‘So much uncertainty right now’: Expert says oil investors hesitant to start new projects

Energy expert Richard Masson speaks with Alberta Primetime host Michael Higgins about how U.S. tariff threats are impacting investment in Canada’s energy industry.

This interview has been edited for clarity and length

Michael Higgins: With the clock ticking on negotiations, how exposed is Canadian oil and gas if a deal is not reached by that Aug. 1 deadline?

Richard Masson: It seems not very exposed because it’s the one thing the U.S. hasn’t really put any tariffs on so far. I think they recognize they need our oil and gas to provide energy security for their country, and that if they tried to put a tariff on it, they’d still have to buy it and it would just mean higher consumer prices.

I think overall, if these tariff deals slow down the global economy, it’s going to continue to put pressure on oil and gas prices, and that’s not very good for our investment level or the profitability of our industry. That trickles down to all of us.

MH: What has been the impact of all the tariffs, talks, the uncertainty on crude prices, even global demand for oil?

RM: It’s been quite weak of late. It’s picked up a little bit in the last few days with the news from Europe and hopeful news coming out of other countries. So oil prices are, $67-$68 a barrel, which is reasonable, but it had been in the low sixties.

Part of the challenge is the OPEC+ group is trying to add barrels back to the market to try and regain market share, and that’s adding supply. If tariffs are going to reduce demand, that’s not very good. One of the wild cards in all of this is what’s going to happen in the Middle East, and another one is President Trump’s recent threat to do something with Russia, or the countries who trade with Russia, if they don’t stop bombing Ukraine.

There’s just so much uncertainty right now that for investors and for companies, it’s very difficult to try to decide, ‘Are we going to drill more wells, or are we just going to let it ride the way it is?’

MH: How then does that uncertainty trickle down to impact on activity in the Alberta patch? Be that production, or even drilling activity this summer?

RM: We’ve seen some weakness in Canada this spring. People come back from breakup and usually go pretty hard, but this year, there’s been some weakness. I was looking at the ARC Financial Research Energy Institute charts. In the last three years, there’s been about $40 billion of investment between conventional oil and gas and oil sands. This year they’re forecasting $30 billion, so a 25-per cent reduction. That says meaningful reduction.

It means there’s not much growth happening in the oil sands industry in particular and that’s the kind of thing that we would need to see if we wanted to build new pipelines. We need to see more production coming, and production takes three or four years to build.

So if you’re not investing, you’re not going to see production down the road.

MH: The prime minister has given indications a new pipeline is highly likely to make his government’s list of nation building projects to turn Canada into an energy superpower and Environics is out now with polling that puts the support of Canadians for a new oil pipeline at 73 per cent.

What kind of weight might that carry with companies who are maybe weighing investment in such projects?

RM: I don’t think the public sentiment is going to help much. Companies are really focused on: will they make money if they try to build a pipeline? The experience in Canada has been dismal over the last decade. Gateway was canceled, Energy East was canceled, and the Trans Mountain expansion had to be taken over by the government and ended up being six times over budget.

There are no companies that I’m aware of who have expressed interest in building a pipeline, either to the west coast, or to central Canada, or the east coast, because of the hurdles. The hurdles are so large.

I attended a TD Stampede investment conference and I got to listen to the big producers. They said they’re not going to be able to grow unless there’s significant legislative change to reduce the risk associated with that. Things like the tanker ban, or Bill C-69 the Canadian Impact Assessment Act, those type of things, the carbon cap on oil and gas.

All of those things add risk to the existing system. Companies aren’t going to grow unless that changes and investors feel comfortable, and if they’re not growing, then there’s no oil to fill a big new pipeline which would probably cost $25 billion (or more) just to get to the West Coast.

MH: If the build out of another pipeline is as challenging as that, where does that leave industry then, in expanding market opportunities? Are there other options that could change the conversation in a significant way?

RM: The main thing that’s going to happen is the existing pipeline companies looking for ways to find efficiencies in their system. Enbridge talked about, doing 150,000 barrels a day in the next year or so using drag-reducing agent. The Trans Mountain team said they could probably do 250,000 barrels a day over the next couple of years, and then maybe add some pump stations beyond that.

So there are ways to de-bottleneck the system. The problem is that the oil sands tend to grow by 100-250,000 barrels each year, and that just adds to the supply. It’s minor growth, but it continues to add supply.

We’re likely to end up bumping against the limit of the pipelines over the coming four or five years. We probably won’t have major expansion of production, but we probably won’t have a pipeline either. That means when something goes wrong, if a pipeline gets de-rated or there’s a regulatory issue, then we won’t have enough pipelines.

And differentials widen which is really hard on governments, especially the Alberta government, who takes in a lot of money from royalties each year.