Pipelines, politics and price: Oil & gas producers call for a Canadian energy strategy to help them play on the world stage

CALGARY - According to a new oil & gas report from PwC, Canada needs a strategy to help it develop Western Canada’s energy reserves and to increase its stature as a global energy player.

The report says the energy sector has a litany of policy challenges, ranging from environmental concerns about pipeline and tanker shipments of crude oil from the pristine West Coast, to worries from the United States that it could be in danger of losing one of its most secure and reliable sources of energy to Asian markets.

The report also notes that more discussion needs to take place about what Canada should do with its ever-expanding reserves of crude oil, refined products and liquefied natural gas (LNG) coming on stream over the next few years.

“Canada’s capacity to produce oil is coming perilously close to surpassing our ability to transport that product to markets in the U.S.,” says Reynold Tetzlaff, PwC’s Canadian Energy Leader. “The industry needs to overcome a daunting list of challenges, namely how to manage all of its output.”

Industry forecasts suggest that total oil sands output could grow to between 4.2 and 4.5 billion barrels a day between 2012 and 2020 as 28 new projects have either been commissioned or approved.

At the same time, the U.S. may become less dependent on Canada as new shale gas and tight oil also comes into production south of the border, highlighting the fact that Canada should not be putting all of its resource development options in one market.

In another recent report about the sector entitled, “Nothing to fear”, PwC lists five reasons why Canada should welcome increased foreign investment in its oil sands and shale gas resources, including: greater market diversification, increased product value, faster land development, job creation and the knowledge transfer of new technology approaches between Canada and foreign markets.

“The U.S. is no longer Canada’s only market for crude oil. While favoured, it’s just one of many potential markets for Western Canadian producers,” says Tetzlaff. “The more attractive option for producers remains diversified export markets, primarily in China where refining capacity is expected to climb to 13 million barrels a day by 2015.”

The diversification of China’s oil grades and its corporate interests are driving investment into Canada. China is expected to become more aggressive in acquiring equity in Canadian producers over the coming years. Overall, Chinese investments in Canada have grown rapidly, from $900 million in 2005 to $14.4 billion in 2010 with almost half focused on mining and oil extraction.

Both current pipeline projects, Northern Gateway and the Trans Mountain system, which are designed to ship more bitumen and synthetic crude to Pacific Rim countries (primarily China), face heavy opposition from environmental and First Nation’s organizations.

“While Canada’s energy potential for the world stage is clear, producers are looking to the federal and provincial governments for policy leadership on the markets front, including an effective strategy for environmental reviews,” says Tetzlaff.

He continues, “A national energy strategy is one means that could be used to outline Canada’s future energy marketing goals and strategies to achieve those objectives. Any strategy undertaken will need to align provincial interests between Alberta, Ontario, Quebec and B.C., oil sands exports, the private sector and other stakeholders including First Nations groups.”

The report “Pipelines, politics and price” was released today by PwC at the 3rd Annual Energy Visions Business Forum in Calgary, Alberta. PwC’s Energy Visions program is a series of publications and events that provide context around issues affecting the oil and gas sector. For more information and a copy of the reports, please visit www.pwc.com/ca/energyvisions. Copies of the reports are also available from the media contacts.

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at www.facebook.com/pwccanada.

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