http://www.bloomberg.com/news/2014-12-0 ... -rout.html
Canadian drillers cut the number of rigs used to the lowest for this time of year since 2009 as margins were squeezed by plunging prices.
Rigs targeting oil fell by 17 to 212, Baker Hughes Inc. said today on its website. Oil prices have plummeted since the Organization of Petroleum Exporting Countries decided to keep production limits unchanged at a meeting in Vienna last week as the group fought to maintain market share amid rising North American production.
“These Canadian oil rigs are coming under a lot of pressure because of prices and the lack of pipelines to export that crude to refineries in the U.S.,” James Williams, president of WTRG Economics, said by telephone from London, Arkansas, today.
Drilling activity in western Canada may drop by 15 percent next year amid oil price declines, Patricia Mohr, an economist at Bank of Nova Scotia in Toronto, said in a note Nov. 28.
Western Canadian Select traded at $49.68 a barrel today after falling to $48.40 on Nov. 28, the lowest since December 2012, according to data compiled by Bloomberg. The grade trades at a discount to U.S. benchmark West Texas Intermediate due to high production costs and a shortage of pipeline capacity to move the fuel to the coast.
Canada’s main oil producing province of Alberta has some of the most expensive crude in the world to produce. Most comes from oil sands, which must be dug or pumped out of the ground and upgraded into a lighter synthetic crude.
The lowest-cost oil sands producers, who use steam to loosen and pull bitumen from the ground, extract the fuel for about $51 a barrel, according to a July report by the Canadian Energy Research Institute. Profitability of most companies will be squeezed, Scotiabank’s Mohr said in her report.
A shortage of pipelines out of Alberta has prompted producers to rely on railways with 182,059 barrels a day sent this way in the third quarter, the most in records dating back three years, the National Energy Board said in data posted on its website Nov. 28.
“Moving by rail means you get less of the price at the wellhead because your transportation costs to refineries are so high,” Williams said.
Also:
Russia and China’s Natural Gas Deals Are a Death Knell for Canada’s LNG Ambitions - http://www.321energy.com/editorials/cas ... 20614.html
In recent years, a number of Asian companies have been betting that Canada will be able to export cheap liquefied natural gas (LNG) from its west coast. These big international players include PetroChina, Mitsubishi, CNOOC, and, until December 3, Malaysian state-owned Petronas.
However, that initial interest is decidedly on the wane. In fact, while the British Columbia LNG Alliance is still hopeful that some of the 18 LNG projects that have been proposed will be realized, it’s now looking less and less likely that any of these Canadian LNG consortia will ever make a final investment decision to forge ahead.
That’s thanks to the Colder War—as I explain in detail in my new book of the same name—and the impetus it’s given Vladimir Putin to open up new markets in Asia.
The huge gas export deals that Russia struck with China in May and October—with an agreed-upon price ranging from $8-10 per million British thermal units (mmBtu)—has likely capped investors’ expectations of Chinese natural gas prices at around $10-11 per mmBtu, a level which would make shipping natural gas from Canada to Asia uneconomic.
At these prices, not even British Columbia’s new Liquefied Natural Gas Income Tax Act—which has halved the post-payout tax rate to 3.5% and proposes reducing corporate income tax to 8% from 11%—can make Canadian natural gas globally competitive.
These tax credits are too little, too late, because Canada is years behind Australia, Russia, and Qatar’s gas projects. This means there’s just too much uncertainty about future profit margins to commit the vast amount of capital that will be needed to make Canadian LNG a reality......
