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Industry group expects oil and gas investment to rise 22% this year to $32.8 billion

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Canada’s largest oil and gas industry group says capital spending in the oil sector will hit $32.8 billion this year, up 22% from the previous year but still far from investment levels during the boom ten years ago.

According to the Canadian Association of Petroleum Producers (CAPP), capital spending by the industry will increase by $6.0 billion this year, compared to an estimated total investment of $26.9 billion in 2021.

This is good news for an industry that has now essentially recovered to pre-pandemic levels, after a disastrous 2020 that saw oil prices crash due to the impact of COVID-19 on demand. world.

But CAPP Chairman Tim McMillan pointed out that despite oil prices hitting seven-year highs and companies reporting record cash flow, capital investment remains well below what they were during the boom years of the industry. In 2014, for example, capital investment in the Canadian oil sector reached a record high of $81 billion, capturing 10% of total global upstream investment in natural gas and oil.

“Today we’re at $32 billion and we’re only capturing about 6% of global investment,” McMillan said. “We have lost ground to other oil and gas producers, which I think is problematic for many reasons and leaves billions of dollars of investment going elsewhere, not to Canada. .”

According to CAPP, investment in conventional oil and natural gas is expected to reach $21.2 billion in 2022, while oil sands investment growth is expected to increase 33% to $11.6 billion this year. .

Alberta is expected to lead all provinces in overall oil and gas capital spending, with upstream investment expected to increase 24% to $24.5 billion in 2022. More than 80% of new spending in Industry capital this year will be concentrated in Alberta, representing an additional $4.8 billion in investment in the province compared to 2021, according to CAPP.

Some investors see Canada as a “difficult place to invest”

While the 2022 forecast numbers are good news for the Canadian economy, McMillan said, it’s a problem that companies aren’t willing to invest in this country’s industry at the level they once did. .

He said investors have been put off by Canada’s record of canceled pipeline projects, regulatory hurdles and negative signals from government policy, and many now view Canada as a “difficult place to invest.” .

However, Rory Johnston, managing director and market economist at Toronto-based Price Street Inc., said it was too simplistic to lay the industry’s decline in capital spending at the feet of the federal government.

He added that while the current “roaring and incredible” cash flow and a period of sustained high oil prices will certainly make some producers want to invest this year, Johnston said, it will likely be on a project-by-project basis and certainly on a smaller scale than the big oil sands expansions of a decade ago.

“You have global macroeconomic trends across the industry that have started to favor small, fast-cycle capital projects and most oil sands projects are literally the opposite of that,” he said. -he declares.

One of the reasons capital spending is unlikely to return to boom levels is that companies have become much more profitable after surviving a series of lean years. And that’s not a bad thing, Johnston said.

“The decade-long western capital spending boom has been hugely beneficial to Canada and Albertans, but it’s also caused huge cost inflation,” he said.

“While what we’re seeing right now isn’t as heavy on construction and jobs and those are two very, very big downsides, the upside is that you’re much more competitive in a much more competitive oil market,” Johnston mentioned.

In a report released this week, the International Energy Agency (IEA) raised its oil demand growth forecast for the coming year by 200,000 barrels per day to 3.3 million barrels per day. day.

According to the IEA, global oil demand will exceed pre-pandemic levels this year due to growth in COVID-19 vaccination rates and the fact that the new variant of Omicron has not proved serious enough to force a return to strict lockdown measures.

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