There is little doubt that Canada's energy industry is in the midst of great change. But what will the oil patch look like in coming years? Streetwise sat down with a PwC-organized panel of bright minds in Calgary to find out. Here are a few of their ideas.
1. TransCanada Corp's Keystone XL may be a necessary link for bringing Canadian crude to the Gulf Coast. But it's not likely going to feed energy appetites in the U.S., where gasoline demand is shrinking. That's a controversial notion among environmental groups. But it's reality, says David Goldwyn, president of Goldwyn Global Strategies, LLC. The "future for Canadian heavy is probably going to be as it's converted into refined product and exported," he says, pointing to burgeoning shipments of refined products to Latin America. "All this capacity is going to be for export."
2. Enbridge Inc. isn't done building new pipe. In fact, it's looking at ways to bring Canadian oil directly to Philadelphia, whose refining complex is sputtering in part because it relies on high-priced imported oil. "We are looking at land solutions to Philadelphia, as an example, and also water solutions to Philadelphia to provide more of a WTI-based feedstock to those refiners," said Stephen Wuori, president of liquids pipelines for the company. WTI, or West Texas Intermediate, is the North American benchmark oil, which has been trading much cheaper than its international Brent counterpart.
3. But that doesn't mean TransCanada has a shot at bringing oil east, by converting part of its natural gas pipe system into oil service. Mr. Wuori doesn't think there is enough demand in Ontario and Quebec to do both the TransCanada line as well as his own company's proposal to bring oil from Sarnia to Montreal on its already-built Line 9. That said, those projects could load oil onto barges that feed St. John, N.B. and the U.S. East Coast -- and if that happens, demand could be far higher.
4. Speaking of oil exports to the U.S., few doubt Keystone XL will be approved early next year. But it's worth noting that Republican presidential candidate Mitt Romney, who promised to approve the line on his first day in office, could be doing the project harm if he doesn't win. The risk is that he is "branding this as a Republican pipeline and making it awkward for the [Obama]White House and for Democrats in Congress" to approve the line, said Robert Johnston, director of global energy and natural resources at Eurasia Group. But, he added, "I would agree that despite that, it will probably still get done."
5. On natural gas , Canada may be better off rooting for President Obama anyway. Why? Because basement gas prices are only likely to recover if there's more demand, which means gas has to replace a lot of coal in the electricity space. But "Romney is basically is going to decapitate the EPA, which means the rules that are phasing out coal in the electric power sector will lose momentum, which means less gas-fired operation," said Mr. Johnston.
6. But Canada may have far bigger gas worries. The U.S. is producing so much of its own that it doesn't take much of a leap to see a day when it won't need Canadian product. Over the next decade, "it is extremely unlikely that you're going to be exporting significant amounts into the U.S.," Mr. Goldwyn said. "The future of Canadian gas exports, even by pipeline, to the U.S. is declining fast."
7. So finding Asian markets, through LNG exports, is imperative. And it's got to be done soon. By 2020, there's a gap of roughly five billion cubic feet a day in the market that Canada can fill, if it acts fast. But it has to be done by then -- because after 2020, all bets are off: China can find its own gas, nuclear energy can stage a comeback, new LNG can enter the market from places like Mozambique, Papua New Guinea and Russia. "The market could change dramatically, so timing is key. And it's a bit of a race to see who gets there first," said Mr. Goldwyn.
8. On oil, however, the finish line on the race to send West Coast exports to Asia may actually lie in California, where refiners are looking to replace dwindling Alaskan supply. They're already bringing in Colombian crude -- and Canadian oil, if it can be loaded on boats, would be a natural source. "That's a factor the Canadian producing sector has to watch," Mr. Wuori said.
9. China does want our oil, though. For one, Canada doesn't pose the political risks Chinese companies have faced in South America and North Africa. And it's got favourable geography. "The shipping costs [from Canada]would be lower than they would be for crude from the Middle East," said Erica Downs, a fellow in foreign policy at the John L. Thornton China Center. And, she said, "for China, diversity of suppliers has been a key component to enhancing security of supply."
10. But let's not forget that Asia is a lot bigger than just China. "We've seen a lot of interest in the Gateway project from Korea and Japan and Thailand, many of whom have or are making investments here in the oil sands," Mr. Wuori said. "That may be the sleeper issue -- just how aggressively are they going to bid the barrel to feed their own needs?"