The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
OTTAWA AND CALGARY— Canada’s energy industry saw markets for its two main products head in sharply different directions in 2011: Global oil prices averaged a record high $111 (U.S.) per barrel for the year, while natural gas prices in North America languished.
That disconnect prompted North American companies to focus their exploration on crude, and on natural gas plays that offer the prospect of extremely low-cost supply or “liquids-rich” gas that contains high-value propane and butane.
In 2012, companies are likely to continue that shift, while high-profile battles over the oil sands, pipeline projects and fracking will also persist. At the same time, both crude oil and natural gas prices may reverse course modestly during the year, as natural gas demand picks up and supply growth slows, and as global suppliers boost production as developed economies struggle out of recession.
Iran and oil prices
Political upheaval in the Middle East is a boon to oil producers everywhere. The loss of Libya’s 2.6 million barrels of daily production after the country’s revolution in February sent crude prices sharply higher.
In 2012, the focus will be on Iran, which has threatened to respond aggressively if European countries follow the United States in applying sanctions on its oil industry.
Now Iran is boasting about how easily it could close the Straight of Hormuz, where some 40 per cent of the world’s seaborne oil shipments travel. Iran is the world’s forth-largest oil producer, and while even the threat of attack spooked crude markets, a senior oil official from Saudi Arabia has since said Gulf Arab countries could make up for any lost production. This comforted oil traders, who on Wednesday pushed the price of crude down in both North America and Europe.
But should the standoff between the United States and Iran over its nuclear program escalate, watch for a widening of the political risk premium on oil prices.
The fracking fracas
The U.S. Environmental Protection Agency has increased the pressure on the industry with a study that found Encana Corp.’s gas drilling in Wyoming polluted local ground water.
Never mind that the hydraulic fracturing was not a shale gas operation, or that the company claims the EPA work was shoddy and its conclusions flat-out wrong. Every state, province and municipality that is grappling with citizens’ concerns about shale gas exploration can expect to be inundated with “proof” that fracking poisons well water.
In places such as Quebec and New Brunswick, New York state and Ohio, the shale gas revolution is in its infancy, and governments are trying to determine how to benefit while reassuring nervous residents that environmental impacts can be minimized.
The industry – which has published its own drilling standards – should expect tougher regulations that will add to the cost of doing business. The EPA concludes a study next year and many insiders believe it will move to regulate an industry now covered by state rules.
Ottawa is conducting its own safety review, but is unlikely to intrude on what the provinces claim as their jurisdiction.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/investment-ideas/features/2012-market-outlook/six-energy-trends-to-watch-in-2012/article2285556/