Canada: Untangling Pipeline Projects to Realize Energy Export Potential

Thursday, May 31st, 2012

Canada: Untangling Pipeline Projects to Realize Energy Export Potential

by Thomas White

May 25, 2012

For a country richly endowed in natural resources, and with growing energy production, Canada has been facing a perplexing problem in recent years. While its producers are supplying oil and gas to U.S. refineries at prices below the international market, Canadian refineries on the east coast are paying higher international prices for the oil they import. It may seem odd that a major energy producer like Canada imports oil at all. But for Canada, it’s unavoidable. Truth be told, the Maple Leaf lacks the necessary infrastructure to transport oil from its domestic fields in the central part of the country to markets on the east coast.

With more than 175 billion barrels of proven deposits, in oil and oil equivalents, Canada has the third largest energy reserves in the world. Most of the reserves are in the Alberta province, which has traditionally shipped most of its oil exports to the Midwest U.S. Oil output in Alberta has steadily increased in recent years, the result of large investments to extract crude from oil sands. At the same time, oil and gas output in American Midwestern states such as North Dakota has also gone up substantially as improvements in fracking technology have allowed for increased energy production from shale deposits. This has led to a supply glut to refineries in the area, with average prices realized by oil producers dropping. For instance, when the West Texas Intermediate (WTI) crude oil benchmark was trading well above $100 a barrel, Canadian oil fetched an average of $75 a barrel in the U.S. By some estimates, Canadian oil producers who export 1.55 million barrels of oil and equivalents a day to the U.S. Midwestern states lose nearly $15 billion annually because of this price differential.

Until recently, Canadian oil producers were banking on the expansion of a major pipeline project that would eventually stretch from Alberta all the way to the Gulf Coast of Texas, where prices are set by the WTI benchmark. The first phase of this project, completed in 2010, currently brings Canadian oil to the U.S. Midwest. The second leg of the pipeline connects to Cushing, Oklahoma, where the world’s largest oil storage facility is located. The final stretch of the pipeline, which is expected to be completed by the end of next year, will drain the excess supplies from Cushing to the Gulf Coast. To accommodate the increasing oil output in Canada, a second pipeline from Alberta to Nebraska, which will join the existing pipeline, has also been planned. When completed, this project will potentially reduce the oversupply in the Midwest, and lift average prices for Canadian producers.

However, the pipeline expansion project from Alberta to Nebraska is now on hold after the U.S. government delayed permission on environmental concerns. The project will be reviewed again next year, only after a comprehensive environmental impact study is completed and alternate routes are evaluated. Nevertheless, the Cushing to Texas stretch of the pipeline was approved by the U.S. government earlier this year and is expected to be completed by the second half of 2013. In addition, an existing pipeline that now brings oil from the Gulf Coast to Cushing is being reconfigured and expanded to carry oil in the opposite direction.

Stung by the delays in the Alberta-Texas pipeline expansion, the Canadian government has been trying to speed up approvals for the $5.5 billion Northern Gateway Pipelines project connecting Alberta to British Colombia on the Pacific coast. The new transport project will seek to open new international markets for Canadian oil and thereby reduce the dependency on the U.S. market. What’s more, from the port of Kitimat in British Colombia, where the pipeline will end, the oil can then be easily transported to markets in Asia where demand remains high. Still, this project too has also been delayed on concerns over its impact on the environment and on the Native Indian population along the pipeline’s proposed route.

Another project to significantly expand the capacity of the existing Trans Mountain Pipeline System, which connects Alberta to refineries in the Vancouver area, has so far not faced much opposition. And the proposal to build a pipeline from Alberta to Montreal in the east, called the East Coast Pipeline Project, is at a very early stage and may take several years for the necessary approvals.

Nevertheless, lower energy export price realizations have become a drag on the country’s economic growth, as acknowledged by the Bank of Canada in its recent Monetary Policy Report. The central bank said ‘the price of oil that Canada exports has declined’ and the ‘deterioration in the oil-related terms of trade reduces Canada’s real gross domestic income’. Earlier studies by the central bank estimated that for every 10% increase in crude oil prices, real GDP growth gains by up to 0.3%.

The significance of the energy sector to the Canadian economy should only increase in the future as oil output expands, making it all the more important that these pipeline projects are completed without further delay. It is estimated that oil production in Canada will increase from the current 3.6 million barrels a day to more than 6 million barrels by the end of this decade. The Canadian Energy Research Institute expects that this increase in oil output will generate 700,000 jobs and add $3.3 trillion to economic output over a period of 25 years. The only apparent bottleneck that may prevent Canada from achieving this potential growth is the insufficient pipeline capacity. Promoting major infrastructure projects without ignoring environmental concerns demands a fine balance that most governments and policy makers find extremely difficult to manage. But it appears that Canada must find a way to untangle its energy pipeline projects and expand its export markets for energy. The alternative is living with the economically painful paradox of exporting cheap oil and importing the same commodity at higher prices.

Copyright © Thomas White

Tags: Canada Imports, Canadian Oil, energy, Energy Producer, Energy Production, Energy Reserves, fracking, India, Midwestern States, Necessary Infrastructure, Oil Exports, Oil Output, Oil Producers, Oil Refineries, Oil Sands, Perplexing Problem, Pipeline Project, Pipeline Projects, Shale, Shale Deposits, Shale Oil, Supply Glut, Thomas White, Time Oil, West Texas Intermediate, Wti Crude Oil
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Horizons Launches GMP^® Junior Oil and Gas Index^TM ETF

Thursday, February 24th, 2011

Horizons Launches GMP^® Junior Oil and Gas Index^TM ETF

TORONTO – February 23, 2011 - BetaPro Management Inc. (“BetaPro“) is pleased to announce the listing of the Horizons GMP^® Junior Oil and Gas Index^TM ETF (the “Horizons GMP^® ETF“), an exchange traded fund (“ETF“) which offers exposure to an index of Canadian-based junior energy production companies. The Horizons GMP^® ETF will track the recently launched GMP^® Junior Oil and Gas Index^TM, which was developed by leading Canadian securities firm, GMP Securities L.P. (“GMP Securities“) and is administered by Standard and Poor’s^® Financial Services LLC (“S&P“).

The Horizons GMP^® ETF will begin trading on the Toronto Stock Exchange (“TSX“) today under the ticker symbol HJE.

The Horizons GMP^® ETF seeks to replicate, to the extent possible, the performance of the GMP^® Junior Oil and Gas Index ^TM, net of expenses. The GMP^® Junior Oil and Gas IndexTM is designed to provide investors with an investable index that tracks the performance of small to mid-capitalization Canadian oil and gas exploration and production companies that are listed on the TSX.

“The GMP^® Junior Oil and Gas Index^TM is the first niche index created by GMP Securities and we’re very excited to be the first ETF provider to offer an investible ETF that tracks that underlying index. GMP Securities is a recognized leader in the Canadian capital markets with historical strengths in the resources sector and is consistently ranked as a top equity underwriter in Canada and top financial advisor to the Canadian mid-market. The underlying methodology of the index reflects what they believe is the best representation of the Canadian junior oil and gas sector,” said Howard Atkinson, President of Horizons Exchange Traded Funds Inc.

Wade Felesky, Managing Director, Investment Banking, GMP Securities, commented that “Companies in the GMP^® Junior Oil and Gas Index^TM all have market capitalizations between CAN$100 million and CAN$3 billion and may provide a significantly higher risk/return profile than those of the large capitalization energy companies with which Canadian investors are probably more familiar.”

“Many of today’s familiar energy producer names were once junior companies, so by investing in juniors now, one could potentially be buying some of tomorrow’s energy giants,” Mr. Felesky said. “We believe that juniors generally have the potential to realize much higher profit margins versus larger capitalization energy companies due to the company-specific operational leverage, but do come with the additional risks associated with smaller companies. The stock price performances and relative valuations in this niche sector can be highly influenced by the significant merger and acquisition activity levels in the junior oil and gas industry.”

The Horizons GMP^® ETF has closed the initial offering of its units and will begin trading on the TSX today, when the market opens this morning.

About BetaPro Management Inc. (www.betapro.ca)

BetaPro manages the Horizons BetaPro family of exchange traded funds, a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. The Horizons BetaPro ETFs include several types of structures: single, inverse, leveraged, inverse leveraged and spread ETFs. BetaPro is a subsidiary of Jovian Capital Corporation (JOV:TSX), with assets under management (“AUM”) of approximately $2.3 billion as of January 31, 2011, amongst 47 ETFs. Its subsidiary, AlphaPro Management Inc., Canada’s largest provider of actively-managed ETFs, has approximately $560 million of AUM as of January 31, 2011. Together under the Horizons ETFs brand, the two companies offer more than 60 ETF solutions with almost $2.9 billion of AUM as of January 31, 2011.

About GMP Securities L.P. (www.gmpsecurities.com)

GMP Securities L.P., one of the principal subsidiaries of GMP Capital Inc. (GMP:TSX), is a leading independent Canadian investment dealer built on a rich history of superior execution capabilities. With offices located in Toronto, Calgary, Montreal and London, England, GMP Securities L.P., together with Griffiths McBurney Corp. and GMP Securities Europe LLP, provide investment banking, institutional equities and equity research for corporate clients and institutional investors located in Canada, the United States and in Europe. GMP Securities L.P. can be found on the web at gmpsecurities.com.

Commissions, management fees and expenses all may be associated with investments in the Horizons GMP^® ETF. The Horizons GMP^® ETF is not guaranteed, its values change frequently and past performance may not be repeated. The GMP^® Junior Oil and Gas Index (the “Index“) is the exclusive property of GMP Securities, which has contracted with S&P to maintain and calculate the Index. “GMP^®” is a registered trademark of GMP Securities and has been licensed for use by BetaPro. “Standard & Poor’s^®” is a registered trademark of S&P and has been licensed for use by GMP Securities. The Horizons GMP^® ETF is not sponsored, endorsed, sold, or promoted by GMP Securities or S&P or their affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling and holding units/shares of the Horizons GMP^® ETF. S&P and its affiliates shall have no liability for any errors or omissions in calculating the Index. Please read the prospectus before investing.

For more information:
Howard Atkinson, President, BetaPro Management Inc., (416) 777-5167

Tags: Canadian Capital Markets, Canadian Junior Oil, Canadian Market, Canadian Oil, Canadian Securities, energy, Energy Production, ETF, ETFs, Exchange Traded Fund, Exchange Traded Funds, Exploration And Production, Gas Index, Gas Sector, Market Capitalizations, Mid Market, oil, Oil and Gas, Oil And Gas Exploration, Resources Sector, Securities Firm, Services Llc, Standard And Poor, Ticker Symbol, Top Financial Advisor, Toronto Stock Exchange
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The Prototype for a Major New Energy Industry

Monday, July 12th, 2010

by Dr. Kent Moors , OilandEnergyInvestor.com.

An otherwise overlooked announcement last week may hold the key to a very promising direction in biofuels.

National Clean Fuels (OTC:NACF) confirmed that they have completed an agreement with privately-owned D.C. BioFuels LLC. The two companies have been talking for several months, but recent developments have accelerated the process.

At issue is a niche energy production sector, one that investors better watch with interest. Because when the combination of technology and new market opportunities hits, there will be some rather quick appreciation in stock prices… of some rather small companies. At least they will be small initially.

The upside potential here is significant.

As we wrestle with the broad implications of crude oil supply, natural gas availability, and oncoming carbon capture regulations, new technologies to generate energy from bio-sources are filling some important gaps.

If it also succeeds in mitigating rising environmental problems, so much the better…

The Key to Profitable Biofuel

D.C. BioFuels is in the process of building a biodiesel fuel plant to supply the D.C. and Mid-Atlantic areas. This facility will process millions of gallons of waste oil per year from a number of sources, including restaurants, animal waste fat, industrial locations, institutions, and even residences.

The plant is likely to demonstrate that the approach is both financially and environmentally successful (always a nice combination).

NACF has been developing a position in the remedial energy business and looking for a way to expand into waste oil. Last week’s agreement seems to be the ticket.

Originally intended to produce five million gallons of B100 fuel per year, the plant capacity doubled once NACF came on board. (B100 is 100% pure biodiesel, rather than the product often found on the market, comprising a mixture of biodiesel and petroleum diesel. B50 is 50% biodiesel… B25 is 25%… and so on.)

The new plant would also be able to cut the biodiesel to form similar mixtures, of course. But unlike other commercial facilities, its ability to be competitive would not be dependent upon the use of conventional petroleum-based diesel to produce what is marketed as a bio product.

That’s the key, both for the positive impact on the environment and usage as a fuel.

Biodiesel is renewable; it burns cleaner than petroleum and it allows us to remove the cooking and animal-based oil from the waste cycle. B100 takes the glycerin out of the vegetable or animal source oil and puts alcohol in. The modification reduces the viscosity of the oil (making it flow easier) and removes the problems to diesel injection systems resulting from earlier attempts.

Now, a plant producing 10 million gallons of biodiesel a year may mean little when the U.S. consumes almost 160 million gallons of diesel every day. However, NACF is regarding the D.C. location as a model for similar facilities in other cities throughout the country. Capturing even a small percentage of the current diesel market would prove very profitable. With sourcing continuous, and with concerns mounting over proper disposal of the cooking and animal fats-based oils, this is emerging as a win-win solution.

Tags: Animal Waste, B25, B50, Biodiesel Fuel, Biofuel, BRIC, BRICs, Crude Oil Supply, Energy Business, Energy Industry, Energy Production, Environmental Problems, Fuel Plant, Market Opportunities, Nacf, Natural Gas, Natural Gas Availability, New Energy, Petroleum Diesel, Production Sector, Promising Direction, Stock Prices, Waste Oil
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Alan Pasnik – Seeking Value Around the World – and Ending Up in Canada

Wednesday, March 3rd, 2010

Alan Pasnik, Portfolio Manager for Mackenzie Saxon Global Explorer Fund, discusses looking for value around the world and ending up in Canada with Dan Richards of Clientinsights.

Pasnik likes Sun Life Financial – Great Canadian and US Insurance operations, plus it distributes mutual funds via MFS – says its trading about 30% below its NAV. In the small-cap area he likes Cangene Corp. which he says is trading at about 5-6X this year’s earnings, “and should trade considerably higher than that.”

Pasnik has half of his holdings in energy and financial services. Pasnik comments that global growth in energy production has been flat for about 4 years, so he anticipates that oil prices will go higher. As for financials, they have always been a good business with a high return on capital, and a high return on equity.

Pasnik says, the growth in oil demand is probably going to come from Brazil, India, and China, which are growing in leaps and bounds. More and more people are buying cars. Pasnik prefers to invest in Canada and the U.S. rather than directly in China if he can. Another financial Pasnik likes is Reinsurance Group of America, trading at about 6 times this years earnings and slightly below book value, and tremendous growth potential.

Pasnik hedges against the Canadian dollar when investing abroad to reduce the dampening effects the rising loonie can have on investment returns.

His outlook for 2010: Reasonably optimistic, but as we’ve seen, things could get bumpy. He thinks the global economy should do well over the next 5 years.

Date: 2010-02-22

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Tags: Brazil, Buying Cars, Canadian Market, Cangene Corp, Compendium, Dan Videos, Energy Production, Global Economy, Global Explorer, Global Growth, Good Business, Hedges, India, Insurance Operations, Leaps And Bounds, Loonie, Mackenzie Financial, Mfs, Oil Demand, Oil Prices, Portfolio Manager, Reinsurance Group Of America, Return On Capital, Return On Equity, Sun Life, Target
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