[Analyse d’Éric Desrosiers] The world is not what it used to be for Canadian oil

Canada is less and less an oil producing country. At least in the eyes of foreign investors.

In the past, things used to happen differently. Normally, a global economic recovery and a rise in oil prices, such as those we have seen in recent months, should have led to a rush of investment, especially foreign investment, in the Canadian oil sector. This should be especially the case after the invasion of Ukraine and the pressing need of several countries to turn their backs on Russian oil and source from more presentable countries.

In addition to stimulating Canadian economic growth, this massive influx of foreign capital into Canada would have had the effect of inflating the value of the Canadian dollar, often referred to as the “petrodollar”. This appreciation of the loonie would, of course, be bad news for Canadian exporters, who would see the price of their goods and services automatically become less competitive on foreign markets. But conversely, everything that Canadians buy from abroad would also be cheaper, which would be awfully welcome in this period of galloping inflation.

This is what happened, for example, after the crisis of the early 1990s and after that of 2008-2009. But lo and behold, “the Canadian economy’s reaction to rising commodity prices seems more muted than usual,” Bank of Canada Deputy Governor Toni Gravelle said last week at the annual conference. of the Association of Quebec Economists which was held in Montreal. “In fact,” he continued, “the oil and gas sector is holding back overall investment growth. [au Canada] since 2015. [Et l’on] expects the increase in the level of investment due to the recent rise in commodity prices to be less than half of what our models typically predict based on historical relationships. »

As for the famous Canadian petrodollar, we cannot exactly say that it is going into overdrive, which was at US$0.82 12 months ago, at $0.79 at the start of the year, and at $0.78 on Thursday. We are far from the parity with which it was flirting just before the Great Recession of 2008 as well as from the $0.90 it was still showing in 2014.

Why ?

However, the current economic and strategic context escapes no one, and everything indicates that investments in the oil and gas sectors will increase sharply this year in the world, estimated last month, the specialized research firm Rystad. Energy. Out of total investments of US$2,100 billion, oil should once again capture the lion’s share this year, with US$658 billion (+16%), followed by natural gas, with US$401 billion (+15%), and other fossil fuels, to 396 billion (no increase). Green energies will, in some cases, benefit from even greater increases, such as solar (+64%), wind (+24%) and hydrogen (+37%), but together will only count for a little less than a third (31%) of total investments.

So ? Why are all these investors less interested than they were in a country like Canada, which has one of the largest fossil fuel reserves in the world underground?

The situation is all the more incomprehensible since Canada is a much safer and more accessible country than Russia or Saudi Arabia, Alberta Premier Jason Kenney argued before an American Senate committee on Tuesday, just before resign from his post. He blamed this aberration on the Canadian and American federal governments, in particular on Joe Biden for having blocked the Keystone XL pipeline project between the two countries.

The disenchantment of investors

The problem with this version of the story is that it glosses over the fact that foreign investors had begun turning their backs on Alberta oil long before the Democratic president was elected. If today most of the major foreign oil companies and a growing number of major investors have withdrawn from it, or are in the process of doing so, it is because their shareholders are demanding that they improve their carbon footprint and that Alberta’s oil sands are particularly poor in this regard.

It is also that beyond the recent surge in global demand, “investors expect demand for fossil fuels to slow down in the medium and long term”, recalled in his speech Toni Gravelle, as the world will move forward in the green transition. The last thing they want is to sink billions into what are in danger of becoming ‘stranded assets’.

Investors are thus faced with the short-term challenge of finding new sources of fossil energy capable of replacing those of Russia and the long-term objective of reaching the zero emissions target by 2050, explained the week. last the Director General of the International Energy Agency, Fatih Birol. The best solutions in this context are those that can be deployed and become profitable quickly, such as shale gas and oil projects, the extension of the life of existing installations and the recovery of gases flared or lost during refining.

However, new oil sands and pipeline projects are just the opposite and require a lot of money and time.

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