The Center for Excellence in Project Execution (CEPEX) analysis indicates that the future of Alberta oil sands and global oil will be shaped, in near and long term, by the outcome of US presidential election on November 8.
A victory for the Democratic party candidate would continue the status quo for Alberta oil, and the industry is already preparing for a ‘lower for longer’ bear oil market. President Obama’s policies on climate change and renewable energy sources would be expected to continue and to evolve further under President Clinton. On the Canadian side, there will be no easy solutions and an internal pipeline routing to tidewater will be the only hope for the troubled homegrown oil industry. There may be relatively more opportunities on the renewable energy industry manufacturing expected for provinces like Ontario and Quebec, but resource rich provinces like Alberta and Saskatchewan would continue to face challenges.
However, if the Republican party candidate wins on November 8, the whole outlook on the oil front may very well turn on its head. It will potentially be a watershed moment for Alberta oil sands and global oil, in general. Under President Trump, a renegotiation of the Canadian leg of the Keystone Pipeline can quickly lead to improving investor confidence in the Alberta oil patch. If the Republican President follows through with the campaign promises, a general increase in US manufacturing and Shale oil production can quickly result in a commensurate impact on Canada, the largest trading partner of US. This can positively energize the manufacturing sector in Ontario & Quebec, and more importantly lead to a change of narrative for the Alberta oil industry.
Parth Mukherjee, Expert Principal, Center for Excellence in Project Execution, said: “In the event of a Trump win, the narrative on impact of oil on climate change will get re-visited. Instead of oil being painted as an antagonist, it will be seen in a different light – oil may no longer be the outcast at the major international forums.”
Victory of the Republican candidate on Nov 8 is likely to have a ripple effect in the EU and elsewhere in the world. It might catalyze change of guard along with the momentum generated by Brexit in countries next year, like, Germany and France – and it is not as far-fetched as once believed – and the new personalities in power in these countries may have a softer sentiment on oil, added Mukherjee.
Anirudh Kumar, Construction & Project Manager, Center for Excellence in Project Execution, said: “A Republican in the White House would change the narrative in G-7 on oil, there will be greater motivation and acceptability among the rest of the G-7 and G-20 countries to use oil as an engine of growth and development. There will be greater cooperation between the US and Canada on oil production and transportation. This can potentially be a game changer for Alberta oil sands.”
Whereas oil production within the US will get additional impetus, there will be less motivation in the US and elsewhere in the world to increase investment on renewables if those renewable projects are not financially viable, added Kumar.
A Republican Presidency will spur demand for oil in both near term and long term forecasts, leading to a significant increase of investment in the oil industry and fossil fuels as a whole. While the gains made in the renewables so far are commendable, it is doubtful if the climate of subsidies for renewable power generation will continue, thus triggering reduction in investments on renewables. In the meantime, the deep cuts made in 2015 and 2016 in capex on oil sands and other oil projects will also start to bite in, and the gap between increased demand for oil and available incremental global supply will widen – this will provide further reason for oil price to move up from the punishingly low levels of 2015 and 2016.
“In the scenario of a Republican President in the US, the oil price rebound may happen sooner than anticipated and return to the levels that make the oil sands projects in Alberta more attractive. It is well known that per barrel of flowing oil capex for oil sands projects is more than the conventional oil projects. It is quite remarkable how a political event in our southern neighbour can turnaround the outlook for the oil sands industry in Alberta”, said Kumar.
Even in the event of potential oil price turn-around in post-Trump win era, Alberta oilpatch will have to continue to pursue cost reductions on new and ongoing projects. Based on the hard lessons learned in 2015 and 2016, there is no denying the fact that cost reductions should and will be an important component in the project execution strategies developed by the Alberta oil sands companies irrespective of the election outcome, feels Mukherjee.
All in all, Nov 8 is going to be very critical for the future trajectory of Alberta oil sands and oil, as a whole, in the coming years. Investors are increasingly aware of how US Political outcome on November 8 can impact the Oil industry, and the markets can be expected to respond with more volatility based on this factor.
About The Center of Excellence in Project Execution
Based in Calgary, Canada, the Center of Excellence in Project Execution is a boutique management consultancy serving oil sands, oil & gas sectors providing niche consulting services covering cost reduction, project management, special projects and continuous improvement.