I hope everyone is super-pumped by that awesome week of energy industry feel-goodness. What with OPEC and pipelines, you can almost be forgiven for not noticing our spiffy new website and masthead for the blog! We are pretty excited about it.

But enough about us, there were two big news items this week and they both bode well for the Canadian energy industry in particular and the energy industry overall. Wait, before I get too excited about all this, there is a big caveat to these announcements. Namely, they are announcements regarding possible future direction and have no bearing on what is happening in the real world where all of our clients operate – i.e. drilling, completions, maintenance, infrastructure and all services related to that. That said, the future looks brighter today than it did this time last week, so… Yay!

So what was this good news?

First up was the announcement coming from the Federal Liberals earlier this week with respect to pipeline projects and it was generally positive.

First up, the Feds approved the $6.8 billion TransMountain Pipeline being proposed by Kinder Morgan which involves the twinning of an existing line that runs from Edmonton to Burnaby and will increase its capacity from 300,000 barrels of oil a day to 890,000 barrels a day. This project is the most “shovel ready” and will deliver billions of dollars of tax revenue to support local, provincial and national governments as well as the all-important jobs. In addition, this is the “access to tidewater” that the landlocked Alberta oilpatch has been seeking as much of the oil shipped through the pipeline will be loaded on tankers and shipped to growth markets in China.

Next up, Enbridge’s Line 3 replacement and upgrade project was approved. This project involves replacing a 50 year oil pipeline that runs from Hardisty, Alberta to Superior, Wisconsin. This is a $7.5 billion project that will ultimately raise the rated capacity of the pipeline to 760,000 barrels a day from about half that currently.

Both of these projects are expected to begin construction in 2017.

Opposite this, the Federal Government put the final nail in the coffin of the Northern Gateway pipeline that was to run from Bruderheim, Alberta to Kitimat. The Northern Gateway project has been approved by the NEB subject to conditions, but the Federal Government lost an appeal by indigenous groups alleging they failed in their duty to consult which delayed the project and forced Enbridge to ask for an extension of their sunshine clause which was ultimately denied. Coupled with the Federal government’s re-announced commitment to a Northern coast oil tanker ban (not sure how Alaska feels about that – did anyone tell the Donald?, the project is effectively dead. We have always felt that this project, of any that had been announced, had the least likelihood of moving forward given the nature of the northern rain forests and their ecosystems, the indigenous opposition and, quite frankly, the sheer logistical challenges of crossing the mountainous terrain and executing the hundreds of river crossings required to get to the coast.

So, many are saying 2 out of 3 ain’t bad, or they should have approved them all dammit! My take is that this was a pragmatic decision – the two approvals will increase Canada’s export capacity by 1 million barrels a day, take crude off rail and give access to other export markets. Caught between an oil and gas rock and an environmental hard place, the Liberals risked their political capital to approve projects that are in the national interest while still pushing forward their environmental agenda. This is no small feat.

Of course the key is, an approval isn’t construction and the opposition to these projects is vocal and well-financed. As we have seen over and over, the agenda for many of the protestors is less about the actual pipeline itself than the product flowing through it and what it represents for them as the evil of fossil fuels. The result of which of course is that the proponents and governments are opposed by true believers, who often times don’t think the rule of law should apply in their righteous opposition to what they see as an evil scourge, the results of which are plain to see in the excesses and conflicts happening in North Dakota with the North Dakota Access Pipeline there. It remains to be seen how quickly these projects can move forward and what the plan is to deal with the opposition both at the intra-governmental level and on the ground.

The fight isn’t over by a longshot, but for an oil-patch buffeted by bad news at seemingly every turn, it is nice to get some good news, especially from a source so instinctively mistrusted by many in Western Canada.

O-O-O-OPEC!

As discussed last week, OPEC did indeed get its collective head out of its collective ass and came up with a deal to cut output. After much hand-wringing and fitful starts and stops, we are looking at a broadly apportioned output cut deal that will seek to lower output to 32.5 million barrels a day. Everyone seems to have given some form of concession to get this deal done.

As with any OPEC deal, it’s just a lot of hot air until the measurements come out to see how individual nations are complying, and there is no penalty for non-compliance so in that way, it’s really like the Paris climate agreement – a vague quasi-commitment to do something. That said, unlike carbon dioxide, oil is a tradeable commodity and all of these countries will benefit disproportionately from the expected 20% increase in revenues that will result from their 3% production cut.

Absent from the agreement of course are the non-OPEC countries that have national producers and could cut unilaterally, as well as Russia, but who is kidding who. Russia was never going to cut production.

Congratulations OPEC on not jumping the shark and coming up with an actual program to keep you relevant.

Okay, so we’ve done the two “big stories”, but what I really want is to point out to everyone what I think the actual big story of the week is;

The Big Story of the Week

While everyone has been hand-wringing about pipelines and OPEC and oil, the price of natural gas crossed $3.50 an MCF on Thursday. That’s important. And it’s important today, like right now.

Prices as at December 2, 2016 (November 25, 2016)

• The price of oil ended the week up on the heels of the OPEC announcement. We should all expect more volatility as the market better absorbs the impact of the proposed reductions. We are all now waiting for the next OPEC production report to parse that data for evidence of actual reductions.
  • Storage posted a modest decrease
  • Production rose by a rounding error
  • The rig count in the US and Canda continues to grow
• Natural gas was up sharply during the week as we move into withdrawal season

• WTI Crude: $51.68 ($46.06)
• Nymex Gas: $3.436 ($3.085)
• US/Canadian Dollar: $0.7521 ($ 0.7398)

Highlights

• As at November 25, 2016, US crude oil supplies were at 488.1 million barrels, a decrease of 0.9 million barrels from the previous week and 30.9 million barrels ahead of last year.
  • The number of days oil supply in storage was 30.2, ahead of last year’s 30.0.
  • Production was up for the week by 9,000 barrels a day at 8.699 million barrels per day. Production last year at the same time was 9.202 million barrels per day. The change in production this week came from marginal decreases in Alaska deliveries and a small increase in lower 48 production. With the increase in rig counts since the summer and some stability in pricing, we have likely seen a stabilization in production numbers
  • Imports fell from 7.578 million barrels a day to 7.548, compared to 7.747 million barrels per day last year.
  • Refinery inputs were down during the week at 16.283 million barrels a day
• As at November 30, 2016, US natural gas in storage was 3,995 billion cubic feet (Bcf), which is 6% above the 5-year average and about 1% higher than last year’s level, following an implied net withdrawal of 50 Bcf during the report week.
  • Overall U.S. natural gas consumption was down 3% during the week as demand decreased across all sectors
  • Production for the week was flat and imports from Canada fell by 2% from the week before
• As of November 28, the Canadian rig count was at 187 (28% utilization), 121 Alberta (26%), 20 BC (26%), 43 Saskatchewan (37%), 2 Manitoba (13%)). Utilization for the same period last year was about 24%.
• US Onshore Oil rig count at December 2 was at 477, up 3 from the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was up 1 at 119.
  • Rig count at January 1, 2015 was 328
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 55%/45%
• Offshore rig count was down 1 at 22
  • Offshore rig count at January 1, 2015 was 55

Drillbits

• Tervita – The Tervita Plan of Arrangement was accepted by all the subordinated note-holders and now the Company is in the market raising capital to execute on its refinancing
• Look – I was just too excited about the pipelines and OPEC. The rest of the news kind of paled in comparison.
• Trump Watch: The Donald is hard at work doing something he promised – keeping jobs in America and sticking it to corporations that are moving jobs to Mexico, and he is going to make them PAY!!!! By this of course he means he is going to offer a company $7 million in tax breaks to not move 800 jobs, but turn a blind eye to the 1300 other jobs that are being moved. Meh, semantics. Also, as Trump’s crazy cabinet of toadies, hard-liners and “in-touch with common man” billionaires continues to take shape one name has surfaced that should be very alarming, namely Sarah Palin to head Veteran’s Affairs which, I was not aware, is the largest government agency in the U.S.. If one appointment can underline how much Donald Trump thinks of the welfare of the common man, not to mention the men and women who risked life and limb in service to their country, it’s this one, so the selection of Palin, who has zero experience in anything so complex, is truly baffling. I mean seriously, is there no one with, I don’t know, military experience available?