April 2024, Vol. 251, No. 4
Features
A Northern Light: Bullish Talk as Major Projects Now in Home Stretch
By Richard Nemec, Contributing Editor, North America
(P&GJ) – As a seasoned Canadian oil and natural gas senior executive, Kevin Neveu sees some positive signs for the energy markets in the north as 2024 unfolds in an uncertain political and economic landscape in the Lower 48, if not worldwide.
During an early February quarterly earnings call, the Calgary, Alberta-based Precision Drilling Corp. CEO talked bullishly about Canada’s oil and gas outlook following the past decade in which for the most part, “Canadian markets have been constrained by hydrocarbon takeaway bottlenecks and other constraints.”
Neveu’s optimism is tied to the fact that two longstanding major transmission pipeline projects in western Canada – Coastal GasLink gas pipeline and Trans Mountain oil pipeline – are expected to come online before the end of 2024. He sees these projects as “fully alleviating” infrastructure constraints that have plagued Canadian energy markets.
Neveu calls Canadian exploration and production operators “among the most disciplined in the world” because they “fully understand the long-term implications of the Canadian market transformation.” He is bullish about the long-term Canadian energy market, which he sees as supported by global energy prices and a lessening of infrastructure constraints.
For the future, Neveu expects wider use of large, multi-well pads with greater use of advanced technologies, including a push toward more use of robotics in the drilling sector.
“This aligns perfectly with Precision’s strategy of the past several years [in Canada],” which has included several rig technological advances in the past five years (“super triple rigs,” Alpha Automation, and Evergreen Emissions Reductions).
In combining all three advances, Neveu claims that Precision is offering “the most advanced land rig technology in the world today.”
Recently, the company has added three robotic arms to handle rig floor and fracking bore pipe handling operations. This is the first fully automated component in drilling rigs, but it won’t be the last, according to Neveu who expects further advances in 2024.
Parts of the Canadian drilling market remain over saturated and competition is intense, Neveu said. ‘There are too many rigs, too many contractors,” he said, while contending that Precision has enough skilled crews to withstand the highly competitive environment. Longer term, he thinks more “consolidations and rationalization” will be needed for the longer-term benefits of all stakeholders in the Canadian drilling market.
Land of Opportunity
In 2024, global energy strategists continue to view Canada as a land of opportunity because of its abundant natural resources. That makes Canada a prime location for forward-thinking companies looking for advanced research and development and expertise in energy, minerals and metals, forestry, geoscience and sustainable resource management, according to national energy officials.
Canada remains the world’s third largest producer of hydroelectric power; fourth largest oil and uranium producer; and fifth largest natural gas producer.
“Canada offers reliable transportation infrastructure that connects businesses to markets around the world,” national proponents maintain. “Focused on a greener future, Canada is committed to environmental, social and governance (ESG) initiatives in the natural resources industry.”
Pipeline Contractors Association of Canada (PLCAC) said 97% of Canada’s oil and gas supplies is transported by pipelines and noted that oil volumes alone are expected to grow from more than 4 MMbpd to 5.6 MMbpd in 2035.
Citing a 2019 Deloitte report on oil, gas and chemicals that still has relevance, Naperville, Illinois-based construction management consultant Contruent agrees that digital technologies are becoming increasingly more intertwined in the fuels and chemicals value chain.
According to the report, “Refining and petrochemicals have been in the vanguard of process automation for many years, but we are now seeing signs that the other sectors are turning their attention to digital opportunities [namely, oil and gas].”
More companies in this sector are deploying digital technologies to increase efficiency, productivity, reliability and predictability of operations, Contruent noted, while acknowledging that there can be various challenges to deployment.
“Implementation at scale can be complex in the capital-intensive oil, gas, and chemicals environment where the challenges of legacy equipment and the large number of suppliers should be addressed.”
But Contruent maintains that meeting these challenges is where its software can provide what it touts as “oil and gas industry-leading project controls and project management solutions.”
Canada currently operates nearly 522,000 miles of oil and gas transmission, gathering, and distribution pipelines, delivering supplies for domestic use and exports. Since 2007, Canadian volumes out of the prolific Western Canadian Sedimentary Basin have more than doubled from 2 MMbpd to 4.5 MMbpd. The earlier mentioned Trans Mountain project will add 590,000 bpd
Given the interconnectivity of the North American energy markets, Canadian natural gas – albeit relatively small volumes – is now going to overseas markets via U.S.-based LNG export terminals and those volumes are expected to increase in the years ahead, according to the Canadian Association of Petroleum Producers (CAPP). At the start of 2024 there were Canadian producer contracts with U.S. export terminals for up to 400 MMcf/d of long-term supply agreements for the U.S. Gulf Coast.
Eventually projects now under construction on the Canadian West Coast will handle most of Canada’s LNG overseas trade. Since 2016, the United States has added 14 Bcf/d of operational LNG export capacity through 20 export projects, and an additional 9 Bcf/d of export capacity is now under construction. By contrast, Canada in 2024 had only two LNG export facilities, totaling 2 Bcf/d capacity, under construction.
Major projects ongoing this year include:
- Fortis’ Eagle Mountain Pipeline, a 29.2-mile 24-inch line from Coquitlam, British Columbia (BC) to Woodfibre, B.C.
- Gazoduq’s 466-mile 42-inch pipeline from northeastern Ontario to Saguenay, Quebec
- TC Energy’s Coastal GasLink, a 416.3-mile 48-inch pipeline from Dawson Creek, BC, to Kitimat, B.C.
- Enbridge’s West Coast Connector, a 528-mile 48-inch line from Cypress, BC, to Prince Rupert, B.C.
In addition, by 2030 Canada’s oil sands production if expected to reach 3.7 MMbpd with Calgary-based Canadian Natural Energy Resources’ Horizon Oil Sands facility continuing as one of the largest bitumen (heavy oil) extracting projects in Canada.
Growth Expected
Energy business reports out of Canada at the end of last year were mixed in providing insights for 2024 Canadian energy expansion. Canadian Natural talked about the prospects for modest growth following steady state numbers in 2023, while the national oil and gas producers characterized their members’ results as disciplined for the year. In contrast, the Canadian Association of Energy Contractors, as the new year arrived, predicted an 8% increase in drilling new wells.
Canadian Natural expects its total production to be 1.33 MMboe/d-1.38 MMboe/d this year, similar to its 2023 estimates. However, it expects annual production to grow 4% to 5% on average in 2025, compared with the 2024’s mostly flat targeted average annual production levels.
“As part of our 2024 budget, the drilling program is weighted toward longer-cycle projects in the first half of the year,” Canadian Natural’s President Tim McKay told Reuters News Service.
“During the second half of the year, we will focus on shorter-cycle development opportunities to better align with incremental market egress and potentially improved commodity pricing, maximizing value for our shareholders.” Capital spending is expected to stay flat in 2024 at US$4 billion (C$5.42 billion).
In mid-February, the Canadian-based North American energy infrastructure giant, TC Energy celebrated operational and financial earnings results for 2023 with its CEO Francois Poirier calling them record-setting with significant advances in its extensive natural gas pipeline assets while spinning off its liquids pipelines into two stand-alone companies.
TC Energy put nearly $5.3 billion of new assets into service last year in Canada, the U.S. and Mexico. A crown jewel for TC is mechanical work and commissioning completion in 2023 for its $14.5 billion GasLink Pipeline tied to the nation’s major West Coast LNG export terminal along the British Columbia coast.
“[This project comes] after five years of construction and 55 million hours of work” said Calgary-based Poirier, calling it a “monumental” milestone, and adding, “This was one of the most technically challenging pipelines ever built in Canada, and our team delivered this project ahead of our year-end [2023] target.”
At the end of 2023, TC Energy’s gas pipeline system was delivering an average of 14.5 Bcf/d, an 8% increase year-over-year. As part of an ongoing long-range effort to reduce overall debt on its balance sheet, TC has set a goal of $3 billion in divestitures in 2024.
“Our first priority is the divestitures,” Poirier said. “While we are not going to undertake fire sales, if we see reasonable value today, we will transact on it.”
The other strong focus will be growth in North American LNG, which is rich in pipeline and related infrastructure.
LNG’s Access
“We’re the only pipeline company in North America that has a dominant footprint in all three countries [Canada, United States, and Mexico] with access to all the shores,” Poirier said. “LNG is going to be a good source of our growth going forward.”
Most of the needed infrastructure is already built, he said, so TC Energy sees the possibility for more growth through added throughput in its system, he said. TC assets in early 2024 were delivering about a quarter of the North American LNG export volumes.
On the February quarterly earnings call, Executive Vice President Stan Chatman told analysts that TC Energy’s diversity geographically and among customer classes is a strength for future growth.
“We’re going to leverage our existing corridor expansions, so I don’t see a lot of greenfield expansions,” said Chatman, noting the power generation, LNG, and local distribution companies are all going to provide growth for TC.
TC Energy senior officials told quarterly call listeners that they will continue to develop ongoing projects within what they call a “secured capital program,” planning to add approximately $7 billion of assets expected in service in 2024. It will maintain a limit on annual net capital expenditures at $6 million-$7 billion with a bias to the lower end beyond 2024.
“We believe that adhering to our net capital expenditure limit beyond 2024 will allow TC Energy to continue delivering an attractive and sustainable dividend growth rate of 3%-5%,” Poirier said during the earnings call.
Aside from human and financial capital, along with corporate and regulatory commitment, Canada’s energy future is dependent on two other issues – the nation’s long-standing commitment to its indigenous citizens and the long-term regulatory climate.
The two are intertwined. National regulation now falls to the Canada Energy Regulator (CER), the replacement in 2019 for the National Energy Board. Current developments north of the U.S.-Canada border may offer more clarification on both issues this year.
A CER spokesperson in late February indicated that oil export pipelines from western Canada were “running close to full,” and this situation will be mitigated later in 2024 when the Trans Mountain expansion comes online. In contrast, major gas transmission pipelines “appear to have some spare capacity” for gas exports and domestic needs, said CER’s Karen Ryhorchuk. Among the exports through the United States, Arc Resources is shipping 155 MMcf/d and Tourmaline Oil Corp. sends about 140 MMcf/d through the Cheniere Gulf Coast LNG facility.
In January, CER’s commission outlined its reasons for earlier conditionally approving Trans Mountain’s variance application for the Mountain 3 horizontal directional drill (HDD) crossing, a 1.4-mile section between a compressor station (Hope) and an oil tank terminal (Burnaby). Given the four conditions, the national commission found that the HDD work was in the public interest, citing the Trans Mountain operator’s new in-line inspection (ILI) commitments and effective quality management processes.
The decision allows Trans Mountain to install a 30-inch diameter pipe instead of the previously planned 36-inch pipe for the HDD section of the Trans Mountain expansion project scheduled for completion this year. CER’s rational indicates that Trans Mountain has committed to installing permanent trap facilities on the north and south ends of the Mountain 3 HDD before the overall expansion’s in-service date.
“The proposed trap facilities will enable full ILI capability for the pipeline section between Hope Station and Burnaby Tank Terminal. Condition 2 requires Trans Mountain to confirm that this commitment has been fulfilled,” CER concluded.
Other conditions that the regulators concluded that Trans Mountain could fulfill included material quality, quality management, and testing aligned with the company’s quality management plan standards for the overall long-standing oil pipeline expansion.
Pipeline projects like Trans Mountain must file confirmation that chemical and mechanical pipe testing has been completed and that system materials conform to the project’s approved specifications, meaning that the multibillion-dollar project can ensure the material quality for its variance work will match the overall expansion pipeline.
The pipeline contractors’ group in Canada, PLCAC, highlights a mile-long HDD tunneling project by one of its members, Michels Canada Co., from recent years as indicative of the advanced technology pipelining work ongoing up north.
PLCAC describes Michels’ project as a challenging 7,200-foot installation of 42-inch pipe under the Athabasca River near Fort MacKay, Alberta.
“The 1.36-mile installation is a record length for 42-inch diameter pipe, one of the longest such installations done in the world,” PLCAC noted. “The crossing was one of seven 42-inch installations Michels has completed on TC Energy’s Northern Courier Pipeline Project, a 56-mile pipeline system transporting bitumen and diluent products between a mine and bitumen extraction facility in Fort Hills to a tank farm near Fort McMurray.”
Among new environmental-related technologies, PLCAC also has called out a proprietary technology called ReCast, developed by Quality Polly Pig (QPP) to reduce environmental footprints and enhance customers’ cost savings initiatives.
The company has emphasized that the ReCast technology “creates an inseparable bond between the new material and existing polyurethane, enabling re-manufactured parts to thrive in the most demanding environments.”
QPP notes that worn cups and disks on batch pigs can be rebuilt with the ReCast process, lengthening their lifespan as well as delivering cost savings by delaying replacement purchases.
At the end of January, CER reported that Trans Mountain encountered technical construction challenges during pipeline pullback activities for the Mountain 3 HDD ongoing work. The CER dispatched inspection officers and the Indigenous Advisory and Monitoring Committee (IAMC) installed monitors on site as part of standard compliance verification activities.
“No safety or environmental concerns have been noted, and we will continue to monitor the situation,” CER noted at that time.
In the same time frame early in the new year, CER also issued its report on Indigenous communities, “Crown Consultation and Accommodation Report,” on NorthRiver Midstream Inc.’s proposed 132-mile NEBC Connector project for transporting natural gas and NGLs from British Columbia’s Montney basin to downstream markets.
The NEBC Connector consists of two parallel small-diameter (8- and 12-inch) pipelines. Of the approximately 132 miles, 118 miles will be in British Columbia and the remaining miles will be in Alberta. NorthRiver Midstream operates Highway Liquids Hub, northwest of Wonowon, B.C.
In its designated role as the Crown Consultation Coordinator (CCC), CER said the national Canadian government in this case fulfilled its legal duties “to consult and accommodate indigenous communities” regarding the connector project.
“The crown is of the view that the CER commission’s hearing process and supplemental consultations by the CCC provided an effective forum for the concerns and potential impact of the project on the [legal] rights and interests of potentially affected indigenous people,” the crown report stated, noting that potential impacts were “heard, considered, and addressed.”
Canada’s federal Impact Assessment Act requires that the potential impacts of development on indigenous communities must be completed for any major energy projects or other forms of major development. Under federal laws, CER must work to build “meaningful relationships” with indigenous peoples across Canada who might be affected by the facilities it regulates. Crown consultation is just one part of its relationships with indigenous peoples, according to CER officials.
“Where we have crown consultation responsibilities, we will consult with Indigenous communities early and throughout our review process. We tailor the scope and nature of our Crown consultation activities to the complexity of the proposed project and its potential effects, as well as the needs of affected indigenous communities,” they indicate.
Expectations are high for Canadian energy operators, particularly those building and running pipeline systems. Generally, they know what the expectations are for addressing indigenous concerns.
Industry and government representatives both are expected to promote “open communication, relationship building, and cooperation and partnership through completing impact assessments. At the same time, the assessments are expected to: meet the Crown’s common-law requirements; take into account Indigenous knowledge, cultural considerations, and customs; gather scientific information and other evidence; and meet contractual, policy and good government obligations.”
On its website, CER indicates that it hopes the attention to indigenous peoples’ concerns can have positive socio-economic and environmental mitigation effects for Canada. It lists as potential positive outcomes environmental, health, social and economic effects from approved and well-managed projects.
The projects are expected to “enhance indigenous communities and individual rights, mitigate adverse impacts, help deter climate change, and create longer-term positive programs” once the energy project is operating.
Richard Nemec is a long-standing Los Angeles-based contributing editor at P&GJ. He can be reached at rnemec@ca.rr.com.
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