Expert says Canadian oil companies must roll with the punches

• Above: Harry Tchilinguirian from French international banking group BNP Paribas spoke to more than 600 people as part of Haskayne’s second annual Progress Energy International Speaker Series.

Facing growing reluctance by lenders such as European banks to finance development of Alberta’s oilsands, Canadian oil companies will likely have to roll up their sleeves to find other funding, said an expert at an event hosted by the Haskayne School of Business.

“I can’t tell you whether European banks or others will reinvest or provide capital,” said Harry Tchilinguirian, global head of commodity markets strategy and senior oil market strategist for French international banking group BNP Paribas. Canadian companies may instead have to increasingly “rely more on capital markets, rather than traditional sources of funding,” he said.

Tchilinguirian spoke to more than 600 people as part of Haskayne’s second annual Progress Energy International Speaker Series, which was recently held at the Telus Convention Centre. Cautioning he was not acting as a spokesperson for BNP Paribas, he told the audience that European banks in general are facing pressure from shareholders to do more to help cap global carbon emissions, even as oilsands producers work to reduce their carbon footprint.

Corporate social responsibility policies are being created that even prevent some banks from investing in oilsands pipelines, he said. BNP Paribas recently decided to raise its commitment to the renewable energy sector to 15 billion euros by 2020, he said, adding the bank will also invest $100 billion euros  in innovative startups.

But Tchilinguirian dismissed an article in the Economist newspaper in 2017 depicting the death of the oil-fed internal combustion engine in favour of electric vehicles, calling reports of its demise to be greatly exaggerated. “I think the internal combustion engine will probably have a role to play for the next 20 to 30 years, even as electric permeates more of our lives,” he said.

Canada has some of the largest proven oil reserves in the world, he said during a later media scrum with reporters. “The issue is whether those reserves are going to be developed,” he said.

Imperial Oil’s $2.6-billion Aspen oilsands project recently received the green light from provincial regulators after a five-year approval process. Tchilinguirian said much of the current growth in Canada’s oil supply is being driven by projects that were approved before world oil prices slumped to record lows in 2015 and 2016, forcing thousands of Albertans to lose their jobs.

Opposition that has stalled the construction of oilsands pipelines also helped create a recent glut in Canadian production, causing the country’s oil prices to again plummet. Heavy oil produced in Alberta, sold as Western Canada Select (WCS), was worth more than $50 US less in October than a barrel of West Texas Intermediate (WTI), the North American benchmark — a situation that has been labelled a crisis for Canada.

Wave of divestment

Major multinational oil companies have been part of a “wave of divestment” as they rebalance their portfolios away from long-term, capital-intensive investments such as Alberta’s oilsands, said Tchilinguirian. They are instead focusing on projects that offer a faster return for a lower investment, such as American light tight oil produced from shale, he said.

The shale oil revolution is transforming the U.S. into an energy superpower that Tchilinguirian told the convention centre audience was like “the force awakens” in Star Wars. During the next five or more years, he expected the U.S. will surpass its original goal of self-sufficiency to become a dominant world exporter for oil and gas.

Canada will have to become more reliant on its own oil companies to develop the country’s supply, “and I think that is perhaps one of the key considerations of the broader picture for Canada,” he said during the media scrum.

Other brands in energy fire

Has oilsands development reached its peak? Large multinational corporations are rebranding themselves as energy rather than simply oil companies, said Tchilinguirian, “so at least for the time being,” Canadian companies facing indefinite market access problems should follow suit.

Canada has other brands besides oil in the energy fire, he said, pointing to the recent announcement of a $40-billion megaproject in Kitimat, B.C., involving liquefied natural gas (LNG). For the first time, Canada will export the energy source to markets such as Asia, which is looking at LNG as a lower-carbon replacement for coal.

The first cargoes are likely to be exported by about 2025, just about the time analysts expect other sources of LNG will start declining in the face of growing demand, said Tchilinguirian. “The timing of this project I think could not have been better,” he said.

The Progress Energy International Speaker Series was launched in 2017 through a $1-million donation from Progress Energy. The inaugural speaker was Ernest Moniz, secretary of energy for former U.S. President Barack Obama.