Essential Oil News: August 10th-16th

Welcome to the Essential Oil blog for the week of August 10th – August 16th.

Well, it didn’t take long for Alberta’s oil sands to land in the spotlight of Canada’s federal leadership campaigns now underway before the October 19 election. Of course, oil sands development and the environment will continue to be key issues in deciding who Canadians elect into government 10 weeks from now and, to be sure, will continue to be issues long after the election is decided.

WHAT WE LEARNED

The Big Three support “responsible development.” All three serious contenders for the job of prime minister — sorry Elizabeth May — told the country last week in the first national leaders’ debate that they support building Canadian export pipelines and developing the oil sands in an environmentally responsible way. But then on Sunday Prime Minister Stephen Harper did his best to make political hay out of a comment from a rather high-profile New Democratic candidate who told the CBC that if Canada is going to meet its climate change targets, “a lot of the oil sands oil may have to stay in the ground.” The comment from Toronto NDP candidate Linda McQuaig clashes with party leader Tom Mulcair’s stated commitment to support oil sands development, albeit with pollution restrictions, and the NDP headquarters was quick to walk back McQuaig’s remark saying it was referring only to a study published this year in the journal Nature and did not reflect the party’s policy. The Liberal party also piled on McQuaig’s remark, accusing the New Democrats of telling contradictory things to voters in different parts of the country. The comment touched Alberta’s provincial politics too, with NDP Premier Rachel Notley’s administration reiterating that the Alberta NDP remains committed to the sustainability of the energy sector.

Sour gas cuts Canadian link to Windy City. An unknown quantity sulfur-rich sour gas somehow entered an Alliance Pipeline-operated natural gas mainline in Alberta on Friday, forcing its closure and preventing the delivery of 1.6 million cubic feet per day of liquids-rich Canadian gas to Chicago. The tainted gas was stopped in southern Saskatchewan where it will be safely burned off in flares at the company’s Alameda compressor station near Estevan. There is no health risk to people or wildlife in the area as long as the potentially poisonous gas remains in the system before it is flared. The stoppage is sure to have financial implications for the company, but how severe those are won’t be known until the line is started up again. Alliance says this kind of incident is a first for the system, which opened in 2000. The sour gas entered the line at Keyera’s Simonette gas plant in northwestern Alberta and was detected by sensors inside the pipe. The Keyera plant is designed to remove sulfur from as much as 250 million cubic feet of sour gas per day, but the company said in a news release that “a brief operational upset during maintenance” was responsible for the sour gas entering the line. The Simonette plant was back in operation on Friday, though it was only flowing a small amount of gas into a TransCanada line. The Alliance shutdown has temporarily stranded almost all natural gas production from Seven Generations Energy and RMP Energy, which are conducting site maintenance while waiting out the delay. Nu Vista Energy, Birchcliff Energy, Crew Energy and Sequence Energy are also negatively affected by the shutdown, and natural gas prices are up in Chicago due to the stoppage.

The blame game begins anew. Canadian Natural Resources, the country’s largest independent oil company and one of the earliest critics of both the Alberta NDP’s royalty review and the two-per cent hike to corporate taxes, is blaming the new government for the company’s substantial quarterly losses. CNRL says it took a $579-million non-cash charge in the second quarter of this year to account for the higher taxes in the future. Still, the company booked an adjusted earnings from operations of $178 million in Q2. The tax hike comes as the collapse in the oil price has punched deep holes in the province’s coffers. Last week the Alberta government said its fall budget will contain a roughly $5-billion shortfall. CNRL says the increase in the corporate tax rate from 10 to 12 per cent will mean the company will have less money to invest in future employment and cap-ex budgets. “Clearly, if the industry is not healthy enough to invest, then there will be less jobs, and obviously commodity prices have a big impact,” CNRL president Steve Laut told the Globe and Mail. “But also taxes, royalties and greenhouse gas charges impact the amount of cash the industry has to reinvest.”

WHAT TO WATCH FOR

Crack spreads to narrow — eventually. Consumer prices for gasoline have stayed high this summer as Canadian integrated oil companies have sought to recoup their losses from lower crude oil prices at the downstream end of their businesses. Independent refiners in the U.S. are also reporting massive second-quarter profits as the early summer driving season begins to show up on balance sheets. One of the larger independent refiners, Sunoco, announced record Q2 earnings of $326-million, a $46-million increase over the same quarter last year. Likewise, refining giant Valero Energy’s second-quarter profits doubled those of 2014, clearing $2.2 billion between April 1 and June 30. It’s a trend that’s certainly continuing into this quarter, but with the travel slowdown that typically follows the Labor Day holiday, the crack spread between crude oil and refined gasoline will again narrow.

TransCanada mulling its moves post-Keystone. Late on Sunday night a Canadian Press report emerged saying TransCanada believes that U.S. President Barack Obama will reject the company’s proposed oil pipeline, and now TransCanada is seeking legal advice on launching a possible NAFTA challenge of the decision. According to an anonymous source, the Obama administration’s decision to reject Keystone has already been made but the White House is waiting for the appropriate time to announce it. There is some discussion about whether the president will make his announcement on Keystone quietly, or if he will take the opportunity provided by his August 31 trip to a climate-change conference in Alaska. So far the administration hasn’t said when it will make an announcement on Keystone, but when North Dakota Republican Senator John Hoeven said last month that President Obama would reject the proposed pipeline this month, the White House did not reject that claim and has not since.

Who will be on Alberta’s resource royalty review and climate change advisory panels? With the answers to those questions likely just days away, Alberta’s energy minister is planning to tour the financial centers of Toronto, Montreal, New York and Boston while the work of the panels gets underway in the coming months. Minister Marg McCuaig-Boyd’s trip is ostensibly to convince investors that the NDP has a strong handle on the provincial economy and to explain her government’s plans for the energy sector. The review and advisory panels have stoked some uncertainty among energy companies and investors at a time when low oil prices have been gutting revenues and investment returns. Minister McCuaig-Boyd recently spoke one-on-one with Alberta Oil on these issues and many others. Watch for it in our October issue.

Second-quarter results are expected these companies this week:

• Monday: Delphi Energy, Kelt Exploration, NuVista Energy, Perpetual Energy, Seven Generations Energy, Vermilion
• Tuesday: Chinook Energy, Northern Blizzard Resources, Raging River Exploration
• Wednesday: Birchcliff Energy, Bonterra Energy, Canadian Energy Services, Peyto Exploration and Development, Spartan Energy, TORC Oil and Gas, Entrec, Total Energy Services, Twin Butte Energy
• Thursday: Black Diamond Energy, Cequence Energy, Crescent Point Energy, Storm Resources, Zargon Oil and Gas, RMP Energy, Tamarack Valley Energy, Trican Well Service
• Friday: Cathedral Energy

BY THE NUMBERS

Canadian Crude Index (CCI):  USD$29.02, down from $32.50 last week

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