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A select number of Canadian midstream companies have announced
downward revisions to their 2020 capex plans in response to the
plunge in global oil prices and trajectory of the coronavirus
disease 2019 (COVID-19).
The western Canadian NGL market began 2020 with a sense of
optimism thanks to increasing global LPG demand and the continued
expansion of export capabilities. AltaGas's Ridley Island Propane
Export Terminal, with a nameplate capacity of 40,000 b/d, began
operations in 2019. Meanwhile, Pembina's Prince Rupert Terminal,
with an initial export capacity of 25,000 b/d, was slated to begin
operations by the second half of 2020.
Strong international demand resulted in AltaGas announcing in
early January that it expected that export volumes would be in
excess of 50,000 b/d by the end of 2020. Similarly, Pembina
announced in late 2019 that its export terminal would expand by an
additional 15,000 b/d by the second half of 2023.
However, in a relatively short period outlooks have changed
drastically. The coronavirus disease 2019 (COVID-19) created a
large, immediate reduction in crude demand in mainland China and
then Asia and is now spreading around the world. Saudi Arabia,
which initially sought to deepen its supply restraint with Russia
and the rest of OPEC, rapidly reversed course and has opened the
taps, compounding an already growing surplus of oil. As a result,
crude prices have plunged to record lows in western Canada.
Canadian E&P companies have announced capital spending cuts
that stand at US$4.3 billion (nearly C$6.3 billion) for 2020 in
response to the dramatic plunge in global oil prices and trajectory
of COVID-19.1 The immediate impact of these cuts will be a
reduction in conventional drilling and reduced oil sands
spending.
IHS Markit expects Canadian NGL production to remain resilient
in the short term owing to continued unconventional gas drilling.
If the low-price environment continues into the late summer and
early fall, or if condensate demand falls, drilling activity in gas
plays would likely be cut as well.
In response to these unfolding events, Pembina announced a
reduction to the company's 2020 capital spending plans between
C$900 million and C$1.1 billion. Pembina now expects its revised
2020 capital budget to be C$1.2-1.4 billion, representing a 40-50%
reduction. This decision will result in the deferment of some
previously announced expansion projects.
These projects include
Peace Pipeline Phase VII, VIII, and IX expansions
Empress cogeneration facility
Prince Rupert Terminal expansion
Pembina's investment in the integrated propane dehydrogenation
plant and polypropylene upgrading facility
It is unclear at this time how these deferments in capital
spending will alter project timelines, but delays are expected.
Inter Pipeline announced that its 2020 capital spending would be
decreased by only C$60-120 million. Previously, the company had
announced a C$1.2 billion capex program for 2020. The company plans
to reduce discretionary expenditures but will continue as planned
with its primary focus of the construction of the Heartland
Petrochemical Complex.
Similarly, Keyera reiterated its continued confidence, and the
company still expects to invest between C$700 million and C$800
million in 2020. This capital investment will be directed toward
the completion of the second phase of the Wapiti gas plant and the
Wildhorse terminal, as well as further investment into the
Pipestone gas plant and the Key Access Pipeline System (KAPS).
Both Inter Pipeline and Keyera have stated that they will
continue to monitor the volatile and tremulous situation. Enbridge,
Plains Midstream Canada, and TC Energy have yet to announce their
2020 capital spending plans. Typically, most midstream capital
projects are supported by long-term agreements. It is possible that
through ongoing discussions with customers, midstream companies may
further reduce or defer capex.
IHS Markit proprietary supply, demand and price forecasts
for NGLs (ethane, propane, normal/isobutane and natural gasoline)
help our clients tackle some of the most difficult times and make
better investment and purchase decisions. NGL Markets - Learn More
Posted 31 March 2020 by Bill Rawlusyk, Executive Director, North American NGL Markets, IHS Markit and
Jordan Woloschuk, Senior Research Analyst, Midstream Oil & NGL, IHS Markit
