Fueling Future  DemandClick image to enlargeby Noelle Stapinsky

Will pent-up demand give a spark to the energy and resources value chain?

Canada’s oil and gas sector has had its fair share of challenges over the past decade—dealing with high costs, price wars, trade issues and opposition to new projects and pipelines. However, the past few years have shown a slow but steady uptick in positive movement for the sector. Last year, the Federal government announced an investment in the Trans Mountain Pipeline (TMX) project, a show of support the industry desperately needed. 

And while the rest of the year remained fairly neutral, Ben Brunnen, vice president, operations and fiscal policy for the Canadian Association of Petroleum Producers (CAPP), says that oil and gas finished the year pretty balanced. “Looking into 2020 in January, we had actually forecasted an increase in investment for the industry and notably an increase for oil sands for the first time in five years,” he said.

Of course, like most industries sitting idle trying to survive the global economic downturn amid the COVID-19 pandemic, the near future is wildly unpredictable. “In January we were expecting increases in conventional investments as well. But where we were and where we are now, I’d say it’s quite a difference,” says Brunnen. 

The sector has already seen a $9-billion reduction in capital in the upstream industry—a 32 per cent decline. Demand has been reduced by 800,000 barrels of oil equivalent per day, which, according to Brunnen represents up to a $1.2 million loss. “Now we’re forecasting a reduction of $13.7 billion in investment year-over-year since 2019—quite a sobering realization,” he says.

Allan Fogwill, president and CEO of the Canadian Energy Research Institute, echoes these concerns. “2019 was a challenging year for the oil sector in particular. Natural gas was more stable, but still had its challenges. And in 2020 we’ve seen some significant impacts on the demand for oil and gas, which has created a build up of inventory. That is going to put a damper on any price growth that might have been expected. Prices have been all over the map and have even gone into the negative for oil.”

Fogwill also points out that investment in new production is going to be curtailed because a lot of companies have to deal with the losses they’ve incurred over the last number of months due to the pandemic. That has shifted companies’ priorities to shoring up balance sheets, at least in the short term. “Companies are indicating they’re financially weak and some are talking about filing for bankruptcy protection. They’re all dealing with losses or significantly reduced revenues. But keep in mind that we are still in the middle of this [pandemic].”

An analysis released by the International Energy Agency in mid-April showed that countries in lockdown experienced a 25 per cent decline in energy use per week. Countries in partial lockdown experienced an 18 per cent decline. “During a lockdown phase there’s a very significant decline in energy demand,” says Alan Arcand, chief economist, Canadian Manufacturers and Exporters (CME). “People stopped driving and flights declined dramatically. So now the latest forecast is that oil demand is expected to fall by 8.1 million barrels per day, which is the largest decline in history, before the economy starts recovering next year. We’re only in this situation because of a health crisis and we’re only going to get out of it when it’s over and they find a vaccine or a solution to make it less of a problem from a health perspective.”

And while Arcand does say that the current state of Canada’s oil and gas sector isn’t great news for manufacturers—including the metalworking and machinery industries—due to the fact that oil and gas has been struggling for so many years, many CME members have already diversified away from that sector. “So they’re not as exposed to this downturn as they would have been years ago.”

“If there is a silver lining for manufacturing during the pandemic it has been the recognition among policy makers for the strategic benefit of having a strong domestic manufacturing sector,” says Arcand. “When this crisis hit, there was a huge demand for personal protective equipment (PPE) and it was a struggle for manufacturers to turn around and start producing it. I think there’s recognition now that there’s a need for change so we’re better prepared for the next crisis. And I think there will be a greater or stronger support from government for manufacturing in the future.” 

Certainly the oil and gas sector is continuing to call on the government for support and necessary regulatory changes on limiting laws and policies, such as Bill C69, a review of the environmental impact assessment process that’s creating red tape for Canadian oil getting to market. “Right now, the government is still largely focused on managing the crisis,” says CAPP’s Brunnen. “And we certainly appreciate some of the efforts they’ve undertaken in terms of a liquidity backstop for the industry.” Brunnen says the federal wage subsidy program has pumped about $350 million into companies to support their employees and has been a critical factor in decisions to maintain operations. Another $1.2 billion to reclaim orphan and inactive wells has helped as well. “We think that funding will keep jobs in the landscape, particularly in the service sector, which is key. And they pledged additional liquidity to help companies get through this crisis so they can continue to fund their operations. The government has been responding and supporting the industry as best it can.”

Arcand says while oil and gas, automotive and aerospace will remain weak for some time, it’s important to look at other rebounding economies such as China, where car sales have skyrocketed as people try to avoid public transportation. There also may be opportunities for manufacturers in green technology or clean technology. “Agrifood is another bright spot. It’s been one of the strongest subsectors of manufacturing for many years,” he says. “And it’s now approaching automotive as one of the biggest industries in Canada.”

According to a Statistics Canada monthly survey, released in January 2020, while sales decreased in 9 of 21 industries—declines led by the transportation equipment and petroleum and coal products industries—the food industry posted the largest gain. Manufacturing sales increased in 12 industries, which were led by food with a 2.6 per cent increase, non-metallic mineral products (+15.5 per cent), machinery (+4.6 per cent) and fabricated metal product industries (+4.6 per cent).

“Chemical manufacturing might also be another industry for opportunities as we see increased production of soap, sanitizers, etc.,” says Arcand.

On the oil and gas side, Fogwill says the demand for heavy crude is still robust, but demand for oil is a moving target. “There is an opportunity for co-products and Canada will be in a position to compete with other jurisdictions to meet that demand,” he says. “There are products such as asphalt that can be extracted or produced from oil sands. Battery metals such as lithium that can come from gas and oil brines. So there’s definitely opportunities to look at, not only for the growth of traditional oil and gas markets, but also with some of these co-products.” 

Brunnen confirms that the TMX pipeline construction is still on schedule for 2022. “And of course, we are continuing to observe the developments with Keystone and Enbridge Line Three projects. Those both continue to face delays and challenges, but we are still anticipating the service of Line 3 sometime in 2021 and for Keystone to follow.” 

“LNG Canada has made the final investment and is in the process of building its liquefied natural gas (LNG) plant,” says Brunnen. “So there are some supply chain opportunities there as well. We have emissions standards for our facilities that are higher and create fewer emissions than any other facility like this globally. So our LNG capabilities actually create a compelling case for choosing Canada’s LNG over other sources.”

While there are other technologies being developed, Canada’s oil and gas is focused on returning to 2019 production levels. “Until we get ourselves back to where we were at the start of the year from an activities perspective, there probably isn’t going to be a heck of a lot of demand for new equipment or supply chain components,” says Brunnen. “What we need to see is the government to come forward with a return to growth strategy that creates the right fiscal incentives and the right regulatory incentives for oil and gas to invest. It’s only at that point that we are going to see demand for our supply chain.” SMT

Emuge industry first: general purpose tap

Calling it an industry first, Emuge's MultiTap is a high performance tap designed for threading a range of materials including carbon steel, steel alloys, stainless steel, aluminum, cast iron, copper, brass and bronze.

Elliott Matsuura Canada Inc.

Based in Oakville, Ontario, Elliott Matsuura Canada Inc. has been supplying and supporting quality machine tools to the Canadian metal cutting industry since 1950. Elliott carries a full range of metalworking machinery,

Iscar: High speed face milling cutters

Iscar Tool's latest innovations includes new adjustable-pocket face mills in the Alutang family, designed to carry primarily PCD or PCBN tipped inserts for use on cast iron, hardened steel, aluminum or any other non-metallic materials.

Kennametal: Tapping into the wind turbine market

New high performance taps for large diameter tapping from Kennametal feature a wear-resistant powder metal substrate and proprietary top layers and coatings, designed wind turbine component machining of hubs, rings and gearbox housings.

Multi-Tasking: Is it Right for Your Shop?

For manufacturers looking to achieve that competitive edge, you can do no better than a multi-tasking machine. They eliminate the need for separate milling and turning machines, multiple set-ups and, most importantly, they improve productivity.

Stay In Touch

twitter facebook linkedIn