Calgary – Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, thinks the issues facing the oilpatch in this election come down to primarily three things: market access, regulatory and fiscal terms.
He said on Sept. 18, “In June, we brought out our energy platform, that we framed up what those issues are, as far as we’re concerned. They are, Number 1, market access. There are some fundamental issues with Canada. We’ve been the victims of foreign activists working very hard to limit our market access. Thus far, that work has been sadly successful.”
On the regulatory front he said, “Canada, today, is viewed as a global jurisdiction that can’t get major projects done. That needs to be corrected.
“On fiscal side, our largest customer, and now the largest producer of oil in the world and a net exporter of gas, has done fundamental tax reform. The fiscal terms in the U.S. today are driving investment into that country, often at the expense of Canadian jobs,” McMillan said.
“The proof is in the pudding. We’ve seen capital investment in Canada fall from over $80 billion a year in the upstream to less than $40 billion. At the same time, investment and production in the U.S. have skyrocketed.”
As noted in another story in this edition on Page ???, North Dakota has added nearly a half million barrels of oil production, the equivalent of an entire Saskatchewan, in the first two years of the Donald Trump administration.
“That’s a good one,” he said of the North Dakota example. “You’re comparing apples to apples. They’re both into the same formations, and policy, regulatory and fiscal terms are driving investment on an apples-to-apples comparison.
“We can take a step back and look at general, big picture investment in Canada versus the U.S., Middle East and other places, and again, Canada is viewed as a place that can’t get major projects done. That, today, is losing value on every barrel we’re producing because we can’t get world prices,” McMillan said.
Asked why that’s the case, he said, “I think there’s a lot of ways to look at that, but if we look at the fundamental challenge, there is an active campaign, put forward by U.S. activist groups, well-funded, targeting Canadian oil and gas and specifically Canadian infrastructure.”
“We have seen those actors on Trans Mountain. We have seen them on Energy East. As soon as LNG facilities were announced, we saw them shift their focus to the natural gas world and gas pipelines. We can’t be naïve to this. We have to continue to challenge their misinformation, and we have to implore our political leaders to do what’s in Canada’s interests, not just what’s in the interests of these foreign-funded activists.”
Asked what he thought their motives were, he said, “So shut down the Canadian energy industry.”
“I think there’s many reasons why, but I don’t have a clear insight of what is at the root of it. If it was purely on a climate imperative, enabling Canadian natural gas is something they should be working towards. And the fact they are working against Canadian natural gas really just enables coal to continue to build out in India and China, or get natural gas from jurisdictions with a far-higher carbon footprint than Canadian gas. I will not accept that it’s purely on a climate basis that they’re doing this work,” McMillan said.
Breaking down what he means by “market access,” McMillan said, “Our resources in Canada are world-class, in size, in scope, in cost of production. We’re at a time in history where global demand is at a record high, for both oil and gas, and both are growing at near-record pace. All credible predictions, International Energy Agency and others, have it growing out to the end of their forecasts.
“Canada, however, has limited our ability to build pipelines to our customers, and to new customers, meaning that every barrel of oil we produce in Canada, we lose value on, compared to global prices. In the third and fourth quarter of last year we were losing at time $40 a barrel compared to world prices, because we have only one customer, the United States, and global prices are set at tidewater, at the ocean.
“On the natural gas side, the exact same issue. We are losing billions of dollars a year in value, because we have one customer, the United States, and in fact, that customer is displacing Canadian gas in Ontario and Quebec today,” McMillan said.
Asked if we did get gas to the coast for export, what would it do to the continental price, he replied, “There’s a lot to that. In Ontario and Quebec, they’re bringing in over half their gas, per day, from the United States, and they’re paying substantially more than we’re getting for gas, here, in Western Canada.
“So if I pull back to gas consumers in Western Canada, we have incredible volatility, right now, because of pipeline constraints. The slightest disruption can push gas prices to next to nothing. Over the last two years, we’ve seen times where it is trading at pennies. By having optionality and having access to global markets, it gives a far more stable market for producers, and for consumers. It would be a price far less than the global price, because there’s no refrigeration or compression costs, but it would be close to a competitive market for North American production.
“I think it would definitely stabilize. I think it would hover around competitive costs, as opposed to today, where it has massive swings when there’s disruption on the pipeline infrastructure. It can drop to pennies. I guess when it does that, it’s a real bargain for power plants, but ultimately it’s damaging the economy. It’s a far healthier thing for us to have a stable price, based on the cost of production,” he said.
“We have a 300 year-supply, and people have stopped looking for new pools, just because the resource is so well-defined, under our feet, in the Montney and Duvernay. We will not see the $12 a gigajoule we saw in the early 2000s. The world has fundamentally changed.
“For SaskPower, the cost effectiveness for natural gas, we think should be driving their decisions.,” he said.
“The substantial carbon reductions that comes from putting gas in, instead of coal, is probably better, and more cost-effective system than the substantive mandates SaskPower is forced to look at.”
On the other hand, carbon dioxide captured from coal-fired power plants can be used to extend the life of oilfields, like the Weyburn Unit, for decades. On that front, he said, “Our industry is one of the largest consumers of electricity, as well as one of the supplier of one of the fuels for the electricity system. We will always come to this with a very principled focus. We think that the electricity system should be designed on a low-cost model that meets the environmental imperatives the government puts forward to it.
He expects that would have renewables, gas, and coal on the system, each with their role. “Where it makes sense for clean coal, I think that we add great value to the system by buying the carbon from the power industry and utilizing it to add more value to the province. There’s no one way that’s going to meet all the objectives. We just have to approach it with very good principles – low cost that meets environmental principles.”
McMillan is formerly Saskatchewan’s minister responsible for Energy and Resources.