Resource World Magazine

54 www.resourceworld.com d e c e m b e r / j a n u a r y 2 0 1 6 the oil patch report B r u c e L a n t z T here's little good news on the 2016 hori- zon for those suffering in the North American oil and gas sector. Thanks largely to oversupply, predictions have oil staying below $50/bbl for the foreseeable future while experts say new markets must be found for natural gas if it is to rebound past $2.75/MMBtu. While industry fluctuations are noth- ing new for those who've worked in the energy sector for any length of time, the downturn that began in 2014 is signifi- cant, with layoffs hitting 36,000 in Canada and topping 86,000 in the US. Industry pundits originally predicted the downturn would be relatively short- lived but now they're suggesting there'll be no relief through 2016, and longer for liquefied natural gas (LNG), seen as key to British Columbia's fortunes. This slow recovery is pushing many exploration and service companies uncomfortably close to bankruptcy, while laid-off employees see their enviable lifestyles vanishing. "We have the third largest oil reserves in the world but less than 4% of the global market share," Mark Selkeld, President and CEO of the Petroleum Services Association of Canada (PSAC), said in a press release. "…Canada's energy sector hasn't been able to make anything better out of a bad situation." PSAC puts the drop in 2015 activity at more than 50% and predicts it will end with 5,340 wells drilled. It estimates next year's total at 5,150 wells, a drop of more than 6,500 from the previous five-year average of 11,670. PSAC forecasts little change in the Alberta and Saskatchewan numbers next year, with estimates run- ning at 2,733 wells in Alberta and 1,789 in Saskatchewan. It predicts a 12.5% increase in Manitoba, but that's only 31 more wells. PSAC forecasts that will be more than off- set by a 28% drop in BC, pegging the total number of wells being drilled in 2016 at 344. Meanwhile the Canadian Association of Oilwell Drilling Contractors expects there will be a 58% drop in wells drilled in 2016, with a 57% decrease in employment compared to 2014. Some remain optimistic. In its 2015 Crude Oil Forecast, Markets and Transportation report, the Canadian Association of Petroleum Producers (CAPP) noted oil and natural gas capital invest- ment dropped to $45 billion in 2015, down nearly 40% from 2014. For oil sands, 2015 capital investment is forecast to be lower by almost a third to $23 billion. But CAPP estimates production of Canadian oil will increase 43% over 16 years, growing to 5.3 million barrels/day (Mb/d) by 2030, up from 3.7 Mb/d in 2014. CAPP's 2014 forecast estimated total oil production in 2030 at 6.4 Mb/d. While the two forecasts are similar during the early years of the forecast period, the slower pace of production in the latter years is the result of reduced capital spending inten- tions due to the sharp decline in global oil prices. The US-based International Energy Agency predicts global demand for energy, including oil, will grow 37% over the next 25 years. Canada has 173 billion barrels of oil, the third-largest proven reserve in the world but Canada only produces 3.7 million barrels of the 93 Mb/d consumed worldwide. "Demand for Canadian oil in Eastern Canada, the US and globally remains strong. We have the energy the world needs – our challenge is getting it there," said Greg Stringham, CAPP's VP, oil sands and markets, in the report. "Connecting Canada's growing supplies to these markets safely and competitively is a top priority. Over the next two decades we believe all forms of transportation will still be needed to move Canadian oil to markets to the east, west and south." And with the US move toward energy self-sufficiency, Canada must find new markets, especially for LNG. "Accessing the global LNG market can strengthen the long-term viability of Canada's natural gas industry and backstop the significant economic benefits it creates," said CAPP President and CEO, Tim McMillan, in the report. Without access to global LNG markets to stimulate production of Canada's natu- ral gas supply, production will decline steadily over the next 10 years then remain flat at about 13 billion cubic feet/day (Bcf/ day) until 2030, the report says. Access to global markets would enable Canadian production to recover to current levels of 14.5 Bcf/day by the end of this decade. If LNG export facilities are developed, natu- ral gas demand to fuel these plants could raise production to 17 Bcf/day by 2030. But Goldman Sachs Group says a wave of new supply from Australia to the US is deepening the LNG glut, raising the risk of losses for exporters and prompting some buyers to consider breaking contracts. The bank has cut its forecast for prices in Asia next year by 13% ($7-8/Mbtu now) and predicts a further 23% drop by 2018. Added to those uncertainties, reports from Malaysia suggest Petronas may pull back on its planned $20 billion BC LNG project unless prices hit $11-$12/Mbtu. The BC government denies this. Either way, for decades, fortunes have been made and lost by those who ride the wave of hope that is the oil patch. But, for the next while, even the experts seem con- founded. n oIl & gAS ouTlook 2016: prolonged low prices forecast

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