Lasting Change To Oil & Gas #3 – Premier Horgan Confirms Our Fears, LNG Canada Is Surely The Last Major BC LNG Project

This is Blog #3 in our series of blogs to Jan 31 on overlooked “Lasting Changes To Oil & Gas” that emerged/solidified in the last several months and are reshaping (both positively and negatively) the 2019 to 2025+ outlook for oil and natural gas.  The timing for this blog was driven by three Dec events – First and foremost BC’s Dec 5 Clean BC plan that caused our fears that no more major BC LNG projects will be built, then this week’s Exxon/Imperial’s subsequent Dec 20 withdraw of their WCC BC LNG project from BC’s environmental review process, and finally the key Premier Horgan Dec 20 year end interview that effectively shoots down the possibility for any new BC LNG project (after LNG Canada) to fit into the Clean BC emission targets. Horgan said that in setting the Clean BC emissions targets “we have decided that one plant, LNG Canada, can fit in and we’ve built our plan around that. Additions to that emission profile are going to be harder to prove”. Horgan then says that other BC LNG projects can proceed, but his conditions to do so are impossible in today’s world.  He said any other BC LNG projects effectively have to have “their emission profiles are close to zero, then I don’t see why not. But they’re going to have to prove that to us before they proceed.”  It’s a good thing for western Canada natural gas that Shell was able to negotiate BC govt approval of its LNG Canada project.  LNG Canada is a big relief valve for western Canada natural gas at ~1.7 bcf/d for Phase 1 and an additional ~1.7 bcf/d for Phase 2.  This compares to total western Canada natural gas production of 14.6 bcf/d in 2017, US imports of Canada natural gas peak month of 9.25 bcf/d in Jan 2018, and its low month of 7.09 bcf/d in Sept 2018.  However, unless there is a change in Clean BC emissions targets or LNG plants can be built with close to zero emissions, the reality of Clean BC and Horgan’s comments is that Shell’s LNG Canada is surely the last major BC LNG project approved for the foreseeable future.

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Lasting Change To Oil & Gas #2 – Speed Bumps On The March To Renewable Energy Means Oil Is Stronger In The Mid/Long Term

This is Blog #2 in our series of blogs to Jan 31 on overlooked “Lasting Changes To Oil & Gas” that emerged/solidified in the last several months and that are reshaping (both positively and negatively) the 2019 to 2025+ outlook for oil and natural gas.  The timing for this blog was driven by two events this week – the lack of consensus from the Poland climate change talks, and the IEA”s new report “Coal 2018 – Analysis and forecasts to 2023” that calls for growth in coal demand in 2017 and again in 2018 following declines in 2015 and 2016. The IEA report reminds that energy trend lines aren’t always straight as evidenced by the rebound in coal demand.  We believe there have been multiple speed bumps in the march to a world of accelerating renewable energy market share and an early demise of coal and oil.  The driving force for this shift to renewables is governments regulating change. The unified global approach to climate change is no longer, and we are seeing leaders not accept climate change, forced by their citizens to pull back on climate change, or are just quietly not pushing on climate change. These speed bumps may not change the direction, but have to have an impact on the speed and timing for the demise of fossil fuels.  Its hard for anyone to believe the rate of regulated changes to renewables isn’t slowing down. And if so, it also points to stronger than previously expected mid and long term cash flow generation from oil. One of our upcoming blogs is the most significant lasting change – the oil and gas sector has proven they can produce way more than expected and these shifting supply chains are causing price dislocations in the short term and a lower but still strong price in the mid to long term.   Even still, the speed bumps in the march to renewable energy add to why we believe there is a lot more money to be generated and made from oil and natural gas in the mid and long term, but just not as much as we expected a year ago.

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Lasting Change To Oil & Gas #1 – AMLO’s Refinery Push Should Take >300,000 b/d Heavy/Medium Crude Out Of Gulf Coast By 2021

This is Blog #1 in our series of blogs over the 45 days on overlooked “Lasting Changes To Oil & Gas”.  The brutal Q4 to date for oil and gas investors has led to a flight of capital and meant there are overlooked lasting change items (both positive and negative) that are reshaping the 2019 to 2025 outlook for oil and natural gas.  Declining Venezuela and Mexico oil production and exports to the US has directly led to increasing Cdn oil exports to the US.  Blog #1 in this series is how the election of Andrés Manuel López Obrador as President of Mexico and his priority on fixing/upgrading Mexican refinery operations is an added plus for Cdn heavy/medium oil.  AMLO’s first big announcement, the Plan Nacional de Refinacion, says Mexico’s refineries “will process 1 million 863 thousand barrels of crude oil per day by 2022”.  This compares to the 640,000 b/d processed by Mexican refineries in Q3/18.  Even if AMLO only gets at least half way to the target, this should reduce Mexico heavy/medium crude exports into the US Gulf Coast (USGC) refineries by at least ~300,000 b/d by 2021/2022.  This will create added demand opportunity for Cdn heavy/medium oil to fill.  This is a key AMLO priority for his first 6-year term.  It isn’t likely to happen as quickly as AMLO’s target, but even reaching half of his target should create a big opportunity for Cdn heavy/medium oil in the USGC.

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