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Extended production curbs should help Canadian oil prices

Changes to tariffs and tolls will also raise natural gas prices and reduce volatility

Calgary, October 2, 2019  – The extension of crude oil production curtailments in Alberta to the end of 2020 is expected to have a positive impact on Western Canadian oil prices even as global prices fell in the third quarter of this year, according to the latest forecast from Deloitte Canada’s Resource Evaluation and Advisory (REA) group. The forecast also notes that, although the disruption of Saudi Arabian production in mid-September caused a spike in oil futures, the long-term effect on prices remains uncertain.

“Alberta’s decision last month to extend crude oil curtailments should help continue to stabilize Canadian prices and ensure production levels don’t outpace the ability of producers to transport that oil to refineries,” says Andrew Botterill, Deloitte’s National Oil, Gas & Chemicals leader. “This in turn should keep oil differentials from widening substantially and help keep volatility in Canadian prices lower than we’ve seen in previous quarters.”

Deloitte’s forecast says narrower differentials between Western Canadian Select (WCS) and West Texas Intermediate (WTI), and higher prices at US Gulf Coast refineries looking to replace Venezuelan supply, could encourage some Canadian producers to increase shipments of crude by rail as the economics of such shipments improve. This in turn could have an impact on Alberta’s curtailment policy, as additional rail exports would reduce diluent volumes and free pipeline capacity for other producers.

“If price differentials remain competitive and large producers do decide to move increased volumes by rail, it is possible Alberta will decide to exempt increased crude by rail volumes from its production curtailments,” says Botterill. “The government could be looking to offload some of its existing rail contracts in the coming months, so the addition of a curtailment exemption could be a significant deciding factor for a potential purchaser.”

The Canada Energy Regulator recently approved temporary changes to the NOVA Gas Transmission Ltd. (NGTL) tariffs and tolls to increase and stabilize natural gas prices in Canada, because recurring summer maintenance outages on the NGTL system have continued to affect Alberta Energy Company (AECO) prices. The changes would give producers greater access to storage facilities in the East Gate delivery area during maintenance activities.

“Transport to storage is considered an interruptible service within current tariffs, but the changes would prioritize interruptible delivery and storage injection over firm and interruptible receipt services during maintenance activities, so natural gas producers would have more constant access to storage facilities,” says Botterill. “This would increase and stabilize AECO prices in the summer months when consumption is low and prices historically have been volatile.”

Deloitte’s forecast also looks at some aspects of the future of work in oil and gas, noting that top talent such as engineers and operators will be watching for the industry to improve its employee experience through better use of digital technology and new workforce options. That means using more collaborative, teaming, and digital reality technologies to transform where and how work gets done as physical-virtual interactions become mainstream.

“In the past, the oil and gas industry has been able to attract and retain top talent through competitive salaries, but with the industry still struggling since oil prices crashed in 2014, and as the labour market tightens and competition for workers increases beyond traditional industries, money alone won’t fix everything,” says Neil Hunter, Deloitte’s director of Human Capital Consulting. “By offering a better employee experience, heavier weighting on leadership skills compared to technical skills for leadership roles, and using human-centred design for digital technology implementations, oil and gas companies will be able to differentiate themselves from other employers and ensure they continue to have the talent they need to succeed.”

For Deloitte’s complete oil and gas price forecast dated September 30, 2019, and the firm’s insights into what’s in store for the future of work in the industry, visit our website.

About Deloitte

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