Scotiabank-CAPP Energy Symposium – Press Conference
April 7, 2020 – Virtual Press Conference
Tim McMillan, president and CEO, Canadian Association of Petroleum Producers
Good afternoon, everyone.
The world is in a crisis. What we take away from today’s presenters at the Energy Symposium is that Canada’s oil and natural gas industry has been acutely impacted as a result of the global economic slowdown and the damage that was done by the Saudi-Russia price war.
The first priority of our industry is safety. Work crews in our industry have been deemed essential services, and we think that is crucially important so that we can ensure we keep the natural gas and liquids flowing to heat homes, to power buildings and to keep trucks on the road that are delivering life-sustaining supplies such as groceries and medical equipment. Our members have put into place strict operating procedures to keep their workers and the public safe in order to safely operate, and to keep important projects moving forward.
When we started planning for our 2020 energy symposium with Scotiabank, we had a very different view on what this year was going to look like for the first time since 2014.
We were expecting increased investment in both conventional and oil sands sectors. There was a sense of cautious optimism beginning to rise in Canada’s oil patch. But today, our industry is in crisis. Over the past four weeks, we have witnessed a historic global market crash caused by COVID-19 pandemic. Economies across the world have quite literally been shut down and some are barely functioning.
We have also seen the moral depths of some of our global competitors, and Saudi Arabia and Russia that have used this global health crisis to further disrupt the supply chains. We think this is extremely problematic. The results have been devastating to Canada’s oil and natural gas industry, with Western Canadian Select falling to below $4 per barrel. We saw world prices even getting down to around $20 per barrel. Both of those are remarkably low.
We’re encouraged by the actions on essential service, and employee assistance from the federal government, that they have taken to date, and are appreciated of the ongoing communications and consultations that has been undertaken by ministers and senior staff in many departments.
It’s apparent that urgent action is needed to provide a measure of certainty for Canadian energy producers during exceptionally uncertain times. Since we began our discussions with the government of Canada three weeks ago, companies have taken action as well. They have been forced to pull back between $6.5 (billion) and $8 billion of investment in the Canadian energy sector. That’s $6.5 (billion) to $8 billion pulled out of the Canadian economy for the rest of this year.
This is resulting in mounting job losses across the country and further damage in every part of our economy. We think it is essential that we sustain ourselves through this crisis to enable the energy sector to be a strong part of the recovery as we have been in past economic challenging times. Most recently, we were one of the main drivers coming out of the 2008.
We’ve recommended actions in three specific areas to enable us to sustain this crisis and be set up for helping Canada’s economy:
The first is the urgently needed liquidity for companies, access to capital, and measures that will enable operators to protect jobs and investments, and invest in projects that will get Canadians working. This would include support or incentives for the reclamation of inactive and orphan wells – creating jobs for people working for service companies who are particularly impacted by the downturn. Introduce liquidity measures for industry on a similar scale to what we saw in 2008/2009, economic stimulus offered to the manufacturing sector.
The second area of recommendations is on regulatory certainty. As oil and natural gas industry looks to weather the crisis and support future recovery, stability is required. New regulations that add costs or increase uncertainty could inflict long-term damage to the Canadian economic recovery. Key measures include and adopt “do no harm” with respect to regulations, and a “tool’s down” approach to new policies that would increase costs in the medium term, and adopt an enabling approach to compliance for certain low risk regulatory requirements to enable operators to focus on critical activities to protect the health and safety of workers.
And the third, and I note the government has already acted, declaring oil and natural gas in an essential service. Designating oil and natural gas as essential will enable vital energy to be delivered to Canadians to keep homes heated and electricity on, as well as vehicles running.
Once again, we are supportive of government efforts to date, and appreciate the consultation and two-way communication. We ask for a sense of urgency as we confront the current challenges. We believe that the oil and natural gas industry is crucial to our country’s economic well-being and can lead our recovery, as well as be a foundation of long-term resilience.
Media Question and Answer
Reporter: There was some discussion today by both the (Alberta) premier and the (Alberta) energy minister regarding the upcoming OPEC and OPEC+ meeting. What is CAPP’s stance regarding producers being asked to shut in more oil, mandated to be shut in, addition oil, if there were some sort of agreement reached between the OPEC countries?
Tim McMillan: So I think that the premier was clear that they think it’s important that they’ve been invited to that table, it’s reflective that Canada is a major producer in the world. I think that for those OPEC nations to be reaching out is a reflection that they are uncomfortable with the cuts they made given the global crisis we’re in. As far as mandating reductions, that’s something that a government can do, but it’s something that industry can’t orchestrate reductions. It’s only government can make those mandates under compliance [competition] law.
Reporter: What might be the challenge in keeping workers around and attracting new people into the industry going forward? And how might these latest forces dissuade folks, maybe particularly folks laid off from remaining in, or considering careers in oil and gas? How might that be counter to the future?
Tim McMillan: Thanks for your question. In the current economic environment, I think that it will be challenging. I think one of the big problems with our current situation is that oil and gas is being uniquely targeted by the Saudi-Russia spat in the midst of the global economic downturn and health crisis. There’s unlikely to be other sectors that are doing substantial hiring as well. As we look to sustain through the crisis and what a recovery might look like and what timeframe we’re not sure, is that energy is going to be a key part of that. We have historically been one of the main drivers of pulling Canada out of economic crises and recessions. Global demand before the COVID virus started to spread, global demand had increased every year for the last decade at near-record pace. I think Canada, over the last several years, was uniquely challenged in our market access issues, where global prices were substantially higher than Canadian. One of the things the Premier highlighted at lunch today was that we actually have three major pipelines currently under construction: We’ve got Trans Mountain, we’ve got Keystone XL and we have Line 3. Where Canada has struggled for years to get projects moving forward, at this difficult times there is some optimism about what the future looks like for the Canadian sector. We are positioning ourselves to compete globally again – I think that is a real positive.
Reporter: Thanks for doing this. I was on and off to the sessions during the day, so I apologize. But some of the comments I caught, I was wondering if it’s too much to say that natural gas is viewed as a bit of a saviour in Canada. I thought I heard some of that and I’m not sure if that was a common theme in some of the comments.
Tim McMillan: I’m with you. I caught some of the sessions today, but I’m sure there was a lot that I missed, but absolutely. Looking back in the resource sector in Canada, there’s been times where natural gas has been leading the charge in the last few years. We’ve seen natural gas prices come off, but LNG is getting off the ground and LNG is going to be an important resource pathway for getting our resources to global markets. The other thing we’re seeing is that our companies are competing in the North American market today on natural gas and some of the futures on gas are bumping up again, partly because of oil prices coming down. The diversity of our resource sector is one of our strengths: heavy oil, light oil, and gas, and getting that infrastructure for LNG, I think gives us even further tools and strength to rely on in the years ahead.
I have a further comment maybe for the (previous) question about workers and keeping them engaged in the energy sector. I think that the pipeline projects are an important one for our sector. But I also want to recognize the work that the federal government and provinces have been doing. The Premier talked about the investments that they’ve made in the Orphan Well Program, a month or so ago. The Premier also talked to those discussions and potential that the federal government would be looking at a more orphan and inactive well program that could get the service sector sustained and create jobs in the short- and medium-term – that is something we think is terribly important on the jobs front. And also has a liquidity component as it could clean up balance sheets as industry is addressing some of the liabilities which they have to account for on their balance sheets today.
Reporter: Thanks very much for taking my call. Strange, strange way to conduct these things, I know. I appreciate you guys taking all the effort to do this. I’m wondering if you could elaborate a little bit on the concept of declaring the oil and gas sector to be an essential service. For you, what does it look like? What would that mean on the ground?
Tim McMillan: Great question. Something I want to recognize is the good work by multiple governments on this. No one can deny that keeping our electricity systems operating with the natural gas that flows to power plants, keep our homes heated when we’re spending so much time there, the petrochemical industry which is building a lot of the gear for the health facilities that we’re needing right now. It’s a key building block of our society, and I would say at times we take it for granted because it is so seamless, that we don’t think of the natural gas flowing to our house is coming from a well pad in northeast B.C. where there’s workers that are diligently going about their jobs every day and the whole supply chain and infrastructure to get it there. But if one piece of that gets disrupted for a very well-meaning pandemic-response decision, it could have very detrimental or damaging effects on society.
And for governments to identify early on that they wanted to be thoughtful and put policies in place that now allow the supply chains that supply that producing well in northeast B.C., to continue to get the supplies there so they can continue to operate and all the pieces along that chain, it’s far more complex than people would normally contemplate. But when we start to think about what’s the effects of any one of those things going down, it would be absolutely catastrophic for individuals and for our cities and towns and citizens.
The Premier referenced as well today that crises like this certainly force us to think about these issues and focus the mind. I guess I’m proud to be part of an industry that is first and foremost going to operate safely and ensure that we keep these essential services flowing.
Reporter: Of course, you meant that you see this industry as a big driver for the economic recovery that, of course, is going to be a big part of however many months down the road that begins to happen. Are you 100-per-cent confident that this industry can rebound and be as big a player as it has been in the past as far as the national economy? And maybe just drill down a little bit on what you’re thinking there, because there are folks out there that have the opposite opinion, and maybe think that there won’t be a rebound for this sector.
Tim McMillan: I’ll give you some thoughts on it. I guess the question is globally or nationally, and have we solved some of our domestic problems to allow us to be relevant in the world? Globally, before the virus started to spread, demand for both oil and gas were increasing dramatically for the last decade and at near-record pace. Canada was in a different boat. I referenced some numbers earlier today that the price of oil in Canada was $4, where the price of Brant or WTI, the lowest it ever got, was $20. And that has been a consistent problem for us for several years, largely because of market access. There’s different qualities and different prices but the root cause of our differentials for the last several years has been market access almost entirely. So, coming out of the health crisis, whenever that is, I expect that global demand will again rebound. And I think that with the infrastructure we’re building with LNG and with the oil pipelines, and I think we need to be continuing to pursue new natural gas LNG opportunities. Canada can, and should be positioning itself as a supplier of choice, because the flipside of that is the Saudi Arabias the Russias that would take advantage of times like this that don’t have our high environmental and safety standards, will succeed in their pursuit of market share of a growing market. And I think that Canada has an opportunity and an obligation to pursue that and to do it properly. I think we’ve taking some very important steps in the last couple of years.
This is a very challenging time and we appreciate your interest and support.