International Energy Agency predicts oil prices to continue low in 2016

Experts at the International Energy Agency (IEA) said a continuing glut of oil will keep prices low and prevent them from rebounding until next year.

Just a year ago the IEA, the Paris-based group of 29 major oil importing nations, had projected a relatively fast recovery. Instead, prices have continued falling even below $30 a barrel, the lowest level since 2003. Today the price is up somewhat but still just about $33 a barrel, with Canadian oil being even lower.

The head of the IEA, Faith Birol, said "extraordinary volatility" in oil markets make forecasting what will happen quite difficult. Legendary predictor Jim Gray predicted last December that oil would fall below $30 a barrel and stay there. He was right that it fell below $30, but for now it is above that level. However, Birol said, in the IEA report released Monday: "Our analysis of the oil market fundamentals at the start of 2016 is clear that in the short term there is unlikely to be a significant increase in prices."

Birol expects Canadian output to be more than 5 million barrels a day, as projects approved years ago still continue to come online. Even though some companies are operating at a loss on each barrel produced, no major shut-downs or closures have been announced yet. However, expansion is quite another matter. In the oil sands in particular, companies are in no mood to expand given the low prices of oil. The IEA expects crude output to slow considerably once approved expansions are complete.

Given the increasing production, oil supplies have grown over the last three years. Oil prices have dropped by 70 percent since 2014. As a result, gasoline prices have also declined. In the U.S., the U.S. Energy Information Center forecasts an average price of just $1.98 a gallon on average for the year. This is the lowest average price since 2004.

The IEA reported capital expenditures on exploration and production declined by 24 percent last year and was expected to drop another 17 percent this year. This will be the first decline of two years in a row since 1986. Alberta has been worst hit by the decline in oil prices.

Last year alone, Alberta lost 19,600 jobs, the most since 1982. Cold Lake is a prominent oil sands hub, where as much as 500,000 barrels a day is produced. Oil majors such as Cenovus, Imperial Oil, Husky Energy, and Canadian Natural Resources have operations in the area, which also features a Canadian Air Force base. The town has been hard hit by the postponement of many oil sands projects.

The mayor of Cold Lake, Craig Copeland, estimates 1,000 out of 5,000 working directly in the oil fields are out of work in the Lakeland area of 40,000 people. Copeland noted that there was a time from 2012-2014, when you were unable to get a room in Cold Lake, but now parking lots are empty. The decline hurts local business serving the oil industry. Construction workers from across Canada are sent home. Restaurants and hotels lose more and more business. Statscan reports that the unemployment rate in the Wood Buffalo/ Cold Lake are went from a high 8.6 percent in December to 9 percent in January this year. Even a year ago the rate was 5.4 percent. Copeland worries that because of the decline in oil prices, lack of pipeline capacity and climate-change policy, that the oil sands production will no longer grow. He is concerned that oil sands production could freeze at present levels causing the Cold Lake area to decline further.

A Petroleum Labour Market Information labour demand report for the area projects a 92 percent lower demand for onsite construction workers by 2018, or 20,000 fewer jobs compared to 2014. Operations jobs will improve modestly but still far below 2014 levels. While the decline in oil prices has hurt Alberta the most, Saskatchewan too has been hard hit as described in this article about Estevan billed as the Energy Capital of Saskatchewan, south of the actual capital Regina,

Trans Canada Corp submits application for revised Keystone XL route

The U.S. State Department has confirmed that Trans Canada Corp has submitted a revised route application for the Keystone XL pipe line from the U.S. Canadian border to Steele City Nebraska.

Obama had rejected an earlier route after objections from Nebraska and environmentalists. No doubt the new route will avoid the environmentally sensitive areas critics had identified in the earlier route.

Republicans had been critical of Obama for rejecting the earlier plan. They claimed that the rejection has cost thousands of jobs. Yet even the state of Nebraska had been critical of the proposed route.

The State Dept. did not say how long a new review of the route would take. However, they did say that some of the earlier analysis could be applied to the new route. Even so, it will well into 2013 and well after the upcoming presidential election before a decision is made.

No doubt some environmentalists will be critical of the new route. Some environmentalists are simply against further development of oil from the Alberta Tar Sands because production of this oil is in itself environmentally destructive. However, the state of Nebraska may approve the new route. For more see this article.

Alberta to receive 1.2 trillion in oil royalties over next 35 years

At least that is the amount calculated by the Canadian Energy Research Institute. At the same time royalties increase so do emissions from oil and gas extraction. Emission amounts are expected to triple over the same time period. See this article.

No doubt Albertans will welcome these projections. The province should be able to have budget surpluses and low taxes. The Institute predicts that oil production will rise from the present 1.6 million barrels a day to 5.4 million barrels a day by 2045.

The report of the Institute notes:“While technological innovation within the oil sands industry (in addition to carbon capture and storage) is expected to help reduce these emissions, the emissions are still expected to rise,” Carbon emissions are projected to increase from 45 million tonnes annually to 159 million tonnes by 2045.

Alberta has roughly 170 million barrels of proven oil reserves. This is the world's third largest supply. Only Saudi Arabia and Venezuela have greater reserves. For much more see the full article.

These projections are far into the future. One would hope that by then there would be a much greater proportion of our energy needs supplied by alternative sources. Perhaps by 2045 extraction of oil from the Tar Sands will be uneconomic. Otherwise with the increased emissions our planet will be damaged more than 1.2 trillion could ever fix.