Signs are emerging that the oil industry is on an upswing, a nascent program in Canada to stimulate growth in Alberta’s petrochemicals sector just awarded its first grant, and clean energy is a core part of Biden’s proposed American Jobs Plan.
Biweekly, we round up news and analysis about three things going on in the energy industry that we think you should know about. Here’s the latest.
1. Light at the end of the tunnel?
The oil industry is known for its cycles of boom and bust, and this recent downturn is no exception—but there are some indications that oil and gas may be looking up again. Those include:
- Growth in U.S. gross domestic product: RSM recently upgraded its forecast for 2021 real GDP growth to 7.5% on a year-over-year basis.
- Rig counts on the rise: Baker Hughes reports rising rig counts in 33 of the past 34 weeks, after steep declines last year.
- Increased production outlooks:
- The U.S. Energy Information Administration has revised its estimates upward for U.S. production. January production averaged 11.1 million barrels per day, and while there were declines in February due to the cold weather outbreak, expectations are for continued growth with average production reaching 11.4 million barrels per day by the fourth quarter.
- In its April 1 announcement, OPEC+ committed to raising production targets beginning in May. Additionally, Saudi Arabia will begin to reduce its voluntary production cuts.
- Increased deal activity: As we wrote in our last post, 2021 has been a big year for M&A and large contract awards, marking a transition from survival mode to a more growth–oriented mindset.
- Prices holding steady: Despite some price weakness over the past several trading days, oil prices have risen steadily since the extreme lows of a year ago, closing with modest gains at $63.28 per barrel of Brent and $59.70 per barrel of West Texas Intermediate on Monday.
2. Petrochemicals on the rise
Calgary-based Inter Pipeline Ltd. in early April became the first company to receive a grant under the Alberta Petrochemicals Incentive Program, which launched in October last year to attract investment to the province’s petrochemicals sector.
The $408 million government grant will go toward Inter Pipeline’s $4 billion Heartland Petrochemical Complex, which is expected to be operational in early 2022. The company plans to use the facility to convert the province’s abundant supply of propane into polypropylene pellets—525,000 tons per year—which plastic manufacturers use to create auto components, medical supplies, packaging and other materials.
The grant program awards up to 12% of eligible capital costs for a project and intends to support the oil and gas industry by growing the province’s petrochemical sector by more than $30 billion by 2030.
Despite bans on single-use plastics increasing in developed economies, the petrochemicals industry is expected to continue experiencing growth globally, as single-use plastics such as plastic bags, straws and disposable containers represent a small volume of overall demand. Urbanization in countries such as China, India or other emerging nations will more than make up for the loss with increasing demand for plastic consumer products, automobile components and construction materials.
Additionally, demand for packaging materials continues to increase along with e-commerce. The International Energy Agency (IEA) forecasts in its most recent annual World Energy Outlook that “while road transport accounted for 60% of oil demand growth in the last decade, petrochemicals account for 60% in the next decade, largely as a result of rising demand for plastics, notably for packaging materials.” We expect that investment in sustainable petrochemical projects such as Inter Pipeline’s complex, which is expected to generate 65% less greenhouse gas than average polypropylene facilities globally, will continue into the foreseeable future as oil and gas companies shift their strategic focuses.
3. Clean energy is central to American Jobs Plan
The energy industry will be watching closely as President Joe Biden aims to garner support for his $2 trillion American Jobs Plan from members of Congress. The major push for clean energy is a driving factor in the infrastructure bill, which was released on March 31 and addresses everything from roads and bridges and waterways to the disproportionate effects of climate change across various communities. If signed into law as is—and that’s a big “if,” given that talks on the proposal have just begun—the plan would be a significant step forward in the administration’s efforts toward net-zero emissions by 2050.
It would also bring huge implications for companies in the energy space and other closely related sectors. The American Jobs Plan includes $35 billion for clean energy technologies and jobs, $174 billion in investments and incentives to grow the U.S. electric vehicle market, and initiatives to develop a new clean energy standard and make changes to tax provisions. To learn more about what’s included in the proposal as it pertains to energy, check out this blog post.