Despite the recent upheaval in energy markets, Canadian oil and gas producers are not rattled. They’re getting serious about long-term strategies, adds Lisa Baiton, president and chief executive of the Canadian Association of Petroleum Producers (CAPP). The recent turmoil was triggered by U.S. President Donald Trump’s introduction of new tariffs. On the supply side, the Organization of Petroleum Exporting Countries (OPEC) surprised some observers by announcing an increase in production for May.
The price of West Texas Intermediate (WTI) crude has tanked, falling by nearly US$10 in the last week. Broader price swings, now more pronounced with international prices currently hovering around US$60 a barrel, have alarmed industry stakeholders. Baiton continued, companies are still driving their activity based on long-term demand outlooks, not on short-term price fluctuations.
According to an analysis from S&P Global Commodity Insights, at US$50 a barrel WTI prices would see one million barrels a day of U.S. onshore production wiped out. This is a decline that could be seen over the course of just one year. The dramatic potential declines would show just how tenuous the current market for oil is. This is especially relevant, as the U.S. still remains the biggest customer for Canadian oil and gas products combined.
OPEC’s counter-announcement today of plans to ramp up production further complicates the picture. The organization’s decision may strain prices further, complicating the landscape for Canadian producers who require stable prices to initiate new projects. In fact, some market analysts say prices of US$80 or more are needed on a sustained basis before new oilsands developments can be approved.
Despite this high cost disadvantage, expansions to existing oilsands projects are still profitable. They’ve still been wildly profitable at steam well extraction, even under low oil prices. An Enverus industry research report further bolsters this idea, showing that these kind of expansions can move forward in today’s market. That flexibility can give Canadian producers an advantage — a competitive one — as they face the stormy seas ahead.
Baiton stressed the importance of thinking past short-term market trends to ensure the sector is well-positioned for long-term uncertainty. Companies in the oil and gas industry continue to assess long-term demand, which is viewed as a key factor influencing their strategies and operations.
