Canadian oil and gas producers to gain from global recovery
Increased demand should keep prices strong over the summer
Calgary, July 6, 2021 - Canada’s oil and gas sector looks set to benefit from a strong domestic and international economic recovery after the disruptions caused by the global pandemic, according to Deloitte Canada’s Resource Evaluation and Advisory (REA) group. Oil prices are expected to remain at recent elevated levels as demand for North American crude increases this summer even as more supplies become available, while natural gas prices are also forecast to stay strong over the summer months.
“Canadian producers are benefitting from higher demand for crude oil feedstock, driven by significant growth in the U.S. and Canadian economies as vaccination rates have soared, leading to higher consumer spending and the beginning of a return to a pre-pandemic life,” said Andrew Botterill, national Oil & Gas leader at Deloitte Canada. “Supplies should keep pace with this increased demand, which means crude prices should remain relatively stable despite Canadian and international producers boosting their output.”
The forecast notes that prices for West Texas Intermediate averaged US$65.24 a barrel in May, about 13-percent higher than the average price in the first quarter of 2021. Although this higher price has led to increased oil drilling activity, companies appear to be practicing capital investment restraint so their development activity will likely not outpace 2019 levels, despite higher prices. The situation is slightly different for natural gas producers, however, where prices have been relatively stable for about 18 months and where drilling activity is expected to outpace 2019 levels by about 20 percent.
“The market seems to have fundamentally changed when it comes to development planning, with companies focusing on paying down debt and preserving flexibility to make future investments, including for initiatives related to decarbonization and energy transition,” said Botterill. “Although capital spending has increased roughly a third from the lows we saw a year ago, this trend is shallow and doesn’t suggest significant capital is needed to maintain their desired flat production levels this year.”
In a separate Economic Outlook, Deloitte said the current rebound in oil prices could spur higher investment in the short term, but future investment will be limited as governments act to reduce carbon emissions and because of the increasing dominance of ESG (Environmental, Social and Corporation Governance) considerations when making investment decisions.
“The carbon-energy sector was already facing significant investment challenges because of domestic and international commitments to lower emissions and a shift in global capital allocations toward more sustainable and green initiatives,” said Craig Alexander, Chief Economist at Deloitte Canada. “Nevertheless, the world economy seems heading for a strong recovery over the next few years, which will boost demand for oil and gas.”
Deloitte provides audit and assurance, consulting, financial advisory, risk advisory, tax, and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-class capabilities, insights, and service to address clients’ most complex business challenges. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
Our global Purpose is making an impact that matters. At Deloitte Canada, that translates into building a better future by accelerating and expanding access to knowledge. We believe we can achieve this Purpose by living our shared values to lead the way, serve with integrity, take care of each other, foster inclusion, and collaborate for measurable impact.