Biweekly, we highlight three things going on in the energy industry that we think you should know about. Our focus this week is on OPEC+ oil production discussions, the use of carbon capture projects, and labor challenges within the industry. Here’s the latest.
1. OPEC+ stalemate
As the world deals with challenges related to rising demand and soaring commodity prices, OPEC+ members are struggling with the decision on whether to extend production limits or free up more oil for release into the market.
When demand fell dramatically in 2020 during the height of the pandemic, OPEC+ responded by placing temporary production limits on its member countries in an effort to effectively reduce output from those countries by almost 10 million barrels per day, according to Reuters. The cuts, which were planned to be completely phased out by April 2022, have been slowly tapering off and now stand at about 5.8 million barrels per day, the news agency said.
The most recent tension is between the United Arab Emirates and Saudi Arabia. Ahead of the scheduled OPEC+ meeting on July 1, Saudi Arabia and Russia tentatively agreed to increase output by 2 million barrels per day from August to December. While the UAE fundamentally agrees with the plan to increase production, it took issue with what their production limits were based on. The UAE has taken the position that the production limit baseline level, originally agreed to in April 2020, was too low and should be set higher, effectively reducing required cuts.
Discussions that began in the July 1 meeting carried over into this week and seem to be at a stalemate at this point, with the UAE sticking to its position in seeking a higher baseline. For now, we continue to await a decision on returning more oil to the market as conditions continue to tighten.
2. The spotlight is on carbon capture
As scrutiny of Canada’s oil sands production increases, the country’s major producers in June announced an alliance to achieve net-zero greenhouse gas emissions from oil sands operations by 2050. The Oil Sands Pathways to Net Zero initiative was agreed to by Canadian Natural Resources Limited, Cenovus Energy, Imperial Oil, MEG Energy, and Suncor Energy, with the five Calgary-based producers accountable for 90% of the country’s oil sands output.
The cornerstone of the collaborative effort is the development of a major carbon capture, utilization, and storage (CCUS) trunk line to transport captured carbon from oil sands facilities to a hub for storing the emissions in an underground geological formation in central Alberta. The project is expected to require federal and provincial funding, similar to the Alberta Carbon Trunk Line completed last year.
Multi-billion-dollar CCUS projects have been gaining momentum as the preferred solution for carbon intensive industries to remove emissions and meet Canada’s climate targets of a 40% to 45% reduction in greenhouse gas emissions below 2005 levels by 2030, and net zero emissions by 2050.
Calgary-based pipeline transportation companies Pembina Pipeline Corp. and TC Energy similarly announced in June that the two companies will partner on the Alberta Carbon Grid, a project leveraging existing pipeline infrastructure to provide CCUS for multiple industries. Subject to regulatory approvals, the first phase is expected to be operational by 2025, with completion targeted as early as 2027. Cost savings from utilizing existing infrastructure will be increased if Pembina is successful in its acquisition bid for Inter Pipeline Ltd., with both companies issuing joint information circulars to shareholders on July 5 in support of the combination.
For TC Energy, the Alberta Carbon Grid is a commitment toward its climate change goals after officially cancelling the Keystone XL pipeline, after which TC Energy filed a claim on July 2 to recover $15 billion in damages from the U.S. government, alleging a breach of its NAFTA obligations when revoking the presidential permit for Keystone XL.
With existing oil and gas projects embattled with challenges from activists and government, and the International Energy Agency’s recommendations against funding for future development projects, the industry will need to look at technologies such as CCUS to reduce carbon emissions and remain competitive as sustainability expectations rise.
3. Energy labor shortages
“The great crew change” is an oft-cited challenge in energy workforce planning, referring to the institutional knowledge of experienced professionals (both in office and field) who are approaching retirement and the associated loss of said expertise. Succession planning has never been more critical, but as energy companies grapple with how to document and retain the knowledge accumulated over the span of entire careers, they are also trying to attract and retain new talent. Therein lies the problem.
The rise of renewable and/or sustainable energy sources, and the ever-frequent cyclical downturns of the hydrocarbon industry have turned off younger workers from staying in industry, or from joining it altogether.
CNBC reported last week that regional shortages of gasoline are not due to supply challenges like those experienced with the Colonial Pipeline outage, but due to a shortage of truck drivers. Industry group National Tank Truck Carriers reports that the industry is understaffed by at least 50,000 drivers. The drastic decrease in gasoline demand associated with the pandemic only exacerbated developing personnel shortages across the industry. Similarly, reports from oilfield services companies indicate that open positions left unfilled result in the inability to service certain customers and the loss of associated revenue.
While the pandemic may have temporarily decreased fuel demand, it has been steadily on the rise again as local restrictions have been lifted around the country. Additionally, the pandemic accelerated digital transformation like nothing else in recent memory. Digital innovation and a focus on the energy transition are necessary to attract and retain the talent required to advance the shift to cleaner energy and keep the industry growing through these challenging times. Simple tools like robotic process automation, or more complex projects supporting digital transformation all result in improved efficiencies, freeing up existing resources to spend time on higher value-added work activities.