Why Canada’s Oil Sector Can’t Solve the Energy Crisis

After meeting with international counterparts in Paris this week, Canada’s natural resources minister pledged to pump in more oil and gas to ease Europe’s energy crisis.

Oil and natural gas are scarce in some parts of the world after many countries sanctioned Russia following its invasion of Ukraine.

Canadian industry wants to increase production, but there are questions about how much more oil and natural gas can be extracted from the ground and what impact this could have on the world, especially as oil production in the West is already close to record levels.

Jonathan Wilkinson announced Thursday that Canadian industry should increase its oil production by 200,000 barrels of oil per day, and the equivalent of 100,000 barrels of natural gas per day, by the end of the year.

Currently, Canada produces about 4.7 million barrels of oil per day and exports about four million barrels per day.

The energy woes of the world

Commodity prices have soared over the past month as Russian exports, from oil to coal, have fallen. This is why gasoline prices have reached record highs in Canada this month.

Europe is Russia’s largest oil and natural gas customer. This reliance is why European countries are struggling to follow in the footsteps of Canada and the United States, which have both banned imports of Russian oil and gas.

WATCH | Looking for solutions as countries ban Russian oil:

Searching for solutions as countries ban Russian oil

With more countries banning Russian oil and seeking deals on Saudi Arabia’s oil supply, this raises ethical questions given the country’s human rights record. In addition, it offers countries the opportunity to consider more environmentally friendly solutions. Ginella Massa speaks with Deborah Yedlin, President of the Calgary Chamber of Commerce, and Tzeporah Berman, Program Director for environmental organization Stand.Earth. 8:10

“We have our European allies who face the prospect of not being able to heat their homes or fill their trucks to service their grocery stores and restaurants. It would be incredibly irresponsible for Canada to say ‘we don’t care,'” Wilkinson told reporters Thursday.

Canada’s role

Last year, Russia exported about 4.6 million barrels of crude oil a day, according to energy consultancy group Wood Mackenzie. These exports have plummeted due to widespread economic and energy sanctions against the country.

If Canada can increase its own oil production by 200,000 barrels a day, that in itself won’t have much of an impact on offsetting those Russian barrels. On the contrary, it could help the United States, which seeks to replace about 500,000 barrels of oil it imported from Russia.

Natural Resources Minister Jonathan Wilkinson, pictured here at the UN climate conference in November, wants Canada to produce more oil and gas in 2022. (Kyle Bakx/CBC)

“Canada will not solve the problem alone,” Wilkinson said. “But having Canada show up in conjunction with Brazil, in conjunction with the United States, and I’m sure there will be others, will help us take some of the tension out of the market.”

While many Canadian companies say they want to help by increasing production, some critics also say the federal government hasn’t been supportive enough of the oil sector, in terms of regulating pipelines and proposing caps on emissions, among other policies.

“This is a temporary respite from the negative approach the federal government has taken toward energy development,” said Robert Cooper, of the institutional sales and trading team at the investment firm Acumen Capital Partners based in Calgary.

“I don’t think anyone in downtown Calgary thinks there’s been a sudden change from the federal government when it comes to resource development in this country,” he said.

Turning on the faucets easier said than done

For Canadian oil companies, producing more oil is much easier said than done, given that production levels were already high this winter. Alberta’s oil production hit a record high in October and was also a record for the first 10 months of any year, showing the industry hasn’t been shy about turning on the taps.

“To be honest, my first reaction is a little confused,” Rory Johnston, founder of the Commodity Context newsletter, said of the federal announcement about increased oil exports.

There is unused pipeline and railroad capacity to boost exports, he said, the question is about additional crude.

“It’s hard to see right now where a substantial or material increase in Canadian oil production could actually fill these increased pipelines, right now,” he said.

Oil production may fluctuate

It should also be considered that Canada’s oil production can fluctuate from month to month due to cold weather, facility maintenance and other impacts.

Last year, exports reached four million barrels of oil a day, but were as low as 3.6 million in some months. These fluctuations do not impact global oil markets, showing that even if Canada is able to increase its total capacity by 200,000 barrels per day, this is a relatively insignificant amount.

The potential increase in crude may also not occur with regularity, given the nature of the industry.

Building new oil sands facilities or expansions often takes years to develop and requires billions of dollars of investment.

The Fort Hills oil sands mine began production in 2018. The facility has not operated at full capacity in recent years. (Kyle Bakx/CBC)

Oil major Cenovus said any increase in production this year would be marginal, while Suncor expects an increase of nearly 100,000 barrels per day from the Fort Hills oil sands facility, north of Fort McMurray .

The mine was operating at around 50% capacity, but the company told CBC News the 194,000 barrel per day facility is expected to operate at around 90% later this year.

There are opportunities to increase production to address North America’s affordability issues and the global energy security problem, but it’s not a certainty, said Tristan Goodman, president of the Association of explorers and producers of Canada.

“You’re going to need investors to be convinced that they need to increase production. And if you’re not going to have investor confidence, you’re not going to see an increase in production,” he said.

Tristan Goodman of the Explorers and Producers Association of Canada participates in a panel on Canadian energy at CERAWeek by S&P Global in Houston earlier this month. (Kyle Bakx/CBC)

In recent years, investors have pushed oil companies to give more cash to shareholders instead of increasing oil and gas production.

“Long term, or medium term, there needs to be a conversation with Canadians about natural gas and oil infrastructure,” he said.

Where will he go?

Although Europe is the target destination for any increase in Canadian oil and natural gas, it is not a straightforward journey from Western Canada. The overwhelming majority of Canada’s export pipelines go south to the United States

If more Canadian oil is shipped to Europe, it will likely first have to go down to the Gulf Coast to be loaded onto a tanker, before crossing the Atlantic.

It’s a similar situation with natural gas, because Canada has no way of exporting to Europe without first crossing the border to the south.

Yet even if all goes according to plan with Canada’s promise of more energy to the world, it is far too small on its own to move the needle when it comes to commodity prices or global supply. .

WATCH | The government is looking to bolster the short-term supply of crude oil and natural gas:

Minister says government seeks to bolster near-term crude oil and natural gas supplies as US bans Russian imports

Natural Resources Minister Jonathan Wilkinson joins Power & Politics to discuss the US ban on Russian oil and gas imports. 5:54