Date of publication: 12 Apr 2022 • 8 hours ago • 4 minutes reading • 97 Comments The Trans Mountain Pipeline pieces are in storage outside Hope, British Columbia. Photo by Cole Burston / AFP via Getty Images
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As bombs continue to fall on Ukraine, the world has awakened to a new reality: from whom you buy your energy matters.
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An energy policy-maker unaware that the oil revenues themselves can be equipped may be partly responsible for the rape and mutilation scenes that women and children now see around the world. What does this energy wake-up call mean for countries that have designed their energy supply chains to be heavily dependent on Russia, and what are the long-term consequences for the energy market of Europe’s largest land war since World War II? People are praying for peace, and when it comes to mercy, what will happen to sanctions on Russian energy exports? Will they be lifted the very next day with companies rushing to return to invest? Will companies quickly forget, under enormous pressure from their shareholders, to close their multi-billion dollar write-off operations, the horrors of the past weeks? Will the suffering of higher oil and gas prices usurp the killing of children, with US President Joe Biden even calling Vladimir Putin a “war criminal”?
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The answer certainly seems no. For the civilized world, buying energy from Russia is no longer politically pleasing and this will have a profound impact on energy markets for years to come. Russia, the world’s second-largest oil exporter, is likely to be deprived of both capital and technical know-how as several large oil companies announced their departure and the three largest oil service companies promised not to operate further in the country, questioning its ability to maintain production capacity. With official and self-imposed sanctions increasingly affecting Russian exports in the coming months, and even with increased purchases from India and China, potential field closures are expected to result in subsurface damage hurting their future productivity. wells.
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Jan Stuart, head of global policy at Piper Sandler Cos., Believes that Russian oil production could fall by up to 500,000 barrels per day in the future compared to a historical growth of 100,000 to 200,000 bdp. Given the already redefined state of the oil market, this new potential supply loss is significant. The United States is trying to offset the impending Russian export losses with the largest Strategic Oil Release (SPR) release in history, but this is a comprehensive approach to what is not yet recognized as a long-term structural issue. The release of the SPR probably prevented the need for oil to reach “catastrophic demand” levels above $ 150 per barrel in 2022, but this is inevitable in a world of chronic under-supply due to many years of insufficient investment is simply postponed to 2023.
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In a world of only a modest increase in US shale supply, potentially depleted OECD surplus capacity by the end of this year and steady production by global superpowers by the end of the decade, Exports of around 4.6 million barrels per day of oil and petroleum products to the West seem to be huge challenges. Canada, a net importer of 504,000 barrels of oil a day, equivalent to an annual wealth transfer of $ 21 billion, could potentially increase output, but shareholders’ call to curb growth in favor of free cash flow and , given historically low stock valuations, will likely remove it from the table. US shale, the only real source of potential short-circuit supply, is also constrained by investor demand for returns as well as a shortage of both manpower and steel. In short, there is no easy solution.
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Replacing Russian gas imports is just as difficult. The cycle time to increase gas exports through Greenfield liquefied natural gas (LNG) projects is at least four years. Growing North African gas exports and expanding liquefied natural gas could help alleviate the crisis, but the timetable for restarting closed coal plants means that reducing demand is the only short-term solution if Europe is serious in the short term about reducing the imports of Russian gas directly financed by its current war.
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In the long run, things become clearer. The bad years of energy policy in the pipeline are just like the years in correction. Instead of discrediting oil companies, governments should encourage adequate investment and adopt more sustainable energy policies that make long-term investment more attractive. The world, having already entered a structural, multi-year period of limited growth in oil production, is clearly in a crisis of energy supply. Unless substantial action is taken, the result will be energy poverty and high oil prices at all times, with a consequent impact on the world economy for years to come. We need a call to action. It took a dedicated government, which had less computing power than a modern cell phone, less than seven years to land a man on the moon first. Why did LNG Canada, Canada’s first LNG facility, take 14 years to move from first offer to first sale? Given the urgent need to divert energy sales from those that would equip its revenues, now is the time for effective action.
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No other country on this planet competes with Canada’s environmental management. In recent months, as it extended the Trans Mountain Pipeline, Canadian taxpayers have financed the movement of 100 hills of ants, 150,000 frogs and other amphibians, and even “rare mosses” without risk. Our global leadership in all things environmental, social and governance matters means one thing: the world needs more Canadian energy. Eric Nuttall is a Partner and Senior Portfolio Manager at Ninepoint Partners LP.
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