Oil & Gas Industry Overview
The United States and Canada are leaders in the oil and gas industry in North America, with $181 billion and $101 billion in revenue in 2018, respectively. While this market is faced with various economic, infrastructural, and political challenges, it is poised for modest growth.
State of the Industry
- Producing 17.94 million barrels per day of oil and 864 billion cubic meters of natural gas, the market size, in terms of revenue, of the US oil and gas industry was about $181 billion in 2018, "a substantial increase since the lowest point of the decade in 2016." The country is the world's largest oil and natural gas producing and consuming nation.
- Producing 5.38 million barrels per day of oil and 128 billion cubic meters of natural gas, the market size, in terms of revenue of the Canadian oil and gas industry was an average of $101 billion between 2016 and 2018. It is the 5th and 6th largest global producers of oil and natural, respectively. "Canada’s production is expected to grow modestly in 2019 and 2020 because of export capacity constraints and mandatory production curtailments set by the government of Alberta."
- "In the US, crude oil production will average 13.3 million barrels per day (b/d) in 2020, a 9% increase from 2019 production levels, and 13.7 million b/d in 2021, a 3% increase from 2020. Slowing crude oil production growth results from a decline in drilling rigs during the past year and it's projected to continue through most of 2020 and 2021." In Canada, the total annual production of crude oil is expected to rise by about 3% until 2021, then slow to an average growth rate of 1% per annum.
- The industry is popular segmented into upstream — explores and produces crude oil and natural gas, midstream — processes, stores, markets, and transports crude oil and natural gas, downstream — include oil refineries, natural gas distributors, and retail outlets.
- The capital investment provides insights into the attractiveness of the oil and gas, as "they are relatively long-lived and often relatively illiquid commitments." From 2016 to 2018, the capital expenditure (capex) of the US and Canada both grew by 21%, to CAD$239.3 billion and CAD 50.7 billion, respectively.
- Capex in Canada dropped by 57%, from $81 billion in 2014 to $35 billion in 2019. In the US, shale producers are expected to reduce their capex for the second straight year in 2020, as prolific oil and natural gas output impacts prices and profit, leading to a significant dip in production growth — from 1.3 million bpd from between 2018 and 2019 to 1 million bpd in 2020.
- While much of these growths were accounted for by the capex of both upstream sectors, the investment environment in the upstream sector of Canada, "the lack of pipeline capacity for exported oil and gas" and low oil prices present a future barrier to growth.
- Another performance metric is the number of drilling rigs, as "significant changes in rig counts should be a meaningful indicator of changes in the expected profitability of upstream oil and gas activity across geographical locations." The rig count in the US rose from 876 in 2017 to 1,032 in 2018 while it declined from 206 in 2017 to 191 in 2018 in Canada. Furthermore, experts expected this decline to continue by 58 units from January 2019, as rigs shift to the US — reducing competition.
- The US and Canadian liquefied natural gas (LNG) exports contributed about 60% of demand growth and will reach about 20 billion cubic feet per day by 2030." However, "nearly all of Canada's crude oil and natural exports are destined for the United States because Canada lacks sufficient export capacity to send its liquids elsewhere."
- Some key players in this region based on their current and future capex projects in the region include AGDC, TC Energy, Venture Global Partners, Canada Stewart Energy, Sempre Energy, Tellurian Investments, NextDecade, Shell, Pacific Future Energy, and Pemex. AGDC tops the list with $37.9 billion expected to be spent on four oil and gas projects within the region from 2019 to 2025.
- Following the new U.S.-Mexico-Canada Agreement (USMCA) Trade Agreement, the American Petroleum Institute (API) backs the deal as it will maintain a tariff-free flow of natural gas, oil and refined products; strengthen the US energy leadership and economy; and ensure the continued access of American households to affordable energy.
- The new agreement further ensures "more flexible rules of origin requirements for oil and gas moving between the three countries and a streamlined regulatory process for U.S. liquefied natural gas (LNG) exports to Mexico and Canada."
- The International Maritime Organization's (IMO) new 2020 regulations that demand the reduction of sulfur emissions impact the oil product markets as they face massive changes and significant reductions in global shipping.
- President Donald Trump's move to roll back methane-emissions rules have split the opinions of the oil and gas producers in the US, between those in support and those against.
- In Canada, "the Canadian Energy Regulator (CER) Act requires the CER to consider new factors in its project reviews, including gender-based analysis, potential impacts on the rights of indigenous people, climate change and environmental obligations. It is also expected to develop an early engagement program and foster greater indigenous participation and more inclusive public participation."
- When compared with average from the last 12 months, "North America’s oil and gas industry saw a drop of 46.7% in deal activity during June 2019." With M&A deals worth $6.25 billion, the popular deals include Comstock Resources’ $2.2 billion acquisition of Covey Park Energy and the $966 million merger of NRC Group and US Ecology.
- Three international oil and gas associations — the International Association of Oil and Gas Producers (IOGP), the American Petroleum Institute (API), and the Asociación Mexicana de Empresas de Hidrocarburos (AMEXHI) — united to form a partnership through an agreement (MOU) that'll strengthen working inter-relationships, facilitate operational performance, and promote the North American oil and gas industry.
- "The US is expected to sell about 12 million (blue) barrels of oil from its emergency government stockpile just as global crude demand takes a hit from the spreading coronavirus."
- The outbreak of coronavirus in Asia has affected the Canadian oil industry’s efforts to build trade relations with Asian crude buyers.
- The virus outbreak also affects the US oil and gas industry, as "the daily Chinese oil demand is already down 20% because of dwindling air travel, road transportation and manufacturing since China consumes 13 of every 100 barrels of oil the world produces" with the US having about 17% share of this market.