Canada: Refocusing on Asia
Canada: Refocusing on Asia
In line with other producers, Canada - as the world’s fifth
largest oil producer - has been impacted by the decline in oil
prices. However, in Canada’s case the impact has been more
severe compared with lower cost producers, such as those in
MENA, due in part to the higher costs of the unconventional
drilling techniques used to tap the Canadian Oil Sands. The
average cost of Canadian oil production is USD41 per barrel,
above the current global oil price.
According to the National Energy Board of Canada in 2013,
71% of Canadian Crude production was exported to the US
and only 2% to overseas markets. With a flattening US import
demand due to increased local supply of oil coupled with
constraints on pipeline capacity, Canada has been looking for
new domestic as well as international markets for its oil.
Response
At a national level, the response has been to look East, with
last October’s trade missions to China being a case in point. At
a corporate level, the focus has been on cost cutting and the
deferral of capital projects. Inevitably, this has had implications
for Canadian corporate treasuries, who are being expected to
achieve more with less. An important part of achieving this is
for treasuries to gain a clear understanding of the current state
of the business. Armed with this understanding, it becomes
possible to identify areas that are time- and capital-intensive
and to remedy this situation through process and technology
efficiencies. As a result, more advanced treasuries are
reviewing and, where possible streamlining existing structures
to improve their agility in support of corporate operations in a
demanding environment.
If successful, Canada’s drive to develop Asian oil trading
relationships will also have an impact on Canadian corporate
treasuries’ banking requirements. Many Canadian oil
companies have become used to dealing almost exclusively
with customers in the US. In terms of banking capabilities,
these quasi-domestic relationships are not especially
Lance T. Kawaguchi
Managing Director
Global Sector Head - Resources
and Energy Group Payments and
Cash Management
demanding, but dealing with new Asian customers
will be very different. New international receivables
capabilities and their incorporation into existing treasury
systems will be required, as will the ability to integrate
new Asian revenues into existing liquidity management
processes efficiently. Apart from a banking partner
capable of the purely functional aspects of servicing this
Canada/Asia receivables channel, that partner should
also possess deep Asian expertise it can share.
Customer Diversification
Energy exports to the US currently account for the vast
majority of Canada’s total energy exports, but there is
a clear realisation in Canada - in part driven by current
energy price levels - that partner diversification is
essential. To some extent, this was already underway
before the decline in oil prices, with rapid participation
growth from international and national oil companies.
Other considerations aside, oil sand investment enables
foreign companies to obtain technological expertise
that can be reapplied to other unconventional resources
elsewhere.
Chinese companies have played an important role here,
with China National Petroleum Corporation (CNPC),
PetroChina, Sinopec and China National Offshore Oil
Corporation (CNOOC) all investing heavily in oil sands,
as well as other parts of Canada’s energy sector. This
has been mirrored by Canadian initiatives to grow the
country’s energy business with Asia more generally
and has already borne some fruit. For instance, a
consortium led by Malaysia’s Petronas has made a
USD36 billion investment in Canada’s Pacific Northwest
LNG (in British Columbia).
Nevertheless, although tapping the energy demands of
emerging markets in Asia makes considerable strategic
sense, bringing it to fruition is very much a long term
project. The considerable infrastructure and pipeline
projects necessary to support non-US oil exports
remain uncertain investments in view of current low oil
prices. Having said that, now could be the ideal time for
corporate treasuries to work with their banking partners
to evaluate, formulate, and implement industry best
practices. This will not only position their companies
for the highest probability of success in the current low
price environment, but will also allow them to maximise
the opportunity when the oil price eventually rebounds.
Published: March 2016
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