Page 4 - NorthAmOil Week 15

NorthAmOil COMMENTARY NorthAmOil
Further Canadian output cuts expected
Canadian producers are expected to shut in more output, even though the country has not committed to mandatory cuts to support the OPEC+ supply agreement
CANADA
WHAT:
Canada’s oil production is facing further voluntary cuts in response to market conditions.
WHY:
The country has not committed to any mandatory cuts to support the OPEC+ deal but low prices will likely force shut-ins.
WHAT NEXT:
Canadian Prime Minister Justin Trudeau has said details of support for the country’s oil industry will soon be unveiled.
CANADA has not committed to reducing its oil supply in order to support the deal struck by OPEC and its allies last week, but market condi- tions are nonetheless expected to lead to further production shut-ins in the country. This comes amid concerns that the OPEC+ deal does not go far enough, and could be undermined by other countries ramping up production at the first sign of a recovery in oil prices. (See next story)
There had been speculation in the run-up to the OPEC+ virtual meeting last week that Can- ada would be among the countries agreeing to cut its production in support of any effort to res- cue the oil industry. However, at a Group of 20 (G20) virtual meeting on April 10, participants including Canada expressed their support for the efforts of OPEC+ but did not themselves promise any to make any additional output cuts.
“To underpin global economic recovery and to safeguard our energy markets, we commit to work together to develop collaborative pol- icy responses, that will ensure market stability across all energy sources taking into account each country’s circumstances,” energy ministers from the G20 countries said in a statement. “We recognise the commitment of some producers to stabilise energy markets. We acknowledge the importance of international co-operation in ensuringtheresilienceofenergysystems.”
Canadian woes
With oil prices remaining low, however, and amid warnings that no output cut may be suf- ficient to offset demand as it continues to drop, more Canadian output is nonetheless antici- pated to go offline.
Across the Canadian oil industry, warnings have been sounded since the price of oil went into freefall in March, exacerbating the situation for producers that had already been struggling since the previous downturn of the mid-2010s.
Data from consultancy Rystad Energy show that Canada is the most heavily affected oil-pro- ducing country thus far, and is estimated to have taken at least 325,000 barrels per day offline. This is thought to be higher than volumes shut in by
Iraq, estimated at 300,000 bpd, Venezuela with 235,000 bpd and Brazil with 200,000 bpd. Rys- tad noted, however, that US numbers had not yet been included in its estimates, as even the US is also likely to be shutting in hundreds of thou- sands of barrels of production, and the official numbers have not yet been released.
The consultancy anticipates that Canadian shut-ins could rise above 1.1mn bpd in the sec- ond quarter of this year. This is forecast to fall to513,000bpdinthethirdquarterand293,000 bpd in the fourth quarter, illustrating the slow pace of recovery from this crisis.
Meanwhile, another consultancy, IHS Markit, has estimated that Canadian producers had cut planned spending by over $6bn already by April 14. The bulk of these spending cuts were made by major oil sands producers, accounting for roughly $3.2bn, while conventional and uncon- ventional projects accounted for $2.2bn of cuts, and midstream operations for $1bn.
According to IHS Markit’s preliminary esti- mates, capital expenditure in the oil sands in 2020 may fall to its lowest level in 15 years. The consultancy noted that oil sands production 15 years ago was around two-thirds of current volumes.
Canadian drilling is already near record lows,
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w w w . N E W S B A S E . c o m Week 15 16•April•2020