PIPELINE The Pipeline News North
NEWS NORTH
Serving the Oil and Gas Industry in Nor thern B.C. and Alber ta VOL. 14 • ISSUE 07
July 2022
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Canada to release equipment for Russia-Germany gas pipeline The Canadian government says it will allow the delivery to Germany of equipment from a key Russia-Europe natural gas pipeline that has undergone maintenance — equipment the absence of which Russia’s Gazprom cited last month as a reason for more than halving the flow of gas. The return of turbines from the Nord Stream 1 pipeline sent to Montreal for a scheduled overhaul has been complicated by sanctions imposed on Russia over the war in Ukraine. Canada’s minister of natural resources, Jonathan Wilkinson, said in a statement late
Saturday that “Canada will grant a timelimited and revocable permit for Siemens Canada to allow the return of repaired Nord Stream 1 turbines to Germany.” That, Wilkinson said in the statement posted on Twitter, will support “Europe’s ability to access reliable and affordable energy as they continue to transition away from Russian oil and gas.” He said that “absent a necessary supply of natural gas, the German economy will suffer very significant hardship.” Siemens Energy said after Gazprom started
reducing gas flows in mid-June that it had been unable to return a gas turbine that powers a compressor station on the pipeline, which had been overhauled after more than 10 years in service, to the customer, Gazprom. German politicians have dismissed the Russian explanation for the 60% reduction in gas flows through Nord Stream 1, saying that equipment shouldn’t have been a significant issue until the fall and the Russian decision was a political gambit to sow uncertainty and push up prices.
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CAPP predicts oil and gas capital spending could grow by $6 billion North American oil and gas producers are awash in cash, thanks to a global energy crisis that pushed oil prices above US$100 per barrel earlier this year, contributing to high inflation. But they haven’t been reinvesting that windfall in new production on the levels one would typically expect in such a high oil price environment, despite U.S. President Joe Biden pleading with oil producers, including in Saudi Arabia, to pump more oil. Evaluate Energy recently analyzed how 82 North American oil and gas producers have been spending their windfalls. It confirms new capital spending has taken a back seat to debt repayment, dividend payouts and share buybacks.
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Even so, the Canadian Association of Petroleum Producers (CAPP) is forecasting that capital spending by Canadian oil and gas companies could grow by $6 billion this year to $33 billion, compared to $27 billion in 2021, though the spending in B.C. could be muted by regulatory uncertainty. It forecasts 80% of the spending in 2022 — $24.5 billion — will be in Alberta. In its analysis of 82 American and Canadian oil and gas companies, Evaluate Energy estimates they posted a record US$29.8 billion in free cash flow in the first quarter of 2021 – a 34% increase over Q4 2021.
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Despite that windfall, they haven’t been reinvesting in new production the way they have in the past. “Only around 40% of estimated cash flow is currently being set aside for capital expenditures compared with an average above 100% in the years before the pandemic,” the Bank of Canada noted in a recent Business Outlook.
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Canadian and American oil and gas producers have been modestly increasing their capital spending, but have been largely focused on paying down debt and rewarding shareholders with dividends and share buybacks. The 82 companies in the analysis
spent US$10 billion of their surplus cash on paying down debt, which accounted for 25% of cash use in Q1 2021. They spent about 27% on dividend payments and share buybacks, and spent US$7.4 billion on capital investments. Only 50 of the 82 companies increased capex spending in Q1 2022 compared to Q4 2021. The Evaluate Energy report found that 18 Canadian natural gas producers analyzed were the only subsector to have a “postpandemic spend” that is higher than the spending between 2018 and 2020. “Canadian gas producers are the first group in this study to record a post-pandemic capital spend that is higher than anything seen between 2018 and 2020,” the Evaluate Energy report notes. In B.C., capital spending by natural gas companies in 2021 was $3.4 billion, according to CAPP, which was $600 million short of what had been expected. CAPP cites uncertainty over new oil and gas royalties and land use decisions arising from the Blueberry River First Nations’ successful treaty infringement case for capital spending restraint. CAPP is now forecasting oil and gas companies will spend $4.1 billion in B.C. in 2022, with much of the spending coming later in the year. Canadian oil and gas producers in Canada are timing their investments in production to coincide with investments in
pipeline and export capacity, notably the Trans Mountain pipeline expansion. “What we are seeing in the market today is a measured approach to investment and growth as producers are looking to maintain cost discipline and match growing production with transportation capacity,” said CAPP spokesperson Elisabeth Besson. The Trans Mountain pipeline expansion project is now expected to be a money-loser for the Trudeau government, which owns the project, according to the Parliamentary Budget Officer. The PBO estimates the $21.4 billion project will result in a net loss of $600 million for the Canadian government. But it may still be a boon for Alberta oil producers, as it will provide up to 590,000 barrels per day of additional export capacity and access to markets beyond the U.S. “After nearly a decade of depressed commodity prices, producers in Canada have started increasing their investments, which are expected to grow by at least $6 billion this year,” Besson said. “As a result, we are reaching record high oil production in Canada as well as record high exports thanks to increased transportation capacity from the completion of the Line 3 expansion at the end of 2021.” nbennett@biv.com
Pipeline News North, July 21 2022
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Bank of Canada survey shows energy sector investment to be muted vs previous price booms Canada’s energy sector is expected to raise capital investment after a surge in oil and gas prices, but it will be a more modest increase than during previous boom cycles, the Bank of Canada said in a quarterly survey on Monday. There are several factors holding back investments, with companies holding onto only around 40% of their cash flow for capital expenditure, compared to an average of above 100% in the years preceding the pandemic, the bank said. Another factor holding back investment is uncertainty over the long-term demand for hydrocarbon resources amid a shift toward lowcarbon energy, the bank said.29dk2902l “Competition for labor is particularly strong for oilfield service firms that are seeing high turnover among drilling and well-service crews,” the bank said after consultations with gas firms and industry analysts.
Irving Oil invests in hydrogen to lower emissions, offer clean energy to customers Irving Oil is expanding hydrogen capacity at its Saint John, N.B., refinery in a bid to lower carbon emissions and offer clean energy to customers. The family-owned company says it has a deal with New York-based Plug Power Inc. to purchase a fivemegawatt hydrogen electrolyzer. It says the apparatus will create two tonnes of hydrogen a day — equivalent to fuelling 60 buses with hydrogen — using electricity from the local grid. Irving says its refinery currently produces hydrogen using natural gas. The New Brunswick company says it will be the first oil refinery in Canada to invest in electrolyzer technology. Irving says its goal is to offer hydrogen fuelling infrastructure in Atlantic Canada. This report by The Canadian Press was first published July 12, 2022.
Mid July started to see a slight downtick in the price of diesel and gasoline in northeastern BC.
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Pipeline News North,, July 21 2022
Kenney wants federal climate plan on agenda at BC premiers’ meeting
Alberta Premier Jason Kenney says he’ll be raising the alarm over the federal government’s emissions reduction plan when he meets with Canada’s premiers over the next two days. Kenney says the reduction plan is “pie in the sky,” calling it a “ridiculous” target with no proper plan for implementation. The premier, who made the comments at the Calgary
EU lawmakers back gas and more as sustainable
Stampede’s annual breakfast, says the implications of the plan would be devastating for Alberta just as the world needs more of its energy.
Premiers are first meeting with leaders of the National Indigenous Organizations today in Victoria before starting their Council of the Federation meeting.
The federal plan released earlier this year is aimed at capping oil and gas sector emissions to achieve net-zero emissions by 2050 and reduce oil and gas methane emissions by at least 75 per cent by 2030.29dk2902l
B.C. Premier John Horgan, the host and chair of the council, has said health funding will be a focus of the agenda, specifically that the federal government increase its share of spending from 22 to 35 per cent to help improve the system.
From the Pipeline archives
European Union lawmakers voted Wednesday to include natural gas and nuclear in the bloc’s list of sustainable activities, backing a proposal from the EU’s executive arm that has been drawing fierce criticism from environment groups and now looks set to trigger legal challenges. As the EU wants to set the best global standards in the fight against climate change, the decision could tarnish the bloc’s image and question the region’s commitment to reaching climate neutrality by 2050. The European Commission earlier this year made the proposal as part of its plans for building a climatefriendly future, dividing member countries and drawing outcry from environmentalists over what they criticize as “greenwashing.” EU legislators from the environment and economy committees objected last month to the plan, setting up Wednesday’s decisive vote in Strasbourg, France. But MEPs rejected their resolution in a 328-278 vote, with 33 lawmakers abstaining. The result was announced to a salvo of applause. An absolute majority of 353 was needed to veto the proposal. If the European Parliament and member countries don’t object to it by July 11, the so-called Taxonomy delegated act will enter into force and apply as of next year. Greenpeace immediately said it will submit a formal request for internal review to the European Commission, and then take legal action at the European Court of Justice if the result isn’t conclusive. “It’s dirty politics and it’s an outrageous outcome to label gas and nuclear as green and keep more money flowing to (Russian President Vladimir) Putin’s war chest, but now we will fight this in the courts,” said Ariadna Rodrigo, Greenpeace’s EU sustainable finance campaigner. European Parliament rapporteur Bas Eickhout rued “a dark day for the climate and the energy transition.” The green labeling system from the European Commission defines what qualifies as an investment in sustainable energy. Under certain conditions, gas and nuclear energy will now be part of the mix, making it easier for private investors to inject money into both.
Gas flare at Calgary Brewing and Malting Company, Calgary, AB around 1910. GLENBOW ARCHIVES