Inside Mark Kearney’s “Grand Bargain” with Canadian Oil Industry

Hello, welcome to our Energy Source, come to you from London and Calgary today.

Recently, I have been considering expectations for growth in oil demand this year, but once again the forecast is far away. Last Friday, the International Energy Agency said that outside the coronavirus pandemic, it is expected that global oil consumption will grow at the slowest pace since 2009, increasing from its previous growth estimate of 720,000 b/d to 700,000 barrels a day. The U.S. Energy Information Administration also released a new short-term outlook last week, predicting that oil consumption will increase by 800,000 b/d in 2025.

In contrast, the OPEC+ cartel, which produces around 40% of the world’s crude oil, predicts demand will increase by 1.3mn B/D this year. That view was echoed on stage by Amin Nasser, CEO of Saudi Aramco, at the OPEC seminar last week in Vienna.

However, OPEC+ predictions have been particularly broad in recent years. In December 2023, we predicted that oil demand would increase by 2.2 million b/d the following year, but revised that figure several times to estimate that annual growth would be 1.6 million b/d by the end of 2024. On the other side of the aisle, the IEA for March 2024 predicted an annual increase of 1.2mn b/d for 2024, and then revised it to about 1mn b/d in the middle of the year.

Calculating global oil demand patterns is not a perfect science, but the consistent bay between forecasts suggests that politics must exist. And while it is the OPEC+ leaders who have generally criticized the IEA for alleged political bias, Common Sense has directed that the cartels have more skin in the game.

The producer group claims that it will unlock years of production cuts of 2.2mn B/D and that the market will be able to absorb additional supply. As most traders expect, that surplus is set to weigh prices later this year. Some analysts are forecasting a global benchmark, Brent crude oil, which falls below $60 per barrel in the fourth quarter.

Monitoring demand forecasts have not been more exciting. Let’s see who’s right.

Currently, for our main items, Canada’s Canadian correspondent, Ilya Gridneff, is coming to you from Calgary, where he is investigating the government’s relationship with the oil industry.

Thank you for reading – Tom

What about “magnificent bargains” for Canadian oil holds?

Canadian Prime Minister Mark Carney’s efforts to reset ties between Ottawa and the Alberta oil industry are off to a rocky start, with a standoff over climate policy paying for what is called decarbonized oil.

Carney took office with the promise to make Canada a “energy superpower” in the wake of US President Donald Trump’s tariffs and trade war. As long as emissions are kept down, the oil figures will be prominent in that plan.

Calgary-based Jeffroson, vice-chairman of Cenovas Energy, one of Canada’s largest oil and gas companies, told Energy Sources he was “cautiously optimistic” about the government reset, but told the many challenges ahead.

“We need to share cautious costs between governments and industries,” he said. “We believe in decarbonizing (oil) barrels, but we have to do it in a way that will make investors interested, otherwise we have no capital.”

A longtime climate finance advocate, Carney aims to restore relations with the fossil fuel industry, particularly the Alberta Oil Sands producers, who were deeply hostile under former Prime Minister Justin Trudeau.

The sector says that 10-year Trudeau era laws, taxes and environmental regulations have curtailed the potential for economic growth.

In early June, Kearney promoted “a spectacular bargain” when he met up with oil and gas executives. He has provided interim support for the new pipeline and billions of dollars projects to acquire carbon from Alberta oil sands as a way to neutralize emissions and produce “decarbonized oils.”

Canada has the world’s third largest proven oil reserves. However, because the extraction process from oil sands is more carbon-intensive than traditional drilling, Pembina Institute also produces “the most carbon-intensive crude production in North America.”

Six of Canada’s largest oil sands companies have formed the Pathways Alliance, proposing $16 billion (US$11.7 billion) and a $25 billion carbon capture and storage (CCS) megaproject.

Canadian Energy Minister Tim Hodgson is a former Goldman Sachs banker and former board member of MEG Energy, showing support for increasing oil production through CCS, but no one will fund the project, particularly for the ongoing operating costs of decarbonized petroleum.

“We have the opportunity to grow the traditional energy industry and bring products to market in an environmentally responsible way through innovation and technology like The Pathways Project,” he said.

Kevin Birn, chief analyst of the Canadian oil market at S&P Global, warned that without a large public investment in CCS, Canada could risk missing the next oil boom.

“It’s expensive, but it’s a reduction technology that’s necessary,” he said.

Kendall Dilling, president of the Pathways Alliance, said the group “continues to work with the government to obtain the necessary regulatory approvals to ensure adequate levels of financial support and the required regulatory approvals.”

However, Canadian taxpayers have already posted a bill for the Trans Mountain Expansion Pipeline (TMX), which opened last May. After 10 years of disruption and costs, after $34 billion (four times the budget), TMX records Canadian oil exports, including an increase in shipments to US West Coast refineries and an increase in shipments to new Asian markets.

Alberta, which originates most of Canada’s oil, claims that the strength of greenhouse gas emissions from oil sands has decreased by about 20% since 2011.

But the expensive decarbonization process through the proposed Pathways project is a bill that no one wants to pay when Canada faces a growing budget deficit after increasing NATO defense spending and border security in response to pressure from Trump.

In early July, Hodgson announced a $21.5 million investment in the Alberta-based CCS project, but critics said spending should be billions rather than millions.

Lawson said Senovas and his colleagues are working to reduce emissions, but other oil regions around the world are not paying for such harsh environmental measures and are not facing such regulatory barriers.

“We need to compete with the rest of the world, otherwise we won’t have any investors,” he said.

For Alberta Prime Minister Daniel Smith, Kearney’s overture is welcome, but not enough.

“The industry’s capital is mobile and the US looks much more attractive right now,” Smith said in an interview with Energy Sources in mid-June.

Earlier this month, Alberta’s Kearney said there was “very high” chances of a new oil pipeline being built on Canada’s west coast for a new market.

The Alberta energy industry is making demands clear.

Calgary-based Enbridge, the operator of North America’s largest pipeline system, is one of 38 companies that wrote to Carney after winning the April election, urging better conditions for implementing energy proposals.

An Enbridge spokesperson said: “The new pipeline project will require careful consideration and actual state and federal legislative changes.”

Kearney faces a critical test of balancing the political, social and economic realities of increasing oil production while maintaining environmental and policy standards.

Lawson said: “Unless existing regulations have changed, we cannot see a pipeline to the coast at speed. Regulatory certainty is required, and the current framework does not provide that.” (IlyaGridneff)

power point

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The energy source has been written and edited by Jamie Smith, Martha Muir, Alexandra White, Christina Shevory, Tom Wilson, Rachel Millard and Malcolm Moore, and is supported by FT’s global team of reporters. Contact us at Energy.source@ft.com and follow us on X at @ftenergy. Check out previous editions of our newsletter here.