Alberta, CAPP address slumping oil and gas investment

Slumping oil and gas investment in Canada has drawn responses from Alberta officials and an industry group, the latter calling for a federal “vision” for oil and natural gas.

The Alberta government has committed to supporting partial upgrading of bitumen with as much as $1 billion (Can.) over 8 years beginning in 2019-20.

And the Canadian Association of Petroleum Producers has released the first in a series of economic reports with a warning: “Rising government costs, the burden of inefficient regulations, and the lack of infrastructure to move Canadian energy to growing markets are all undermining investor confidence in Canada.”

Partial upgrading

Alberta Premier Rachel Notley said support for commercialization of partial-upgrading technologies follows a recommendation of the Energy Diversification Advisory Committee established in 2016.

The committee explored opportunities “to diversify Alberta’s energy sector, create jobs, and stimulate investment by adding value to our energy resources.” In addition to partial upgrading, the group addressed refining, petrochemicals, and chemicals manufacturing in its final report last year.

Partial upgrading lowers the viscosity of bitumen produced from Alberta’s oil sands enough to facilitate pipeline transport but does not fully process it into synthetic crude oil, as existing upgraders do.

A University of Calgary study published in January 2017 said partial upgrading can turn bitumen into higher-value material, lower transportation costs by eliminating the need for diluent, and make pipeline capacity now used for diluent available for crude.

Diluted bitumen contains about one-third diluent, much of which is recycled.

Production growth in Alberta is straining existing pipeline capacity, widening the discount between Western Canadian Select crude and the US price marker, West Texas Intermediate (OGJ Online, Feb. 26, 2018). Capacity expansion faces political opposition outside Alberta.

The study said more than 10 technologies exist for partial upgrading, none of them yet commercial.

In a press release, the Alberta government said its financial support will include loan guarantees and grants, helping construction of two to five partial upgraders.

Investment down

CAPP’s study estimates capital spending by the Canadian oil and gas industry last year at $45 billion, down 16% from a year earlier and 45% from 2014, when crude prices began to slump.

It notes that the Canadian decline contrasts with recovery under way in US investment and activity and says Canadians are “competing with our biggest customer.”

The study also says the federal and provincial governments are considering as many as 50 regulations.

“The scope and pace of these changes are creating investor uncertainty as well as unexpected and unnecessary costs and delays for industry.”

In a press release announcing the study, CAPP says the federal government should establish a vision for the oil and gas industry with these elements:

• Global connection for Canada’s oil and natural gas resources is essential.

• Globally competitive policies that increase the country’s ability to attract capital are needed to create jobs and national prosperity.

• Any climate plan must be comparable to other jurisdictions competing for the same global capital.

• Government policies must spur and accelerate innovation and technology in the oil and natural gas sector.