CAPP’s fake narrative a disservice to real challenges facing oil and gas industry

Source: Figure 2.7 Western Canadian Oil Sands and Conventional Supply, 2019 Crude Oil Forecast, Markets and Transportation, CAPP.

No one expects industry lobby groups’ messaging to be scrupulously accurate, but the Canadian Association of Petroleum Producers has shot past public message torquing and landed in fake narrative territory. This time it’s the commentary around the Thursday release of the 2019 Crude Oil Forecast, Markets and Transportation report

The Canadian Association of Petroleum Producers forecasts Canadian crude oil production to rise by 1.27 million barrels per day to 5.86 million barrels per day by 2035, a 1.44 per cent annual increase and less than half the rate projected in the association’s 2014 outlook.

Almost all of that growth will come from the oil sands, up from 2.9 million barrels per day in 2018 to 4.25 million barrels per day. This is consistent with a recent IHS MarkIt oil sands forecast of 1 million barrels per day rise by 2030.

Why is CAPP pining for 2014 capital spending levels?

The report also notes that investment will be less than half of 2014 levels, down to $37 billion a year from $81 billion. The industry likes to reference 2014 because it was the height of the oil sands construction boom before global oil prices collapsed later in that year.

Even if producers could return to those halcyon times, would it really want to? Cenovus VP of technology Habir Chhina told me in an interview for my book – The New Alberta Advantage: Technology, policy, and the future of the oil sands – that the boom that started in 2009 drove capital costs to exorbitant levels, grossly inflating exploration and production costs, trends that actually hurt the sector.

“Everybody was building these projects whether they were a small operator or big one,” Chhina said. “Wall Street, Bay Street was giving out money like crazy and that made our industry very inefficient and including our own company Cenovus inefficient.”

Part of the new emphasis on efficiency means smarter capital spending. For instance, Kevin Birn, oil sands dialogue director for IHS MarkIt, told Energi Media in an interview that oil sands producers have significantly changed the way they design oil sands plants.

“If they do a project, this is not the first one they’ve done, this is the third, and they’ve got the engineering down to a science,” he said. “They’re using less steel, they’re building them faster,  they’re streaming sooner. That lowered investment required for new plants by 25 per cent to 33 per cent.”

Source: 2019 Crude Oil Forecast, Markets and Transportation, CAPP.

The lower prices after 2014 also forced oil sands producers to switch from brand new “greenfield” projects to make more efficient use of existing facilities and infrastructure, a “brownfield” approach. The emphasis has shifted from building to optimizing, according to Birn.

“You look at ways to reduce the operating costs and improve the utilization rates,” he said. “This includes things like de-bottlenecking existing facilities. For the oil sands, it’s 40 per cent of the growth profile. We think that’s the principal driver of growth out to 2030.”

Why, then, does CAPP always bemoan the decline in capital investment when most of it is caused by oil sands producers using capital more efficiently?

IEA energy demand scenarios are not forecasts

Another serious objection: the International Energy Agency (IEA) does not project “oil consumption will comprise 27 per cent of total world energy demand, or 105 million b/d, by 2040.” This is a narrative one hears all the time from industry and its supporters, and it’s just not true. CAPP CEO Tim McMillan and Premier Jason Kenney are misleading Albertans when they misrepresent what the IEA is actually saying.

Source: World Energy Outlook 2018, International Energy Agency.

The IEA only forecasts five years out, according to Tim Gould, head of division, World Energy Outlook & Investment. “Once you start looking beyond that, you move into scenario territory,” he told Energi Media. Scenarios are possible futures based upon changes in variables like climate policy and technology disruption.

The Current Policies scenario assumes little change from the existing situation and consumption rises to 120 barrels per day by 2040. New Policies takes into account all the announced policy changes, as well as aspirational policies discussed by governments; oil demand rises to 106 million barrels per day. Sustainable Development assumes an accelerated energy transition and policies that meet Paris targets for 2 degrees Celius warming; oil consumption plummets to 70 million barrels per day.

As the IEA says, “None of these potential pathways is preordained; all are possible. The actions taken by governments will be decisive in determining which path we follow.”

When asked how industry and policymakers should use the scenarios, Gould replied, “They should approach them as a way to understand the direction they’re travelling, not an affirmation of where they’ll end up in 2040.”

Pipeline snake oil

Source: 2019 Crude Oil Forecast, Markets and Transportation, CAPP.

These days, any discussion of oil supply has to include pipelines, and CAPP doesn’t disappoint. “We are positioned to be a leading supplier of the most responsibly produced oil and natural gas on the planet but our lack of pipelines and inefficient regulatory reality means that other suppliers, with lesser environmental and social standards, are taking our market share,” McMillan said in the press release that accompanied the supply forecast.

This argument is a problem, for several reasons.

One, where is the evidence other countries are “taking our market share”? In fact, Canadian oil sands producers are taking share from Venezuela in the US Gulf Coast market as the Latin American country’s economy implodes and oil production continues to slide.

Two, the continued lack of pipeline capacity is certainly a problem for Alberta, as the provincial government’s mandatory 8.75 per cent production curtailment demonstrates, but CAPP is on the record blaming “foreign-funded activists” for sabotaging pipeline projects, parroting the Vivian Krause conspiracy narrative. When asked by Energi Media in April to provide evidence for the claim by McMillan in a speech to the Edmonton Chamber of Commerce, CAPP refused to comment.

In fact, CAPP continues to promote Krause’s debunked and discredited work. McMillan should be asking himself if he really wants to tie CAPP publicly to Krause as her support slowly unravels instead of supporting a more evidence-based view that can withstand scrutiny.

CAPP’s fake narrative

Fake news? No, there’s nothing wrong with CAPP’s oil supply forecast.

Fake narrative there is plenty of. In fact, CAPP has been laying it on pretty thick for months.

Why? A cynic might look for answers in CAPP’s all too friendly relationship with the United Conservative Party during the recent provincial election and its cozy relationship with the Conservative Party of Canada leading up to this fall’s Canadian election.

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