Canadian Oil and Gas Demand Surging

Globally, the biggest and most obvious reasons energy costs are rising is the conflict in the Ukraine.  Bay and Wall Street are responding to the international conflict in a predictable fashion with prices surging above estimated and expected use. Fuel demands for the countries involved in the conflict are significant. Furthermore, the international pressure that this is putting on access to energy is staggering and some countries are scrambling to ensure a regular and consistent source of key resources that are critical to national security.  Even if the Russian- Ukraine conflict did not exist we could still expect increased pricing.

  • Increase in investment in the domestic energy sector: Consolidation of companies has affected jobs in the short term. The good news is that, at times, the assets are purchased by companies which consistently invest in these recently acquired assets. As commodity prices are stabilizing much higher than in recent years, we should see an increased investment into safe, secure Canadian assets which should create jobs long term. Q4 of 2021 and Q1 of 2022 has seen more companies buying back shares, increasing dividends and fixing balance sheets. This is setting the stage for reinvestment and growth. Gone are the days of companies sitting on huge amounts of Canadian land and not spending on developing the assets. Now, assets are in the hands of companies which are committed to spending capital in Canada, and increasing employment opportunities. Whitecap and Tourmaline are two recent examples of this. Combine this with the commercial terms on ‘take or pay’ facilities processing and expiring land that needs to be dealt with; all contributing indicators for increased activity. LNG 2025 will be coming online with massive export capacity, an upside to gas producers, and improving access to international markets. Being bullish and positioning oneself for an uptick might be the right move. As a member of the geoscience community, having the resources to identify your drilling locations and being positioned for increased activity is now. The producers are enjoying this energy bull market and with time this will spill over into not only service companies in the energy market but secondary and tertiary markets in the Western Canadian Provinces.
  • Continued increase in Consumption: What has been a pleasant surprise over the past year and a half is how resilient demand for oil and gas has continued. Previously, lockdowns suppressed the global draw but as the lockdowns lift, the demand for energy is rebounding, and this is happening very quickly. This was a large unknown a year and a half ago, and most countries did not know what the “time lag” for recovery would be from the lockdowns. Thankfully, it turned out to be quicker than expected.  The EIA reports that global oil demand is already within 5% of pre-COVID annual consumption.  Further, the EIA forecasts that annual consumption will recover completely by 2022.  Five plus years of under-investment in oil and gas in combination with an elastic rebound of demand post-COVID points towards a strong pricing environment as the world returns. Some might argue that inflation is part of the uptick in commodity prices, and to a degree that is true; however, oil and gas prices are easily climbing at significantly higher rates than the other parts of our economy that are rising with inflationary costs.
  • US policies making Canadian Energy advantageous: How do we react to this? This is an all-hands-on-deck approach to meeting this demand. There is no scenario where oil and gas are not part of the solution. Solar, wind, oil and gas… – they are all required. There is energy demand and always will be. In the short term, consumption is increasing. Many investors are positioning themselves for a post-pandemic boom. Under President Trump, we saw the rollback of the Environmental Protection Agency (EPA). The EPA is coming back in full force under the Biden Administration. President Biden is making good on his promises to act on climate change through policy. From this, we will see eyes (and money) turn to Canada for energy.  Currently there are renewed pressures to reconsider the Keystone XL pipeline.