Inside Mark Carney’s ‘grand bargain’ with the Canadian oil industry

Hi there and welcome to Power Supply, coming to you right now from London and Calgary.

In latest days I’ve been taking a look at expectations for oil demand development this 12 months and but once more forecasts are far aside. Final Friday the Worldwide Power Company stated it anticipated global oil consumption to grow at its slowest pace since 2009, exterior of the coronavirus pandemic, chopping its forecast improve to 700,000 barrels a day from a earlier development estimate of 720,000 b/d. The US Power Info Administration additionally launched a brand new short-term outlook final week, predicting a 800,000 b/d improve in oil consumption in 2025.

In distinction, the Opec+ cartel, which produces about 40 per cent of the world’s crude oil, has predicted demand will develop by 1.3mn b/d this 12 months. That view was echoed by Saudi Aramco chief government Amin Nasser on stage at an Opec seminar in Vienna final week.

Nevertheless, in recent times Opec+ predictions have been notably vast of the mark. In December 2023, it forecast oil demand would develop by 2.2mn b/d the next 12 months however then revised that determine down a number of instances and by the tip of 2024 was estimating that annual development had been 1.6mn b/d. On the opposite aspect of the aisle, the IEA in March 2024 predicted an annual improve of 1.2mn b/d for 2024 earlier than revising that all the way down to roughly 1mn b/d in the midst of the 12 months.

Calculating world oil demand patterns is not any good science however the constant gulf between predictions suggests politics should be at play. And whereas it’s typically Opec+ leaders who’ve criticised the IEA for alleged political bias, frequent sense dictates that the cartel has extra pores and skin within the recreation.

The producer group is within the means of unwinding 2.2mn b/d of long-standing manufacturing cuts, arguing that the market can take in the additional provide. If it can’t — as most merchants anticipate — then that surplus is ready to weigh on costs within the second half of the 12 months, with some analysts forecasting Brent crude, the worldwide benchmark, to fall beneath $60 a barrel within the fourth quarter.

By no means has monitoring demand forecasts been so thrilling. Let’s see who is correct.

Now for our foremost merchandise right now coming to you from Calgary, the place the FT’s Canada correspondent Ilya Gridneff has been probing the federal government’s relationship with its oil business.

Thanks for studying — Tom

Will Canada’s ‘grand cut price’ on oil maintain?

Canadian Prime Minister Mark Carney’s effort to reset Ottawa’s relationship with Alberta’s oil business is off to a rocky begin, with a stand-off brewing over local weather coverage and who pays for so-called decarbonised oil.

Carney got here to workplace promising to make Canada an “vitality superpower” within the wake of US President Donald Trump’s tariffs and commerce warfare. Oil figures prominently in that plan, so long as emissions stay in examine.

Calgary-based Jeff Lawson, an government vice-president at Cenovus Power, one in every of Canada’s largest oil and gasoline firms, advised Power Supply he was “cautiously optimistic” concerning the authorities reset however quite a few challenges are forward.

“There must be a prudent sharing of prices between governments and business,” he stated. “We consider in decarbonising our [oil] barrels nevertheless it must be achieved in a manner that retains traders . In any other case, there received’t be any capital.”

Carney, a longtime local weather finance advocate, has set about restoring relations with the fossil gas business, notably Alberta’s oil sands producers, which had been deeply antagonistic below former prime minister Justin Trudeau.

The sector says a decade of Trudeau-era laws, taxes and environmental rules have stifled their, and Canada’s, potential for financial development.

In early June, Carney touted a “grand bargain” when assembly oil and gasoline executives. He provided tentative backing for brand spanking new pipelines and a multibillion-dollar venture to seize carbon from Alberta’s oil sands as a technique to neutralise emissions and produce “decarbonised oil”.

Canada has the world’s third-largest confirmed oil reserves. But it surely additionally produces “essentially the most carbon intensive crudes in North America”, based on the Pembina Institute, as a result of the extraction course of from the oil sands is extra carbon-intensive than standard drilling.

Six of Canada’s largest oil sands firms have fashioned the Pathways Alliance and are proposing a C$16bn (US$11.7bn) to C$25bn carbon seize and storage (CCS) megaproject that they are saying can scale back greenhouse gasoline emissions from oil manufacturing whereas supporting future output.

Canada’s vitality minister, Tim Hodgson, a former Goldman Sachs banker and ex-board member at MEG Power, has signalled help for rising oil manufacturing through CCS however has not stated who will finance the venture, particularly the continuing operational prices of decarbonising oil.

“By way of innovation and know-how just like the Pathways venture, there is a chance to develop our standard vitality business and get our merchandise to market in a manner that’s environmentally accountable,” he stated.

Kevin Birn, chief analyst of Canadian oil markets at S&P World, warned that with out vital public funding in CCS, Canada dangers lacking its subsequent oil growth.

“It’s a expensive however essential abatement know-how,” he stated.

Kendall Dilling, president of the Pathways Alliance, stated the group “continues to work with governments to acquire adequate ranges of fiscal help and the required regulatory approvals to make the . . . [CCS] venture a actuality”.

However Canadian taxpayers already footed the invoice for the Trans Mountain Growth pipeline (TMX) that opened in Could final 12 months. After a decade of disruptions and costing C$34bn — 4 instances over price range — TMX is enabling document general Canadian oil exports, together with elevated shipments to US west coast refineries and new markets in Asia.

Alberta, the place most of Canada’s oil comes from, argues the depth of greenhouse gasoline emissions from its oil sands has decreased about 20 per cent since 2011.

However the expensive decarbonisation course of through the proposed Pathways venture is a invoice nobody desires to pay at a time when Canada faces a widening price range deficit after rising Nato defence spending and border safety, in response to strain from Trump.

In early July, Hodgson introduced a C$21.5mn funding in an Alberta-based CCS venture, nevertheless, critics stated the spending must be billions — not tens of millions — of {dollars}.

Lawson stated Cenovus and its friends are dedicated to emissions discount however different oil areas throughout the globe aren’t paying for such stringent environmental measures nor going through such regulatory boundaries.

“We must be aggressive with the remainder of the world or we may have no traders,” he stated.

For Danielle Smith, premier of Alberta, Carney’s overtures are welcome however not sufficient.

“Business capital is cellular, and proper now, the US appears to be like way more engaging,” Smith stated in an interview with Power Supply in mid-June.

Earlier this month, Carney, in Alberta, stated it was “extremely seemingly” a brand new oil pipeline might be constructed to Canada’s west coast for brand spanking new markets.

Alberta’s vitality business has made its calls for clear.

Calgary-based Enbridge, operator of North America’s largest pipeline system, is among the many 38 firms that wrote to Carney, after his April election victory, urging higher situations to implement vitality proposals.

An Enbridge spokesperson stated: “Any new pipeline venture would require cautious consideration and actual provincial and federal legislative change.”

Carney faces a big take a look at balancing the political, social and financial realities of accelerating oil manufacturing whereas sustaining environmental and coverage requirements.

Lawson stated: “Except current rules are modified, we can’t, with any pace, see a pipeline to the coast. We would like regulatory certainty, and the present framework doesn’t present that.” (Ilya Gridneff)

Energy Factors

• A Saudi Arabian consortium is to take a position $8.3bn to construct 15 gigawatts of solar and wind farms within the kingdom because it accelerates its push into renewables.

• Rio Tinto — not technically an vitality firm however an enormous participant within the wider vitality ecosystem — has bought a brand new boss and it has performed it secure, appointing 25-year company veteran Simon Trott to the top job.

• Britain’s vitality regulator is finishing up special monitoring of Nationwide Grid as the corporate faces questions over whether or not it’s doing sufficient to take care of key electrical energy networks.

Power Supply is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson, Rachel Millard and Malcolm Moore, with help from the FT’s world workforce of reporters. Attain us at energy.source@ft.com and observe us on X at @FTEnergy. Make amends for previous editions of the e-newsletter here.