Varcoe: Imperial Oil CEO says it would be sad loss for Canada if industry doesnt reach potential
With the world’s third-largest crude reserves, Canada has the capacity to significantly raise oil and natural gas production in the coming decades.
But will it?
The outgoing CEO of Imperial Oil Ltd. isn’t so sure, but Rich Kruger is certain that missing out on the opportunity would be “a sad loss for Canada.”
A new long-term outlook by the Canada Energy Regulator indicates the country could ramp up oil output by almost 50 per cent over the next two decades.
However, the country must come together to decide if it wants to grow production substantially, Kruger told reporters Wednesday in what’s likely his final news conference as the head of Imperial Oil.
“The potential is certainly there. So the question is, will it happen?” he said.
“Well, I think it will happen when we get an alignment across the country, politically and socially, that what this industry does — and how they do it — is something that Canadians nationwide can and should be proud of,” Kruger said.
“If we don’t get that, we won’t move toward that full potential and . . . I think that would be a sad loss for Canada.”
The 60-year-old Kruger, who was born in Minneapolis and has led Calgary-based Imperial since 2013, is retiring at the end of this month. During his tenure, the integrated petroleum producer ramped up its own output to more than 405,000 barrels per day from 295,000 bpd, and sold off its company-owned Esso retail stations for $2.8 billion in 2016.
He is being replaced by Brad Corson, who joined the Canadian organization as president in September after more than three decades with Exxon Mobil Corp., which owns 70 per cent of Imperial.
Kruger’s views of the industry’s potential come at a pivotal moment for Canada’s oilpatch, amid a noisy national debate about future energy and climate policies.
In the short term, pipeline bottlenecks continue to grip the industry, capital spending will likely be flat or fall slightly next year and provincial production quotas have been extended into 2020.
The Canada Energy Regulator’s long-term energy outlook released Tuesday shows domestic oil production expanding by 49 per cent to seven million barrels per day, well above other forecasts. It’s based on three pipeline projects getting built, long-term crude prices increasing to US$75 a barrel, and on current climate and energy policies being in place.
“They are assuming the future looks a lot like the past and that’s probably a mistake,” said Keith Stewart of Greenpeace Canada.
A separate report by Moody’s on the outlook for Canadian governments in 2020 said energy prices will likely stay relatively stable next year, although market access issues will remain in place for petroleum producers.
“We see continued weakness in the energy sector, we don’t see significant new investment coming and there’s still pipeline capacity constraints,” Moody’s assistant vice-president Adam Hardi said in an interview.
“There is simply no appetite with the current price of oil, with the current constraints and political constraints as well, that there would be significant new investment.”
Imperial approved a new oilsands project last year that was initially expected to produce about 75,000 barrels per day by 2022, while lowering emissions per barrel by up to 25 per cent through the use of solvents.
Kruger has been one of the fiercest critics of the policy and wasn’t backing down from that stance Wednesday.
“Long term, we need to see the curtailment policy go away,” he said. “It’s a new risk, a risk we hadn’t contemplated and, yeah, it affected our confidence in pursuing what was, at that point in time, our investment plan.”
Many petroleum producers back curtailment, which has kept Canadian oil prices from collapsing as they did last fall due to a lack of transportation capacity out of Western Canada.
Canadian Natural Resources, one of the main supporters of the policy, increased its 2020 capital spending program on Wednesday to $4.05 billion.
The country’s largest producer said recent government changes to exempt new conventional oil drilling from output quotas led it to bump up its budget by about $250 million over 2019 levels, adding about 60 drilling locations that should create an estimated 1,000 full-time equivalent jobs.
The provincial government knows Alberta needs to get off of production restrictions if it wants to see more investment.
“The issue is there’s not enough take-away capacity on pipelines, so if you don’t have the capacity to move it, you’re not going to invest to produce it,” Energy Minister Sonya Savage told reporters at the legislature.
The future of the Aspen project will soon rest in the hands of Imperial’s new CEO, and people across the industry will be watching closely to see what happens next. Just don’t expect the outgoing boss to stop advocating for more oil production from Canada as energy demand increases in the world.
“Every new barrel in Alberta, whether it’s from Imperial or the rest of the industry, is an improved environmental performance over the historic barrels — that’s how you get better,” Kruger said.
“For the industry to continue to improve, we have to be able to grow. And to grow, we need expanded market access.”