than usual," said Bank of Canada Deputy Governor Toni Gravelle last week at the annual conference of the Association des économistes québécois in Montreal. "In fact," he continued, "the oil and gas sector has been holding back overall investment growth [in Canada] since 2015. [And the] increase in investment levels due to the recent rise in commodity prices is expected to be less than half of what our models generally predict based on historical relationships."
As for the vaunted Canadian petrodollar, it can't exactly be said that it's running amok, having been at US$0.82 12 months ago, $0.79 earlier this year, and $0.78 on Thursday. This is a far cry from the parity it was flirting with just before the Great Recession of 2008 as well as the $0.90 it was still posting in 2014.
Why?
Yet the current economic and strategic context is not lost on anyone, and all indications are that investments in the oil and gas sectors will increase significantly this year worldwide, estimated last month by the specialized research firm Rystad Energy. Out of a total investment of US$2.1 trillion, oil is expected to take the lion's share again this year, with US$658 billion (+16%), followed by natural gas, with US$401 billion (+15%), and other fossil fuels, with US$396 billion (no increase). Green energies will benefit, in some cases, from even higher increases, such as solar (+64%), wind (+24%) and hydrogen (+37%), but will together account for just under a third (31%) of total investments.
So what's the story? Why are all these investors less interested than they were in a country like Canada, which has one of the world's largest fossil fuel reserves under the ground?
The situation is all the more incomprehensible given that Canada is a much safer and more trustworthy country than Russia or Saudi Arabia, Alberta Premier Jason Kenney told a U.S. Senate committee on Tuesday just before he resigned from his post. He blamed the aberration on the Canadian and U.S. federal governments, including Joe Biden for blocking the Keystone XL pipeline project between the two countries.
Investor disenchantment
The problem with this version of the story is that it ignores the fact that foreign investors had begun to turn their backs on Alberta oil long before the Democratic president was elected. Today, most major foreign oil companies and a growing number of large investors have pulled out or are in the process of pulling out all their marbles because their shareholders are demanding that they improve their carbon footprint, and the Alberta oil sands are doing particularly poorly in this regard.
It's also that beyond the recent surge in global demand, "investors expect demand for fossil fuels to slow over the medium to long term," Gravelle said in his speech, as the world moves through the green transition. The last thing they want to do is pour billions into what are likely to become "stranded assets".
Investors are thus faced with the short-term challenge of finding new sources of fossil fuels to replace Russia's and the long-term goal of reaching the zero emissions target by 2050, International Energy Agency Director General Fatih Birol explained last week. The best solutions in this context are those that can be deployed and be cost-effective quickly, such as shale oil and gas projects, extending the life of existing facilities and recovering flared or lost gases from refining.
New oil sands and pipeline projects are the opposite, requiring a lot of money and time.
https://www.ledevoir.com/economie/713454/analyse-le-canada-mis-sur-la-touche-dans-la-course-au-petrole?utm_medium=Social&utm_campaign=Autopost&utm_source=Facebook&fbclid=IwAR1cv8WLozUXzGcsw8j-N7ye6SeIxdALtpxrW8jPREwkJAz9d76SoMJdkI4#Echobox=1653042296
Translated with www.DeepL.com/Translator (free version)
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