One day after countries at the COP28 climate summit agreed to transition away from fossil fuels, two of Canada’s largest oil producers unveiled capital plans to spend more than $10 billion next year.
It comes as the world consumes record amounts of oil this year — more than 100 million barrels per day — and Canadian producers prepare to meet the ongoing call for more energy.
“There is a place for fossil fuels and that’s just reality,” said Gurpreet Lail, CEO of Enserva, an industry group that represents the energy services, supply and manufacturing sector.
“You can spin it any which way you want to make yourself feel better or placate public opinion right now. But the fact of the matter is, we need investment coming back into this industry,” said Lail, who attended the COP28 summit.
“People are consuming more oil and gas products, and oil and gas, than they ever have before.”
On Thursday, a new forecast for Enserva projected capital spending in the Canadian oil and gas sector growing by 10.5 per cent in 2024, with 6,300 wells forecast to be drilled, up about eight per cent.
In turn, the number of oilfield service jobs in the country is projected to grow by an additional 5,500 positions.
Last month, the Canadian Association of Energy Contractors forecast 6,229 wells will be drilled in Western Canada next year, reflecting a similar increase, as new pipeline capacity is coming to the market.
The capital programs of several major industry players have been unveiled over the past week, and analysts expect modest spending growth, despite the recent drop in oil and natural gas prices.
On Thursday, Canadian Natural Resources announced its budget next year will reach about $5.4 billion, up from a comparable budget of $5 billion in 2023.
The country’s largest petroleum producer forecasts total output will average about 1.36 million barrels of oil equivalent (boe) per day next year.
However, it’s targeting shorter-cycle development activity in the second half, and says production by the end of next year will reach 1.46 million boe per day — an increase of about 40,000 boe per day from the same period in 2023.
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Meanwhile, integrated producer Cenovus Energy released plans to spend about $4.75 billion in 2024, including about $2.6 billion of capital expenditures in the oilsands.
The Calgary-based company’s total budget is up about $500 million, or 12 per cent, from 2023. It is expecting total production of about 790,000 boe per day.
Cenovus and Canadian Natural, along with four other major oilsands operators, are part of the Pathways Alliance, a group that’s working together to attain net-zero emissions by 2050.
Analyst Phil Skolnick of Eight Capital said Canadian producers are looking at “slight growth” next year, as the Trans Mountain pipeline expansion is expected to be completed, almost tripling the capacity of the existing line from Alberta to the B.C. Coast.
Even with volatile oil prices — benchmark U.S. crude prices closed Thursday up $2.11 to US$71.58 a barrel — and the COP28 framework agreement calling for transitioning off fossil fuels, Canadian companies continue to invest.
“They’re not cutting back,” Skolnick said.
“They don’t seem scared of it.”
Pathways Alliance has proposed building a $16.5-billion carbon capture network in the province connecting multiple oilsands facilities to a storage hub near Cold Lake, but has not yet made a final investment decision.
Meanwhile, oilsands giant Suncor Energy announced last week it is boosting its capital expenditures to about $6.4 billion, a 14 per cent hike over this year’s program.
In Alberta, total oil and gas industry spending is expected to hit $29.6 billion this year and climb to $32.6 billion in ’24, according to provincial forecasts.
However, longer-term forecasts for the global industry are a matter of intense debate.
There are predictions world oil demand will plateau later as the use of electric vehicles expands and as decarbonization efforts gain speed.
The Paris-based International Energy Agency says world oil consumption will increase to 101.7 million barrels per day this year, but it has also forecast that global oil and gas demand will peak sometime this decade.
In Dubai at COP28, countries agreed to “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner,” as they strive to limit global warming to 1.5 degrees Celsius.
Federal Environment Minister Steven Guilbeault pointed out the deal calls for the tripling of renewable energy, doubling energy efficiency and “a historic consensus to move away from fossil fuels in energy systems.” It led to sharp criticism from Premier Danielle Smith.
The COP agreement sends a clear signal of where the world is headed, said Greenpeace Canada’s senior energy strategist Keith Stewart, even if oil companies such as Cenovus and Canadian Natural plan to spend more.
“The (capital) decisions were made months ago because it takes a long time for those processes to happen. It’ll be interesting to see whether that trend continues in the next few years,” Stewart said Thursday.
But Ben Brunnen, author of the Enserva report and a partner with Garrison Strategy, stressed the COP28 agreement gives countries the ability to chart their own path forward.
It “allows countries the flexibility to set their goals,” said Brunnen, a former vice-president of the Canadian Association of Petroleum Producers.
However, there are many lingering questions about how quickly the transition can occur and how the world will reduce emissions while also tackling security of supply concerns and meeting the growing energy appetite of countries.
“Oil and gas is not going away anytime soon,” Rob Roach, deputy chief economist with ATB Financial, said after the Enserva event.
“Being realistic, it is a long-term transition and Alberta is going to be part of that.”
Chris Varcoe is a Calgary Herald columnist.
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