Top 5 sub-sectors in the Canadian energy market: Oil
The Canadian energy market is a mess of tangled up government regulations, conflicting news reports and contradictory policy objectives. That mess, however, is a thriving and profitable marketplace for those who know how to navigate the energy landscape.
This report provides an overview of the five largest and most significant energy sub-sectors in the Canadian economy, beginning with oil.
Over the last year, perspectives on Canada's petroleum markets have shifted from uncontrolled exuberance to decidedly cautious but positive.
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There are two big pieces of good news for Canadian petroleum. Production is rising and will continue to rise -- perhaps rapidly -- for the foreseeable future. First, the Bakken Formation now appears to hold much larger reserves than previously anticipated, and advances in fracking technology make a larger portion of those recoverable than was imaginable five years ago. Second, continued development of the tar sands deposits promises radical expansion of that market, too. Overall, Canadian oil production is expected to more than double by 2030.
At first, all that extra production looked like a black gold rush. Investors sobered up, however, as they watched global oil prices tank over the last year. In late 2014, the price of oil plunged below USD$50 per barrel for the first time since 2004. All that extra production from Canada, the United States and Russia functionally flooded the market just as demand growth started cooling off in China.
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The current prices are artificially low, according to most experts. Many analysts expect oil to climb back over USD$70 a barrel by the end of 2015. Provided the price stabilizes, Canadian producers will be able to count on a healthy profit. If prices were to plummet again, however, some of the smaller producers could face serious cash flow problems. Future production growth would also decline if prices stay low.
Another factor counseling caution in the Canadian petroleum market are environmental objections. The tar sands projects remain controversial because the process of extracting and refining tar sand oil is much more polluting than conventional drilling. The industry has largely overcome domestic protests to tar sand extraction, but the environmental lobby successfully persuaded President Obama to veto construction of the Keystone XL pipeline. The pipeline isn't essential for Canadian petroleum's growth, but it's a worry sign. If the environmental movement gains more steam, it might pose a real challenge to profits.
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Finally, Canadian oil will also have to compete with growing production from the United States. Most of the Bakken Formation is in North Dakota and available to U.S. petroleum countries. The U.S. has also expanded offshore drilling and, if the next president is a Republican, will likely increase drilling in Alaska, too. Since Middle Eastern production looks to be on the rise as well, it's possible demand will fall well short of supply and drive prices down further.
Overall, however, a few ugly splotches on the canvass shouldn't overwhelm the oil industry's rosy picture. Canada's natural oil wealth is larger than ever, and extraction efforts already in progress all but assure profitability.
Look for the next installment of our in-depth review of the top five sub-sectors within the Canadian energy market, in which we focus on natural gas and coal.
Trafigura and Yara International explore clean ammonia usage
Reducing shipping emissions is a vital component of the fight against global climate change, yet Greenhouse Gas emissions from the global maritime sector are increasing - and at odds with the IMO's strategy to cut absolute emissions by at least 50% by 2050.
How more than 70,000 ships can decrease their reliance on carbon-based sources is one of transport's most pressing decarbonisation challenges.
Yara and Trafigura intend to collaborate on initiatives that will establish themselves in the clean ammonia value chain. Under the MoU announced today, Trafigura and Yara intend to work together in the following areas:
- The supply of clean ammonia by Yara to Trafigura Group companies
- Exploration of joint R&D initiatives for clean ammonia application as a marine fuel
- Development of new clean ammonia assets including marine fuel infrastructure and market opportunities
Magnus Krogh Ankarstrand, President of Yara Clean Ammonia, said the agreement is a good example of cross-industry collaboration to develop and promote zero-emission fuel in the form of clean ammonia for the shipping industry. "Building clean ammonia value chains is critical to facilitate the transition to zero emission fuels by enabling the hydrogen economy – not least within trade and distribution where both Yara and Trafigura have leading capabilities. Demand and supply of clean ammonia need to be developed in tandem," he said.
There is a growing consensus that hydrogen-based fuels will ultimately be the shipping fuels of the future, but clear and comprehensive regulation is essential, according to Jose Maria Larocca, Executive Director and Co-Head of Oil Trading for Trafigura.
Ammonia has a number of properties that require "further investigation," according to Wartsila. "It ignites and burns poorly compared to other fuels and is toxic and corrosive, making safe handling and storage important. Burning ammonia could also lead to higher NOx emissions unless controlled either by aftertreatment or by optimising the combustion process," it notes.
Trafigura has co-sponsored the R&D of MAN Energy Solutions’ ammonia-fuelled engine for maritime vessels, has performed in-depth studies of transport fuels with reduced greenhouse gas emissions, and has published a white paper on the need for a global carbon levy for shipping fuels to be introduced by International Maritime Organization.
Oslo-based Yara produces roughly 8.5 million tonnes of ammonia annually and employs a fleet of 11 ammonia carriers, including 5 fully owned ships, and owns 18 marine ammonia terminals with 580 kt of storage capacity – enabling it to produce and deliver ammonia across the globe.
It recently established a new clean ammonia unit to capture growth opportunities in emission-free fuel for shipping and power, carbon-free fertilizer and ammonia for industrial applications.