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Derrick Digest for April 13, 2017: Long-cycle oil investment good news for Canada's oilsands

The Derrick Digest is a weekly collection of curated content, based on events from across the oil and gas industry, that caught our eye at Pennine Petroleum Corporation.

Enjoy and share!

 

APRIL 13, 2017

The long-term prospects for Canada’s oilsands producers are in a good position, according to a senior think-tank advisor.

Speaking at a conference in Toronto this week, Robert Johnston, CEO and director of global energy and natural resources at the Eurasia Group, said investors “will come flocking again” to liquefied natural gas and oilsands production.

“As the market rebalances and moves into a stock drop and the next round of final investment decisions get made again for longer cycle projects that have a 25-, 30-, 40-year cycle, Canada will be competing with Brazil, Mexico and Russia,” said Johnston.

And there’s an upside to the recent redistribution of oil assets that saw Royal Dutch Shell PLC and ConocoPhillips part with more than $30 billion in Alberta, he added.

The remaining players are “willing to work with the public policy framework in this country and willing to develop the technology that’s going to take to make the oilsands work in a world where oil prices are basically flat and carbon prices are rising.”

The conference was put on by the Canadian Association of Petroleum Producers. Its president, Tim McMillan, said the approval of Keystone XL and a liquefied natural gas project are positive indicators in the past 12 months that the industry is on its way back up.

At the same conference, Cenovus Energy Inc. CEO Brian Ferguson said that even if oil doesn’t rise above this week’s price levels, the $17.7-billion to acquire ConocoPhillips’ Canadian assets still makes sense.

“Even in a lower price world, we will remain in a strong financial position, as … we have two strong growth platforms generating free cash flow at US$50 WTI — that makes us more financially resilient,” Ferguson said. “This transaction doubles our cash flow, we are not doubling our capital.”

Cenovus plans to focus on the oilsands and the Deep Basin, as each has decades worth of growth available.

 

Pembina relocates gas export terminal to Prince Rupert 

The site of an old pulp mill on the West Coast near Prince Rupert, B.C. will be the home of Pembina’s new propane export terminal rather than the previously announced location of Portland, Ore.

“Watson Island has promising potential as an LPG export terminal location,” said Stuart Taylor, Senior Vice President, NGL & Natural Gas Facilities, in a news release. “In light of our plans to develop a world-scale polypropylene production facility, the smaller export facility we are contemplating for Watson Island — utilizing smaller ships and ensuring very competitive per-unit export facility costs – makes good sense for Pembina.”

The company will conduct a feasibility study and start engineering and design work on the terminal, which will have a rail connection with its Redwater, Alta. facility, pictured above. It will also engage with area First Nations and stakeholders. The $125-million to $175-million project will have a capacity of approximately 20,000 barrels a day and should take two years to build.

The area is no stranger to proposed export terminals. There are four LNG export terminals proposed, although not have been sanctioned or built to date. Pembina has secured a long-term export permit for its just-announced terminal. The mayor of Prince Rupert welcomed this week’s news.

“Pembina is a Canadian company with a proven track record for supporting the communities in which they operate and has an industry-leading history of operating safely,” said Mayor Lee Brain. “We are happy to have the opportunity to potentially partner with them to create new local jobs and revenue that will significantly improve the quality of life for everyone in Prince Rupert.”

 

B.C. First Nations mull legal action for Northern Gateway rejection

More than 30 of the 42 aboriginal communities on Northern Gateway’s Alberta-to-B.C. right of way supported the proposed $7.9-billion pipeline project and were planning on sharing in the economic benefits of the project.

Now, those great expectations are left unfulfilled and the communities are wondering what comes next. For some, that might include legal action, said Dale Swampy of the Samson Cree Nation in Alberta.

“They understand that it was a political decision and not a decision acting in the best interest of Canadians. They weren’t asked about the financial effect, the lost employment,” Swampy said at a meeting of aboriginal leaders with the Canadian Energy Executive Association in Calgary recently. “They are trying to get themselves out of poverty, the welfare system that they are stuck to, and every time they try to do something like that, it’s destroyed.”

Enbridge’s Northern Gateway project had received regulatory approval, but Prime Minister Justin Trudeau said last November that it wouldn’t be allowed to proceed. The project would have brought oil sands products in a pipeline stretching 1,777 kilometres from Bruderheim, Alta. across northern B.C. to the deep-water port of Kitimat. The announcement came after a Federal Court of Appeal ruling that the federal government hadn’t adequately consulted with aboriginal groups.

“Their expectations were really raised with the promise of $2 billion set aside in business and employment opportunities,” said Elmer Ghostkeeper of the Buffalo Lake Metis Settlement in B.C. “Equity was offered to aboriginal communities, and with the change in government that was all taken away. We are very disappointed in this young government.”

 

California needs natural gas

In order to meet its goal of lowering greenhouse gas emissions to 50 per cent of 1990 levels while increasing renewable energy usage by 50 per cent, California should promote the use of natural gas.

That’s the message of an opinion piece in the Sacramento Bee written by George Minter.

“The direct use of natural gas can have lower emissions than electricity when you consider the full life cycle of emissions from generation,” Minter writes. “Gas can be renewable, too. That’s what the environmental community seems to be missing in its oft-repeated goal of electrifying all end uses of energy.”

The vice-president of external affairs and environmental strategy at SoCalGas says the state should invest more in developing the renewable gas supply and infrastructure to deliver it.

In a Forbes piece, writer Jude Clemente points out that in addition to high electricity prices, California leads the U.S. in power outages, with 470 in a year, which leaves second-place Texas (160) in its dust.

“California's reliability problems will be multiplied as more wind and solar enter the power mix, intermittent resources located in remote areas that cannot be so easily transported to cities via the grid.”

He also makes the case for more natural-gas-produced electricity in the state.

“Gas is more reliable, more affordable, more flexible, and highly abundant, a peak demand or baseload fuel that generates electricity around-the-clock. Gas continues to gain market share in California even with the focus on renewables because it's average availability hovers around 90%, versus just 30% even on good days for wind and solar.”