Ukraine war shook up markets, but much stays the same for Canadian oil and gas

 

Oil prices remain stable one year after Russia's invasion of Ukraine, surprising many who predicted that the conflict and Western sanctions against Russia would disrupt energy markets for years to come. Despite Russia's control of 10% of the world's crude oil supply, global supplies were already tight before the invasion, and Russia has found alternative markets for its energy products, including China, Turkey, and India. Even with Chinese demand rebounding after the loosening of Covid-19 restrictions, the global oil market remains relatively balanced, and record oil prices seen in the first half of 2022 did not persist.

 

Canada's oil and gas sector has not been significantly impacted by the war in Ukraine, with much of the increased production last year being incremental and planned by companies before Putin's invasion. While Canadian oil and gas companies benefited from high commodity prices earlier this year, much of those profits went to paying down debt and rewarding shareholders rather than expanding or announcing new projects. Canada's oil and gas sector is still hamstrung by a lack of export infrastructure, with the Trans Mountain pipeline expansion not set to be finished until later this year and the LNG Canada export terminal not operational until approximately 2025.

 

Despite the war in Ukraine bringing issues of energy security and reliability to the forefront, the United States, not Canada, has capitalized on it, with several LNG export terminals already in operation. The U.S. was able to export more LNG than any other country in the world last year, benefiting from the momentum for U.S. LNG contracts. The war in Ukraine has not changed the inherent conflict between global demand for increased oil output and Canada's climate commitments, creating investment uncertainty and making companies reluctant to increase capital expenditures. While there is a need to move toward net-zero emissions and green energy, there is no incentive for companies to do so, according to Richard Masson, executive fellow with the University of Calgary's School of Public Policy.