Calgary

Oil prices are too high — even for those in the oilpatch

There’s little doubt that fuel prices are too high when even oil companies aren’t happy with how much it costs to fill up a tank. Russia's invasion of Ukraine and the subsequent sanctions have sent energy prices soaring, resulting in record revenue for Canada's oilpatch. But industry executives note that's not something to be celebrated and say it instead points to the need for more energy security.

Pump prices remain at record levels across Canada, while value of oil climbed to levels not seen since 2008

In Vancouver, the average price for a litre of regular gasoline is $2.12 this week. The invasion of Ukraine and subsequent sanctions against Russia have sent energy prices soaring, impacting both the cost of fuel and revenue levels for the Canadian oilpatch. (CBC)

There's little doubt left that fuel prices are too high when even oil companies aren't happy with how much it costs to fill up a tank.

Prices at the pumps remain at record highs across the country, while oil climbed in value this week to levels not seen since 2008. 

The invasion of Ukraine and subsequent sanctions against Russia have sent energy prices soaring, resulting in record levels of revenue for the Canadian oilpatch. But energy executives and politicians gathered in the U.S. for an industry conference noted these kinds of spikes aren't to be celebrated and instead point to the need for more security and possibly even a NATO-style energy alliance.

"I don't think anyone in industry is excited about $130 oil, especially under these circumstances," said Anne Bradbury, CEO of the American Exploration and Production Council, which represents the largest independent oil and natural gas producers. 

The sentiment was echoed by others in the industry who have gathered in Houston, Texas, for CERAWeek, one of the largest energy conferences in the world.

Higher oil prices can have negative impact

Tristan Goodman, president of the Explorers and Producers Association of Canada, said the sector prefers prices between $40 and $100 US per barrel.

"The industry — it doesn't like prices on the extremes," he said. "These prices actually do have a negative impact on a number of individuals, many of which are actually friends, family, neighbours, communities."

Higher prices at the pumps are also reflected with an increase in the cost of food and other products and services across the economy.

Tristan Goodman with the Explorers and Producers Association of Canada, takes part in a panel focusing on Canadian energy at CERAWeek in Houston. (Kyle Bakx/CBC)

The longer fuel stays at inflated prices, the higher likelihood that people might re-think their summer travel plans, said Helen Currie, chief economist with oil producer ConocoPhillips.

"We could end up trimming our demand outlook for this year," she said while on stage at a CERAWeek event.

The Canadian oilpatch is currently generating record levels of revenue, which is offsetting debt accumulated during the pandemic. 

Oil prices fell sharply on Wednesday after a representative of the United Arab Emirates said OPEC should increase production of oil. Hours later, the country's energy minister disagreed, but the price of oil in North America had already crashed by more than 10 per cent.

Still, oil prices remain above $100 per barrel and the value of other commodities like natural gas and coal are also still sky high.

WATCH | Escalating prices at the pump: 

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With gas prices hitting record highs, Canadians are being warned to brace themselves for higher costs on groceries, electronics and other consumer purchases.

U.S. wants more oil produced, now

U.S. Secretary of Energy Jennifer Granholm made it clear at a CERAWeek event Wednesday that her government wants the American oilpatch to move swiftly to ramp up production.

She said the U.S. is on a "war footing" and a bigger supply of oil is needed to ease a brewing energy crisis.

"That means releases from strategic reserves across the world, like we've done. And that means you producing more right now, where and if you can," she said, during a speech in front of a packed room. 

U.S. Energy Secretary Jennifer Granholm speaks at the 2022 CERAWeek conference in Houston Wednesday. (CERAWeek by S&P Global)

While oil supplies have been disrupted because of sanctions against Russia, consumption of crude is on the rise because economic activity has begun to ramp up as the pandemic eases.

In its most recent report, credit ratings agency Morningstar projected that demand for oil around the globe would keep climbing until about 2030, "with demand decreasing gradually after that."

Climbing prices mean cash for Alberta

West Texas Intermediate (WTI), the North American benchmark, began the year worth about $75 US per barrel, and climbed to about $130 at one point this week. 

Regular gasoline prices across Canada are averaging just under $1.90 per litre this week, compared to around $1.25 per litre one year ago, according to Natural Resources Canada. In Vancouver, the average price is $2.12 per litre.

The Alberta government is projecting a modest surplus this year based on the budget it released last month, but Premier Jason Kenney admits the windfall from oil revenues will likely result in billions of dollars more.

Alberta Premier Jason Kenney says the province could collect billions of dollars more in oil revenue above the projections in last month's budget. (Kyle Bakx/CBC)

"We're not going to count our chickens before they're hatched," he said during an interview in Houston. "But if we do end up with significant surpluses, we need to pay down the debt."

Every one dollar change in the price of a barrel of oil results in $500 million for the province. 

If oil prices average $80 this year, it's an extra $5 billion; for an average of $90, it's $10 billion; and for an average $100, it's an extra $15 billion.

Calgary-based energy consultancy Sproule is forecasting WTI to average $93 US for the remainder of 2022. That projection was released two weeks ago before the most recent price spike.

"One thing we know about commodity prices is they are famously unpredictable," he said.

WATCH | What is the Ottawa willing to do about gas prices? 

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Industry Minister François-Philippe Champagne joins Power & Politics to discuss soaring gasoline prices and whether the government would be willing to freeze carbon pricing to give some relief to consumers.

NATO-style energy alliance

Considering the renewed emphasis on energy security, a Calgary oilpatch executive is proposing that countries band together around energy just as they have joined military forces under NATO.

That could ensure countries support each other with reliable sources of energy and no longer import oil and natural gas from countries like Russia, Martha Hall Findlay, Suncor Energy's chief climate officer and a former Ontario Liberal MP, told an audience from the stage at the CERAWeek conference.

In an interview, she said countries banding together on energy makes sense as the past few weeks have demonstrated how effective financial and energy sanctions can be.

"Why are we not actually talking about an energy alliance, an energy-based alliance among like minded countries?"

ABOUT THE AUTHOR

Kyle Bakx

Business reporter

Kyle Bakx is a Calgary-based journalist with the network business unit at CBC News. He files stories from across the country and internationally for web, radio, TV and social media platforms. You can email story ideas to Kyle.Bakx@cbc.ca.

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