Stockwatch Energy today
Energy Summary for Aug. 27, 2021
2021-08-27 20:24 ET - Market Summary
by Stockwatch Business Reporter
West Texas Intermediate crude for October delivery added $1.32 to $68.74 on the New York Merc, while Brent for October added $1.63 to $72.70 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.25 to WTI, up from a discount of $12.75. Natural gas for September added 19 cents to $4.37. The TSX energy index added 3.68 points to close at 123.70.
Oil prices strengthened alongside a brewing hurricane in the Gulf of Mexico. Tropical Storm Ida, which according to the National Hurricane Center will likely hit hurricane status and crash into the central U.S. Gulf Coast this weekend, is bearing down on offshore oil fields that make up nearly one-fifth of U.S. oil production. Companies including Shell, BP and BHP have started evacuating workers and restricting more than half of the region's total oil output. The refinery industry, which has nearly half of its U.S. capacity along the Gulf Coast, is also bracing for potential shutdowns.
The year so far has been a relatively quiet one for hurricanes affecting the energy industry. Mid-June saw a couple of offshore evacuations ahead of Tropical Storm Claudette, but that cleared up within days. The only named hurricanes this year have been Elsa, Grace and Henri, which stayed obligingly away from oil hubs. This is a welcome change from last year's record-breaking hurricane season, when storms knocked out more than four-fifths of the region's oil production, more than once. This season, of course, is far from over yet. One of 2020's worst storms was Hurricane Zeta, which knocked out 85 per cent of the region's oil production and did not occur until late October. (Very long-term oil workers may even remember that a different Hurricane Ida -- these names get recycled every six years, except for especially destructive ones such as Katrina -- roared into the Gulf in November, 2009, shutting down nearly 30 per cent of the region's oil output.)
Here in Canada, oil stocks rose with oil prices, and the danger closely watched in the sector continued to be the COVID-19 pandemic. Canadian Natural Resources Ltd. (CNQ), up $1.88 to $42.42 on 6.98 million shares, is now requiring everyone on site to be fully vaccinated or undergo regular rapid tests. The new policy took effect today. It serves as an extension to the company's previous COVID-19 measures, including daily health checks, physical distancing, optional on-site vaccination clinics and mandatory masks indoors. Now Canadian Natural wishes to start "confirming that all site personnel are fully vaccinated for COVID-19. If we are unable to confirm immunization status, personnel can participate in our rapid testing program as an alternative," a spokesman for the company told Global News.
Canadian Natural looks to be the first major oil sands company to introduce a vaccine mandate. Suncor Energy Inc. (SU: $24.20), Cenovus Energy Inc. (CVE: $10.53) and Syncrude all told the Calgary Herald that they are not requiring workers to get the jab, relying instead on encouragement (such as on-site clinics) and other safety tools (such as rapid tests). This does not preclude future vaccine mandates. Suncor was rumoured to be mulling them in May, when a letter to this effect began circulating on social media, but the company denied responsibility for the letter and said it was merely hosting voluntary clinics. Incidentally, this was shortly after the Regional Municipality of Wood Buffalo (RMWB), which encompasses the de facto oil sands capital of Fort McMurray, declared a state of emergency over climbing COVID cases. Even now, only about 33 per cent of RMWB residents are fully vaccinated, compared with the province-wide total of 69 per cent.
Further afield, Charle Gamba's Colombian gas producer, Canacol Energy Ltd. (CNE), added 19 cents to $3.27 on 1.06 million shares, finally managing to ignite some interest from investors. The stock had fallen below the $3 mark this month for the first time since the start of the pandemic in 2020 (which itself was the first time below $3 since 2016). Today it regained ground on heavier-than-usual volume as Canacol signed a multiyear gas sales contract with Colombia's largest public utilities firm.
The firm is Empresas Publicas de Medellin, or EPM, which serves Medellin, Antioquia, Bogota, Cartagena and several other cities and regions in Colombia. The new sales agreement with Canacol will focus on Antioquia, a department/province of over six million people. Canacol said the agreement calls on it to supply 21 million cubic feet of gas a day starting in 2024. (For context, the company's total gas sales last month averaged 190 million cubic feet a day.) This amount will increase in line with "anticipated demand behaviour," added Canacol. It did not say by how much. Nor did it say how long the contract will last, although EPM's chief executive officer, Jorge Carillo, hinted at a term of 11 years. The dollar value of the contract was yet another tidbit left unmentioned. Canacol promised to provide more details next week.
Investors seem hopeful that the deal will prove helpful in more ways than one. As noted above, the M in EPM stands for Medellin -- the end point for a pipeline that Canacol wants to get built, as part of a goal to increase sales by 100 million cubic feet a day by 2024. The company has been trying since 2019 to get someone to commit to building this pipeline. It has had no luck so far (partly explaining investors' dwindling enthusiasm), but the new connection with EPM may speed things up.
It could also burnish Canacol's environmental credentials. EPM's Mr. Carillo has a sparkling green resume, having previously led the federal Ministry of Environment's water and sanitation branch, in addition to his work with the National Environmental Council and the Inter-sector Commission on Climate Change. Today's press release took full advantage of the green sheen. "EPM and Canacol ... [will] play a key role in supporting the decarbonization of Colombia's economy by supplying natural gas, an environmentally friendly fuel," they declared. The supply deal "adds and supports the efforts of the national government in its transition toward a more sustainable energy matrix."
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