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Canada Oil Recession Outlook analyzes the Russia-Saudi price war, OPEC discord, COVID-19 demand shock, WTI and WCS collapse, Alberta oilsands exposure, U.S. shale stress, and GDP risks from blockades and fiscal responses.

Key Points

An outlook on how the oil price war and COVID-19 demand shock could tip Canada into recession and strain producers.

✅ WTI and WCS prices plunge on OPEC-Russia discord

✅ Alberta oilsands face break-even pressure near 30 USD WTI

✅ RBC flags global recession; GDP hit from blockades, virus

A war between Russia and Saudi Arabia for market share for oil may have been triggered by the COVID-19 pandemic in China, but the oil price crash contagion that it will spread could have impacts that last longer than the virus.

The prospects for Canada are not good.

Plunging oil prices, reduced economic activity from virus containment, and the fallout from weeks of railway blockades over the Coastal GasLink pipeline all add up to “a one-two-three punch that I think is almost inevitably going to put Canada in a position where its growth has to be negative,” said Dan McTeague, a former Liberal MP and current president of Canadians for Affordable Energy. The situation “certainly has the makings” of a recession, said Ken Peacock, chief economist for the Business Council of British Columbia.

“At a minimum, it’s going to be very disruptive and we’re going to have maybe one negative quarter,” Peacock said. “Whether there’s a second one, where it gets labeled a recession, is a different question. But it’s going to generate some turmoil and challenges over the next two quarters – there’s no doubt about that.”

RBC Economics on March 13 announced it now predicts a global recession and cut its growth projections for Canada's economy in 2020 by half a per cent.

Oil price futures plunged 30% last week, dragging stock markets and currencies, including the Canadian dollar, down with them, even as a deep freeze strained U.S. energy systems. That drop came on top of a 17% decline in February, due to falling demand for oil due to the virus.

The latest price plunge – the worst since the 1991 Gulf War – was the result of Russia and the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, failing to agree on oil production cuts.

The COVID-19 outbreak in China – the world’s second-largest oil consumer – had resulted in a dramatic drop in oil demand in that country, and a sudden glut of oil, with the U.S. energy crisis affecting electricity, gas and EV markets.

OPEC has historically been able to moderate global oil prices by controlling output. But when Russia refused to co-operate with OPEC and agree to production cuts, Saudi Arabia’s state-owned company, Aramco, announced it plans to boost its oil output from 9.7 million barrels per day (bpd) to 12.3 million bpd in April.

In response to that announcement, West Texas Intermediate (WTI) prices dropped 18% to below US$34 per barrel while the Canadian Crude Index fell 24% to US$21. Western Canadian Select dropped 39% to US$15.73.

The effect on Alberta oilsands producers was severe and immediate. Cenovus Energy Inc. (TSX:CVE) saw roughly $2 billion in market cap erased on March 9, when its stock dropped by 52%, which came on top of a 12% drop March 6.

The company responded the very next day by announcing it would cut spending by 32% in 2020, suspend its oil-by-rail program and defer expansion projects.

MEG Energy Corp. (TSX:MEG), which suffered a 56% share price drop on March 9, also announced a 20% reduction in its 2020 capital spending plan.

Peter Tertzakian, chief economist for ARC Energy Research Institute, wrote last week that Russia’s plan is to try to hurt U.S. shale oil producers, who have more than doubled U.S. oil production over the past decade.

Anas Alhajji, a global oil analyst, expects that plan could work. Even before the oil price shock, he had predicted the great shale boom in the U.S. was coming to an end.

“Shale production will decline, and the myth of ‘explosive growth’ will end,” he told Business in Vancouver. “The impact is global and Canadian producers might suffer even more if the oil that Saudi Arabia sends to the U.S. is medium and heavy. This might last longer than what people think.”

The question for Alberta is how Canadian producers can continue to operate through a period of cheap oil. Alberta producers do not compete on the global market. They serve a niche market of U.S. heavy oil refiners, and Biden-era policy is seen as potentially more favourable for Canada’s energy sector than alternatives.

“On the positive side, the industry is battle-hardened,” Tertzakian wrote. “Over the past five years, innovative companies have already learned to endure some of the lowest prices in the world.”

But he added that they need WTI prices of US$30 per barrel just to break even.

“But that’s an average break-even threshold for an industry with a wide variation in costs. That means at that level about half the companies can’t pay their bills and half are treading water.”

Just prior to the oil price plunge, the International Energy Agency (IEA) updated its 2020 forecast for global oil consumption from an 825,000 bpd increase in oil consumption to a 90,000 bpd decrease, due to the COVID-19 virus and consequent economic contraction and reduction in travel.

The IEA predicts global oil demand won’t return to “normal” until the second half of 2020. But even if demand does return to pre-virus levels, that doesn’t mean oil prices will – not if Saudi Arabia can sustain increased oil production at low prices, and evolving clean grid priorities could influence the trajectory too.

The oil plunge was greeted in Alberta with alarm. Alberta Premier Jason Kenney warned Alberta is in “uncharted territory” as consumers are urged to lock in rates and said his government might have to review its balanced budget and resort to emergency deficit spending.

While British Columbians – who pay some of the highest gasoline prices in North America – will enjoy lower gasoline prices at a time when prices are usually starting a seasonal spike, B.C.’s economy could feel knock-on effects from a recession in Alberta.

“We sell a lot of inputs, do a lot of trade with Alberta, so it’s important for B.C., Alberta’s economic health,” Peacock said, “and recent tensions over electricity purchase talks underscore that.”

Last week, the Trudeau government announced $1 billion in emergency funding to cope with the virus and waived a one-week waiting period for unemployment insurance.

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CAISO Clean Energy Transition outlines California's path to 100% carbon-free power by 2045, scaling renewables, battery storage, and offshore wind while safeguarding grid reliability, managing natural gas, and leveraging Western markets like EDAM.

Key Points

CAISO Clean Energy Transition is the plan to reach 100% carbon-free power by 2045 while maintaining grid reliability.

✅ Target: add 7 GW/year to reach 120 GW capacity by 2045

✅ Battery storage up 30x; smooths intermittent solar and wind

✅ EDAM and WEIM enhance imports, savings, and reliability

Mark Rothleder, Chief Operating Officer and Senior Vice President at the California Independent System Operator (CAISO), which manages roughly 80% of California’s electric grid, has expressed cautious optimism about meeting the state's ambitious clean energy targets while keeping the lights on across the grid. However, he acknowledges that this journey will not be without its challenges.

California aims to transition its power system to 100% carbon-free sources by 2045, ensuring a reliable electricity supply at reasonable costs for consumers. Rothleder, aware of the task's enormity, likens it to a complex car repair performed while the vehicle is in motion.

Recent achievements have demonstrated California's ability to temporarily sustain its grid using clean energy sources. According to Rothleder, the real challenge lies in maintaining this performance round the clock, every day of the year.

Adding thousands of megawatts of renewable energy into California’s existing 50-gigawatt system, which needs to expand to 120 gigawatts to meet the 2045 goal, poses a significant challenge, though recent grid upgrade funding offers some support for needed infrastructure. CAISO estimates that an addition of 7 gigawatts of clean power per year for the next two decades is necessary, all while ensuring uninterrupted power delivery.

While natural gas currently constitutes California's largest single source of power, Rothleder notes the need to gradually decrease reliance on it, even as it remains an operational necessity in the transition phase.

In 2023, CAISO added 5,660 megawatts of new power to the grid, with plans to integrate over 1,100 additional megawatts in the next six to eight months of 2024. Battery storage, crucial for mitigating the intermittent nature of wind and solar power, has seen substantial growth as California turns to batteries for grid support, increasing 30-fold in three years.

Rothleder emphasizes that electricity reliability is paramount, as consumers always expect power availability. He also highlights the potential of offshore wind projects to significantly contribute to California's power mix by 2045.

The offshore wind industry faces financial and supply chain challenges despite these plans. CAISO’s 20-year outlook indicates a significant increase in utility-scale solar, requiring extensive land use and wider deployment of advanced inverters for grid stability.

Addressing affordability is vital, especially as California residents face increasing utility bills. Rothleder suggests a broader energy cost perspective, encompassing utility and transportation expenses.

Despite smooth grid operations in 2023, challenges in previous years, including extreme weather-induced power outages driven by climate change, underscore the need for a robust, adaptable grid. California imports about a quarter of its power from neighbouring states and participates in the Western Energy Imbalance Market, which has yielded significant savings.

CAISO is also working on establishing an extended day-ahead electricity market (EDAM) to enhance the current energy market's success, building on insights from a Western grid integration report that supports expanded coordination.

Rothleder believes that a thoughtfully designed, diverse power system can offer greater reliability and resilience in the long run. A future grid reliant on multiple, smaller power sources such as microgrids could better absorb potential losses, ensuring a more reliable electricity supply for California.

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Russia-Ukraine Energy Ceasefire Violations escalate as U.S.-brokered truce frays, with drone strikes, shelling, and grid attacks disrupting gas supply and power infrastructure across Kursk, Luhansk, Sumy, and Dnipropetrovsk, prompting sanctions calls.

Key Points

Alleged breaches of a U.S.-brokered truce, with both sides striking power grids, gas lines, and critical energy nodes.

✅ Drone and artillery attacks reported on power and gas assets

✅ Both sides accuse each other of breaking truce terms

✅ U.S. mediation faces verification and compliance hurdles

Russia and Ukraine have traded fresh accusations regarding violations of a fragile energy ceasefire, brokered by the United States, which both sides had agreed to last month. These new allegations highlight the ongoing tensions between the two nations and the challenges involved in implementing a truce amid global energy instability in such a complex and volatile conflict.

The U.S.-brokered ceasefire had initially aimed to reduce the intensity of the fighting, specifically in the energy sector, where both sides had previously targeted each other’s infrastructure. Despite this agreement, the accusations on Wednesday suggest that both Russia and Ukraine have continued their attacks on each other's energy facilities, a crucial aspect of the ceasefire’s terms.

Russia’s Ministry of Defence claimed that Ukrainian forces had launched drone and shelling attacks in the western Kursk region, cutting power to over 1,500 homes. This attack allegedly targeted key infrastructure, leaving several localities without electricity. Additionally, in the Russian-controlled part of Ukraine's Luhansk region, a Ukrainian drone strike hit a gas distribution station, severely disrupting the gas supply for over 11,000 customers in the area around Svatove.

In response, Ukrainian President Volodymyr Zelensky accused Russia of breaking the ceasefire. He claimed that Russian drone strikes had targeted an energy substation in Ukraine’s Sumy region, while artillery fire had damaged a power line in the Dnipropetrovsk region, leaving nearly 4,000 consumers without power even as Ukraine increasingly leans on electricity imports to stabilize the grid. Ukraine's accusations painted a picture of continued Russian aggression against critical energy infrastructure, a strategy that had previously been a hallmark of Russia’s broader military operations in the war.

The U.S. had brokered the energy truce as a potential stepping stone toward a more comprehensive ceasefire agreement. However, the repeated violations raise questions about the truce’s viability and the broader prospects for peace between Russia and Ukraine. Both sides are accusing each other of undermining the agreement, which had already been delicate due to previous suspicions and mistrust. In particular, the U.S. administration, led by President Donald Trump, has expressed impatience with the slow progress in moving toward a lasting peace, amid debates over U.S. national energy security priorities.

Kremlin spokesperson Dmitry Peskov defended Russia’s stance, emphasizing that President Vladimir Putin had shown a commitment to peace by agreeing to the energy truce, despite what he termed as daily Ukrainian attacks on Russian infrastructure. He reiterated that Russia would continue to cooperate with the U.S., even though the Ukrainian strikes were ongoing. This perspective suggests that Russia remains committed to the truce but views Ukraine’s actions as violations that could potentially derail efforts to reach a more comprehensive ceasefire.

On the other hand, President Zelensky argued that Russia was not adhering to the terms of the ceasefire. He urged the U.S. to take a stronger stance against Russia, including increasing sanctions on Moscow as punishment for its violations. Zelensky’s call for heightened sanctions is a continuation of his efforts to pressure international actors, particularly the U.S. and European countries, to provide greater energy security support for Ukraine’s struggle and to hold Russia accountable for its actions.

The ceasefire’s fragility is also reflected in the differing views between Ukraine and Russia on what constitutes a successful resolution. Ukraine had proposed a full 30-day ceasefire, but President Putin declined, raising concerns about monitoring and verifying compliance with the terms. This disagreement suggests that both sides are not entirely aligned on what a peaceful resolution should look like and how it can be realistically achieved.

The situation is complicated by the broader context of the war, which has now dragged on for over three years. The conflict has seen significant casualties, immense destruction, and deep geopolitical ramifications. Both countries are heavily reliant on their energy infrastructures, making any attack on these systems not only a military tactic but also a form of economic warfare. Energy resources, including electricity and natural gas, have become central to the ongoing conflict, with both sides using them to exert pressure on the other amid Europe's deepening energy crisis that reverberates beyond the battlefield.

As of now, it remains unclear whether the recent violations of the energy ceasefire will lead to a breakdown of the truce or whether the United States will intervene further to restore compliance, even as Ukraine prepares for winter amid energy challenges. The situation remains fluid, and the international community continues to closely monitor the developments. The U.S., which played a central role in brokering the energy ceasefire, has made it clear that it expects both sides to uphold the terms of the agreement and work toward a more permanent cessation of hostilities.

The continued accusations between Russia and Ukraine regarding the breach of the energy ceasefire underscore the challenges of negotiating peace in such a complex and entrenched conflict. While both sides claim to be upholding their commitments, the reality on the ground suggests that reaching a full and lasting peace will require much more than temporary truces. The international community, particularly the U.S., will likely continue to push for stronger actions to enforce compliance and to prevent the conflict from further escalating. The outcome of this dispute will have significant implications for both countries and the broader European energy landscape and security landscape.

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U.S. Data Center Power Demand is straining electric utilities and grid reliability as AI, cloud computing, and streaming surge, driving transmission and generation upgrades, demand response, and renewable energy sourcing amid rising electricity costs.

Key Points

The rising electricity load from U.S. data centers, affecting utilities, grid capacity, and energy prices.

✅ AI, cloud, and streaming spur hyperscale compute loads

✅ Grid upgrades: transmission, generation, and substations

✅ Demand response, efficiency, and renewables mitigate strain

U.S. electric utilities are facing a significant new challenge as the explosive growth of data centers puts unprecedented strain on power grids across the nation. According to a new report from Reuters, data centers' power demands are expected to increase dramatically over the next few years, raising concerns about grid reliability and potential increases in electricity costs for businesses and consumers.

What's Driving the Data Center Surge?

The explosion in data centers is being fueled by several factors, with grid edge trends offering early context for these shifts:

• Cloud Computing: The rise of cloud computing services, where businesses and individuals store and process data on remote servers, significantly increases demand for data centers.
• Artificial Intelligence (AI): Data-hungry AI applications and machine learning algorithms are driving a massive need for computing power, accelerating the growth of data centers.
• Streaming and Video Content: The growth of streaming platforms and high-definition video content requires vast amounts of data storage and processing, further boosting demand for data centers.

Challenges for Utilities

Data centers are notorious energy hogs. Their need for a constant, reliable supply of electricity places  heavy demand on the grid, making integrating AI data centers a complex planning challenge, often in regions where power infrastructure wasn't designed for such large loads. Utilities must invest significantly in transmission and generation capacity upgrades to meet the demand while ensuring grid stability.

Some experts warn that the growth of data centers could lead to brownouts or outages, as a U.S. blackout study underscores ongoing risks, especially during peak demand periods in areas where the grid is already strained. Increased electricity demand could also lead to price hikes, with utilities potentially passing the additional costs onto consumers and businesses.

Sustainable Solutions Needed

Utility companies, governments, and the data center industry are scrambling to find sustainable solutions, including using AI to manage demand initiatives across utilities, to mitigate these challenges:

• Energy Efficiency: Data center operators are investing in new cooling and energy management solutions to improve energy efficiency. Some are even exploring renewable energy sources like onsite solar and wind power.
• Strategic Placement: Authorities are encouraging the development of data centers in areas with abundant renewable energy and access to existing grid infrastructure. This minimizes the need for expensive new transmission lines.
• Demand Flexibility: Utility companies are experimenting with programs as part of a move toward a digital grid architecture to incentivize data centers to reduce their power consumption during peak demand periods, which could help mitigate power strain.

The Future of the Grid

The rapid growth of data centers exemplifies the significant challenges facing the aging U.S. electrical grid, with a recent grid report card highlighting dangerous vulnerabilities. It highlights the need for a modernized power infrastructure, capable of accommodating increasing demand spurred by new technologies while addressing climate change impacts that threaten reliability and affordability.  The question for utilities, as well as data center operators, is how to balance the increasing need for computing power with the imperative of a sustainable and reliable energy future.

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Hydro One-Avista Merger outlines a utility acquisition shaped by Washington regulators, Colstrip coal plant depreciation, and plans for renewables, clean energy, and emissions cuts, while Montana reviews implications for jobs, ratepayers, and a 2027 closure.

Key Points

A utility deal setting Colstrip depreciation and renewables, without committing to an early coal plant closure.

✅ Washington sets 2027 depreciation for Colstrip units

✅ Montana reviews jobs, ratepayer impacts, community fund

✅ Avista seeks renewables; no binding shutdown commitment

The Washington power company Hydro One is buying will be ready to close its huge coal-fired generating station ahead of schedule, thanks to conditions put on the corporate merger by state regulators there.

Not that we actually plan to do that, the company is telling other regulators in Montana, where coal unit retirements are under debate, the huge coal-fired generating station in question employs hundreds of people. We’ll be in the coal business for a good long time yet.

Hydro One, in which the Ontario government now owns a big minority stake, is still working on its purchase of Avista, a private power utility based in Spokane. The $6.7-billion deal, which Hydro One announced in July, includes a 15 per cent share in two of the four generating units in a coal plant in Colstrip, Montana, one of the biggest in the western United States. Avista gets most of its electricity from hydro dams and gas but uses the Colstrip plant when demand for power is high and water levels at its dams are low.

#google#

Colstrip’s a town of fewer than 2,500 people whose industries are the power plant and the open-pit mines that feed it about 10 million tonnes of coal a year. Two of Colstrip’s generators, older ones Avista doesn’t have any stake in, are closing in 2022. The other two will be all that keep the town in business.

In Washington, they don’t like the coal plant and its pollution. In Montana, the future of Colstrip is a much bigger concern. The companies have to satisfy regulators in both places that letting Hydro One buy Avista is in the public interest.

Ontario proudly closed the last of our coal plants in 2014 and outlawed new ones as environmental menaces, and Alberta's coal phase-out is now slated to finish by 2023. When Hydro One said it was buying Avista, which makes about $100 million in profit a year, Premier Kathleen Wynne said she hoped Ontario’s “value system” would spread to Avista’s operations.

The settlement is “an important step towards bringing together two historic companies,” Hydro One’s chief executive Mayo Schmidt said in announcing it.

The deal has approval from the Washington Utilities and Transportation Commission staff but is subject to a vote by the group’s three commissioners. It doesn’t commit Avista to closing anything at Colstrip or selling its share. But Avista and Hydro One will budget as if the Colstrip coal burners will close in 2027, instead of running into the 2040s as their owners had once planned, a timeline that echoes debates over the San Juan Generating Station in New Mexico.

In accounting terms, they’ll depreciate the value of their share of the plant to zero over the next nine years, reflecting what they say is the end of the plant’s “useful life.” Another of Colstrip’s owners, Puget Sound Energy, has previously agreed with Washington regulators that it’ll budget for a Colstrip closure in 2027 as well.

Avista and Hydro One will look for sources of 50 megawatts of renewable electricity, including independent power projects where feasible, in the next four years and another 90 megawatts to supplement Avista’s supply once the Colstrip plant eventually closes, they promise in Washington. They’ll put $3 million into a “community transition fund” for Colstrip.

The money will come from the companies’ profits and cash, the agreement says. “Hydro One will not seek cost recovery for such funds from ratepayers in Ontario,” it says specifically.

“Ontario has always been a global leader in the transition away from dirty coal power and towards clean energy,” said Doug Howell, an anti-coal campaigner with the Sierra Club, which is a party to the agreement. “This settlement continues that tradition, paving the way for the closure of the largest single source of climate pollution in the American West by 2027, if not earlier.”

Montanans aren’t as thrilled. That state has its own public services commission, doing its own examination of the corporate merger, which has asked Hydro One and Avista to explain in detail why they want to write off the value of the Colstrip burners early. The City of Colstrip has filed a petition saying it wants in on Montana hearings because “the potential closure of (Avista’s units) would be devastating to our community.”

Don’t get too worked up, an Avista vice-president urged the Montana commission just before Easter.

“Just because an asset is depreciated does not mean that one would otherwise remove that asset from service if the asset is still performing as intended,” Jason Thackston testified in a session that dealt only with what the deal with Washington state would mean to Colstrip. We’re talking strictly about an accounting manoeuvre, not an operational commitment.

Six joint owners will have to agree to close the Colstrip generators and there’s “no other tacit understanding or unstated agreement” to do that, he said.

Besides Washington and Montana, state regulators in Idaho, including those overseeing the Idaho Power settlement process, Alaska and Oregon and multiple federal authorities have to sign off on the deal before it can happen. Hydro One hopes it’ll be done in the second half of this year.

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Russia-Ukraine Energy War disrupts infrastructure, oil, gas, and electricity, triggering supply shocks, price spikes, and inflation. Global markets face volatility, import risks, and cybersecurity threats, underscoring energy security, grid resilience, and diversified supply.

Key Points

It is Russia's strategic targeting of Ukraine's energy system to disrupt supplies, raise prices, and hit global markets.

✅ Attacks weaponize energy to strain Ukraine and allies

✅ Supply shocks risk oil, gas, and electricity price spikes

✅ Urgent need for cybersecurity, grid resilience, diversification

Russia's targeting of Ukraine's energy infrastructure has unleashed an "energy war" that could lead to widespread price increases, supply disruptions, and ripple effects throughout the global energy market, felt across the continent, with warnings of Europe's energy nightmare taking shape.

This highlights the unprecedented scale and severity of the attacks on Ukrainian energy infrastructure. These attacks have disrupted power supplies, prompting increased electricity imports to keep the lights on, hindered oil and gas production, and damaged refineries, impacting Ukraine and the broader global energy system.

Energy as a Weapon

Experts claim that Russia's deliberate attacks on Ukraine's energy infrastructure represent a strategic escalation, amid energy ceasefire violations alleged by both sides, demonstrating the Kremlin's willingness to weaponize energy as part of its war effort. By crippling Ukraine's energy system, Russia aims to destabilize the country, inflict suffering on civilians, and undermine Western support for Ukraine.

Impacts on Global Oil and Gas Markets

The ongoing attacks on Ukraine's energy infrastructure could significantly impact global oil and gas markets, leading to supply shortages and dramatic price increases, even as European gas prices briefly returned to pre-war levels earlier this year, underscoring extreme volatility. Ukraine's oil and gas production, while not massive in global terms, is still significant, and its disruption feeds into existing anxieties about global energy supplies already affected by the war.

Ripple Effects Beyond Ukraine

The impacts of the "energy war" won't be limited to Ukraine or its immediate neighbours. Price increases for oil, gas, and electricity are expected worldwide, further fueling inflation and exacerbating the global cost of living crisis.  Additionally, supply disruptions could disproportionately affect developing nations and regions heavily dependent on energy imports, making targeted energy security support to Ukraine and other vulnerable importers vital.

Vulnerability of Energy Infrastructure

The attacks on Ukraine highlight the vulnerability of critical energy infrastructure worldwide, as the country prepares for winter under persistent threats. The potential for other state or non-state actors to use similar tactics raises concerns about security and long-term stability in the global energy sector.

Strengthening Resilience

Experts emphasize the urgent need for global cooperation in strengthening the resilience of energy infrastructure. Investments in cybersecurity, diverse energy sources, and decentralized grids are crucial for mitigating the risks of future attacks, with some arguing that stepping away from fossil fuels would improve US energy security over time. International cooperation will be key in identifying vulnerable areas and providing aid to nations whose infrastructure is under threat.

The Unpredictable Future of Energy

The "energy war" unleashed by Russia has injected a new level of uncertainty into the global energy market. In addition to short-term price fluctuations and supply issues, the conflict could accelerate the long-term transition towards renewable energy sources and reshape how nations approach energy security.

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