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Farco: US embargo on Russian oil could destabilize global energy supplies
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Alberta Premier Jason Kenney said: ‘I think it’s the start of a potential global reorganization of how we supply energy.
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March 09, 2022 • 20 hours ago • read 4 minutes • 33 comments US President Joe Biden on March 4, 2022 in Washington, DC. Image via Win McNamee / Getty Images Article content
Global oil and natural gas markets were turned upside down last month, but the full impact of the turmoil arrived on Tuesday.
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US President Joe Biden announced a ban on all oil and gas imports from Russia, sending West Texas Intermediate (WTI) crude prices above $128 a barrel – the highest point since 2008 – before ending the day at $123.70, up more than 5 bucks.
With the conflict in Ukraine continuing, Biden said the United States was “targeting the main artery of the Russian economy” by banning oil and gas shipments from that country.
It also prohibits new US investment in the Russian energy sector.
“It’s an earthquake,” Prime Minister Jason Kenney said in an interview Tuesday on the sidelines of CERAWeek Week organized by the S&P World Energy Conference in Houston.
“I think it’s the beginning of a potential global realignment in how we supply energy.”
Russian President Vladimir Putin responded by signing an order on Tuesday to ban the export of some raw materials to other countries, though it remains unclear what products — and which countries — it will apply to, according to Bloomberg News.
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What is clear is that Tuesday’s developments represent a further escalation in the economic struggle between the West and Russia, one of the world’s largest oil and natural gas exporters, following its invasion of Ukraine.
Events are likely to push energy prices higher, putting pressure on consumers as inflation is already at multi-year highs and gasoline prices are on the rise.
“It truly is a historic moment. Future energy markets and policies will be largely determined by this event,” said Jackie Forrest, executive director of the ARC Energy Research Institute in Calgary.
You’ll see more movement around energy security. In terms of policy, there’s likely to be some initial rollback of some of those environmental goals, but in the long-term, it’s likely to be accelerated by the idea of hydrocarbons phase out.”
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The United States imported 672,000 barrels per day of oil and other petroleum products from Russia last year. Canada remains the largest supplier to the United States, exporting 4.3 million barrels per day.
For global energy markets, this is a pivotal moment to emerge from the pandemic with increased demand and already growing supplies.
Oil and natural gas prices are rising – particularly in Europe – raising the broader question of how consumers and producers will respond to a new era of geopolitical turmoil and energy security.
“Russian exports are a very important part of the global supply,” Alex Porbicks, CEO of Synovus Energy, said in an interview from Houston.
“I am personally confident that you will see other oil producing countries in the world able, over time, to make up for this slack . . . the world’s oil needs will be met. But I think for a while, we are probably in a very volatile oil market.”
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Alberta produces about 3.6 million barrels per day and production has increased over the past decade, primarily from oil sands.
Kenny said a boycott should be an obvious option for the United States as it looks to replace Russian oil.
“This means we have to up our game,” he added. “This means that there will be increased global demand for our products, in the short and long term – in the short term to refill the increased blow to Russian oil.”
Kenny is also hoping to see a revival of the Keystone XL pipeline, which was derailed last year after the US president canceled cross-border permits. Although pro-project TC Energy has no plans to revive it.
Miles of unused pipe for the Keystone XL pipeline in 2014. Photo by Andrew Burton / Getty Images Files
Don’t expect to see a sudden increase in spending on oil sands to fill the gap from Russian barrels, although higher prices will encourage some companies to maximize their current capacity.
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Mark Little, chief executive of Suncor Energy, believes Canadian production will rise by 100,000 to 200,000 barrels per day this year as production is increased or gradually increased at existing projects, such as the Fort Hills oil mine.
“We’re a long-cycle company, so that doesn’t mean we can go dig some holes and ramp up production for a year,” Little said in an interview.
“The industry will work hard every day to maximize every barrel that comes out of the ground.”
He added that the continuing challenge is to provide low-cost economic supplies and also continue to reduce greenhouse gas emissions, as Canada’s largest oil sands producer has set a goal of achieving net zero emissions by 2050.
During his announcement, Biden called the crisis a stark reminder of the need for energy independence, but one that should also spur the United States and other countries to accelerate the transition to clean energy.
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The world consumes about 100 million barrels of oil per day, close to pre-pandemic levels.
Much of the short-term pressure from escalating energy sanctions will appear in Europe, which is more dependent on Russian oil and gas imports. The United Kingdom said on Tuesday it would phase out imports of Russian oil and petroleum products by the end of the year.
Other European countries have not followed suit, but the European Union is looking to significantly reduce Russian gas demand this year.
Rystad Energy oil analyst Bjornar Tonhugen said the 4.3 million barrels per day of oil shipped from Russia to the West “cannot easily be replaced by other sources in a short period of time”, and there are few signs that Middle East producers with spare capacity will turn on the taps. . .
This places the focus on US shale oil producers, who have the ability to ramp up production relatively quickly. Canadian traditional producers can also increase production.
These difficult issues will take time to resolve.
“I don’t think we really understand how important this change is,” said Tristan Goodman, president of the Association of Explorers and Producers of Canada.
“This is an important event unfolding before our eyes that will simply change the way the world works.”
Chris Farco is a columnist for the Calgary Herald.
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