Resource World Magazine

62 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 7 Oil Patch Report by Bruce lantz Like a struggling boxer who's down but not out, the oil patch is picking itself up off the mat of the last few years' decline and is ready to go another few rounds. While there's a tendency to grasp at the occasional straws of seeming oil patch recovery, in equal measure the naysayers clamor that there's no end in sight to this downturn. Naturally, the truth lies some- where in between. There is no question that, while natu- ral gas will continue to nestle below $3 for the immediate future, oil is clawing its way back up the price ladder. But it will have a long haul to get back to pre-recession lev- els. (All figures in US $) The global price of crude oil fell from $110 per barrel in mid- 2014 to less than $40 per barrel by the end of 2015, then to below $30 per barrel in early 2016. The Organization of Oil Exporting Countries (OPEC) has revised its forecast from $80/b in 2020, to just $60, as North American producers keep pumping even as prices fall, keeping supplies high. The US Energy Information Administration (EIA), however, says crude will only average $48 per barrel through to March and warns that the volatility could continue. Commodities traders predict the price for February delivery could be anywhere from $35/b to $66/b. The EIA numbers fall below those of the World Bank, which is predicting crude prices will hit $55 in 2017. The World Bank's latest Commodity Markets Outlook says overall energy prices, which include oil, natural gas and coal, are projected to jump almost 25% next year. "We expect a solid rise in energy prices, led by oil, next year," said John Baffes, Senior Economist and lead author of the Commodity Markets Outlook. "However, there is considerable uncertainty around the outlook as we await the details and the implementation of the OPEC agreement, which, if carried through, will undoubt- edly impact oil markets." Different sectors are recovering at dif- ferent rates, of course. The Petroleum Services Association of Canada (PSAC) is predicting a flat transition from 2016 to 2017 with nearly 4,200 oil and gas wells forecast to be drilled in Canada in 2017, a 6% jump but still down 63% from two years ago. Alberta's growth will be mar- ginal, with an additional 53 wells drilled in 2017 pushing the total to 1,900, PSAC says, while Saskatchewan is expected to lead the way with 1,940 wells drilled, a boost of 240 wells, or 14%, over this year's activity. "It's flat going from '16 into '17 and we're not out of the woods yet," said CEO Mark Salkeld in a report on the PSAC website. But the Canadian Association of Petroleum Producers (CAPP) says the industry is still projected to spend about $37 billion on projects next year, roughly $1 billion more than a year earlier. The change is expected to be fueled by gains in conventional production while spending in the oil sands is forecast to fall. Canadian crude will continue to rebound, with oil sands projects leading the way add- ing an additional 850,000 barrels per day by 2021 to 2016 oil production of 3.8 million barrels per day, said Stuart Mueller, CAPP's manager of transportation and supply. Despite the havoc wreaked in the past 18 months, "oil sands projects are long- term investments and as a result the decisions are made with a view to a broad horizon," he said in an interview. "While the depressed price of oil has continued to cause challenges for our industry, it has also resulted in some oppor- tunities for our members," Mueller said. "Many companies have found ways to oper- ate more efficiently under price constraints and, as a result, expect to see increases in profitability in the years to come." He also hinted at the hope that key pipeline projects will be approved in Canada and the US. "We are also awaiting decisions on critical energy infrastructure projects and remain optimistic that the federal governments' decisions will be positive…Canada is a world leader when it comes to responsibly developing our oil resources through some of the most strin- gent regulations on the planet. Given the choice, it is CAPP's opinion that Canadian oil would be preferred to that of compet- ing jurisdictions. "Western Canadian natural gas contin- ues to be in a market-constrained situation and growth compared to 2016 will depend on access to new markets or growth of existing-market share," said Mueller, add- ing that critical steps will be growth of local markets for natural gas, petrochemical industry opportunities and seeing it grow OUTLOOK 2017 Oil and gas companies are finding ways to carry on, plus a major discovery and Woodfibre LNG project advancing

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