Varcoe: 'Why not?' — Smith eyes doubling Alberta oil and gas production in an uncertain energy world

There are several major obstacles to significantly hike output, including volatile commodity prices, uncertain long-term demand, federal policies and the desire of investors

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Premier Danielle Smith says she wants to see Alberta “double down” on oil and natural gas production.

It’s a snappy quote, as it sounds like the province is sitting at the blackjack table, looking to bolster its bets.

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What would that mean in a province that is already the main source of oil and gas in the country — and Canada, the fourth-largest oil producer and fifth-biggest gas producer on the planet?

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In a world focused on decarbonizing emissions to tackle climate change, is there even an appetite for Alberta to turbo-boost its output?

“America has become the largest producer of oil and gas for export…while all the politicians have said they’re going in the opposite direction,” Smith told U.S. TV personality Tucker Carlson in Calgary on Wednesday.

“I think we should just double down and decide we’re going to double our oil and gas production because truly, where else does America want to get its oil from?”

Danielle Smith with Tucker Carlson
Alberta Premier Danielle Smith is shown onstage with Tucker Carlson at the Telus Convention Centre in Calgary on Wednesday, January 24, 2024. Matt Scace/Postmedia

Since 2008, North American oil and gas production has more than doubled, with the U.S. and Canada rapidly increasing their combined output by more than 20 million barrels of oil equivalent (boe) per day, according to a recent report by S&P Global Commodity Insights.

In Alberta, production has risen sharply over the past two decades, powered by the oilsands. In November, oil output in the province set a new record, topping 4.1 million barrels.

Canada is, by far, the largest foreign oil supplier to the U.S., sending 3.8 million barrels per day (bpd) south in October, easily eclipsing second-place Mexico.

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On the natural gas front, Alberta produced 11 billion cubic feet (bcf) per day last year, up more than 10 per cent since the first year of the pandemic, according to data from RBN Energy.

The resource base in the province is big enough to boost output. The oilsands are the fourth-largest proven oil reserves in the world.

The Montney formation, spanning the northern B.C.-Alberta border, is responsible for about half of the country’s gas output and can also grow.

“The Alberta side of the Montney still has probably well over 100 (trillion cubic feet) of gas remaining to be developed,” said Martin King, RBN’s managing director of North America energy market analysis.

“There is plenty of gas resource. Will the market be there, will the infrastructure be there, are the real questions at the end of the day.”

trans mountain
Construction for the Trans Mountain Pipeline expansion in Burnaby, B.C. Photo by Trans Mountain Corp.

New developments, including the Trans Mountain expansion (TMX) project and the LNG Canada project on the West Coast, are being built to export more Canadian oil and gas.

Yet, new energy projects have taken a long time to come to fruition. The initial regulatory application for TMX, which will start filling with oil next month, was filed back in 2013.

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It’s unclear if any other major pipelines will be proposed or move forward, which is essential to significantly ramp up exports.

“Does Canada have the resources and the technical know-how to produce more — absolutely,” said Kevin Birn, a vice-president with S&P Global Commodity Insights.

“Are there headwinds to that — absolutely.”

There are several major obstacles to significantly hike output, including volatile commodity prices, uncertain long-term demand, federal policies — such as the incoming oilpatch emissions cap — and the desire of investors to see producers return money to shareholders, not spend capital on new greenfield projects.

“We’re not resource constrained, we’re infrastructure constrained,” Birn added. “We’re also having to deal with a world investment sentiment that does look at the concerns (around) longer cycle lead-time projects and the implications of the energy transition.”

Critics say the premier’s remarks ignore the fact the International Energy Agency (IEA) is forecasting oil and gas demand will peak later this decade.

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In Canada, doubling production would “be a really bad bet and you’d be sinking money into what will be stranded assets,” said Keith Stewart, senior energy strategist with Greenpeace Canada.

“It would be a big mistake economically, environmentally, and our kids would pay the price for generations.”

However, analyst Jeremy McCrea of Raymond James said demand for oil and gas isn’t fading as quickly as some might think.

In the short run, the IEA expects global oil demand will increase by 1.2 million bpd this year to record levels.

Western Canada can also produce more gas for export as several liquified natural gas projects are advancing, with LNG Canada expected to start operating next year.

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“The royalties and the taxes and jobs that get created…are a benefit for Alberta’s economy,” said McCrea.

“It’s important we do grow our production, but let’s grow it at a more reasonable pace – it doesn’t have to be as quick as the U.S.”

The U.S. has become the world’s largest LNG exporter and oil producer.

Oil output in the U.S. is expected to reach an all-time high of 13.2 million bpd this year. LNG exports are projected to set another record, hitting 12.3 bcf per day, according to the U.S. Energy Information Administration.

In Western Canada, oil production is forecast to rise by 500,000 barrels to 5.2 million bpd by the end of the decade, according to S&P.

Meanwhile, Canadian oilsands operators are planning to reach net-zero emissions by 2050, as are some conventional producers.

We’re going to do everything we can to optimize the production of our resources…So I say, let’s be aspirational,” Smith told reporters on Thursday.

“And if it is the case that the world is going to be reducing its reliance, we need to be the best barrel on the market…So why not?”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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