Infrastructure Quarterly

Issue Q3 2018

Russell Ketter

Russell Ketter

Senior Vice President
Western Region,
Wells Fargo Equipment Finance Canada

Western Canada

The energy industry continues to have a positive outlook in 2018, and the most recent published data continues to support this notion. Global demand for crude remains strong as a result of the OPEC-led production cut that is getting rid of the price-sapping excess supply. Employment in the industry increased by 3% in July.1 The West Texas Intermediate (WTI) prices increased 51% YoY in July reaching $70/b.2 In addition, energy products exports increased 34% in June YoY.3 The increased oil production and the recovery of oil prices continue to boost energy exports in 2018.

However, in Western Canada market access limitations, pending potential trade issues (e.g., China and/or Canada vs. the U.S.), and growing regulatory issues surrounding pipelines in the industry are causing pricing volatility.4 As reported by The Conference Board of Canada’s Canadian Industrial Outlook: Oil Extraction, bottlenecks in pipeline capacity and soaring U.S. shale oil production are eroding Canadian producer’s competitiveness. As pipeline capacity can’t keep up with production, more oil is shipped by rail at a higher cost.5 This is further confirmed by the fact that Canadian drilling oil and gas rig activity from January to July decreased by 6.7%.6

On a more positive note, our customers in the Canadian energy industry told us that they are focusing over the last couple of years on cost containment during the downturn, and leveraging new technologies and/or processes where applicable has made them more efficient. This is confirmed by the Conference Board of Canada's leading indicator of industry profitability for the oil extraction sector, which rose slightly by 2.2% in June YoY.7 Further, at the time of writing this article, the National Energy Board advised that the Trans Mountain Pipeline ULC can start construction on sections of its pipeline expansion between Alberta and British Columbia.8 This is a very important first step in moving the pipeline forward as the price differential between Western Canada Select (WCS) and WTI continues to impact the bottom line of all energy companies in the Western Canada region. A positive pipeline announcement will bode well for all Western Canada energy companies.

Russell Ketter has led an asset-based sales team in Western Canada for more than17 years. He has been successful in driving year- over- year growth in new business volume and profitability within the region. Russell’s practical approach and smart business philosophy have given him the ability to lead business growth by simultaneously focusing on his customers and team.

1. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410035502

2. https://www.eia.gov/petroleum/data.php

3. http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm

4. https://www.conferenceboard.ca/press/newsrelease/2018/04/12/tide-is-turning-for-canada-s-oil-industry-but-significant-challenges-remain

5. https://www.conferenceboard.ca/e-library/abstract.aspx?did=9584

6. http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

7. https://www.conferenceboard.ca/e-library/abstract.aspx?did=9825

8. https://www.eia.gov/outlooks/steo/