Energy projects like an LNG Canada export terminal and the Trans Mountain pipeline expansion may face short-term setbacks but the coronavirus pandemic and oil price crash shouldn’t threaten their long-term viability, economists say.
Andrew Leach, an energy economist at the University of Alberta, said the long-term forecast for both natural gas and oil remains steady, even as some companies scale back workforces to meet safety protocols.
“I think the consensus amongst most people is that there isn’t a big impact of what we’re seeing right now beyond the timeline of the pandemic and the recovery,” he said.
READ MORE: Live updates — Coronavirus in Canada
Global oil prices recently plunged amid oversupply concerns as storage tanks near capacity while refineries are reducing output as economic activity slows during the pandemic. The low prices have forced some producers to cut production in Canada’s oilpatch.
Werner Antweiler, an energy economist at the University of British Columbia, said the oil industry is facing a “double whammy” of a global decrease in demand coupled with a Saudi Arabia-Russia price war. A recent agreement by OPEC and other countries to reduce production doesn’t go far enough to balance supply with falling demand, he said.
But pipelines face slightly different market forces than the producers who fill them. There may be increased pressure on pipelines as Canadian producers seek to get oil to markets at the best price possible, while the spectre of American protectionism could also increase the pressure to get Canadian oil to Asian refineries if U.S. ones becomes unavailable, Antweiler said.
Oil price crash prompts calls for green energy
Trans Mountain said in a statement that construction on the expansion project is progressing well at its terminals and along the right-of-way in B.C. and Alberta with COVID-19 safety measures in place.
Current oil prices don’t have a direct impact on the project, the company said. Its customers have made 15- and 20-year commitments for roughly 80 per cent of the capacity in the expanded pipeline. It’s still due to come into service in late 2022, the statement said.
The existing Trans Mountain pipeline operated at its maximum capacity for the first quarter of 2020, the company said.
LNG Canada has reduced its workforce to manage the risk of spreading COVID-19, director of corporate affairs Susannah Pierce said in a statement. But the company and its engineering procurement and construction contractor, JGC Fluor JV, continue to hit “critical construction milestones,” she said.
Antweiler said liquefied natural gas has a good long-term outlook because of the ongoing switch from coal to gas globally and the increase in demand for energy in Asia.
“These two things, they will continue once the economy returns to normal.”
In the case of Coastal GasLink, the 670-kilometre natural gas pipeline that would feed LNG Canada’s export terminal on the B.C. coast, the pandemic may never rival the disruption earlier this year by its opponents, Leach said.
Construction on most projects that are underway could be vulnerable to disruptions caused by outbreaks but otherwise appear to be continuing at status quo. Leach biked through a Trans Mountain construction zone in Edmonton on Thursday and it seemed unchanged, he said.
“It feels like it’s going full speed ahead,” he said.
A pipeline like Trans Mountain, which is regulated by the Canadian Energy Regulator, is not a commercial venture in the sense that it doesn’t take full merchant risk and has bounds on the tolls it can charge. It’s also largely able to pass any extra costs on to producers, Leach said.
“They can’t charge whatever the market will bear at any point of time and as a consequence of that they also have some protection for their capital investments,” Leach said.
The wildcard project is Keystone XL for several reasons, including that it doesn’t have all its permits and is not materially under construction, he said.
“It’s relatively early in the process and the cross-border nature of it, the length of it, all these sorts of things make it more challenging in the current market. So that’s probably one of the projects that is most likely to be affected,” Leach said.
TC Energy, which owns the project, did not respond to a request for comment.
While some have mused that the oil price plunge signalled the beginning of the end for oil, Leach and Antweiler don’t buy it.
It would take broad public policy shifts or an energy technology revolution to stimulate a mass shift away from oil dependency. If anything, Leach said physical distancing habits could discourage drivers from making the switch to public transit, for example.
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“I’d love to see the oil industry fade away more quickly than it will, but as an energy economist I still know we depend on oil for transportation,” Antweiler said.
He said he expects demand for oil to remain stable for the next few years and it will be up to countries around the world to curb demand through policy until cleaner options become more cost effective.
“There will be potentially a reduction in demand for oil but it won’t be as fast as some hope,” he said.
© 2020 The Canadian Press
Pandemic-related restaurant closures take an emotional and financial toll – CBC.ca
Michael Raviele agonized for hours over how to break the news to his loyal customers before finally announcing at 4:30 a.m. ET on May 15 that he was closing Il Gatto Nero, the Toronto Italian restaurant his father first opened some six decades earlier.
“I did that road for 18 years — up and down, every single day,” said the man with a tattoo of the restaurant’s logo on his arm. “I worked there every single day.”
Restaurants across Canada — from local institutions to newer spots hustling to establish themselves — have closed permanently in recent weeks as the COVID-19 pandemic ravaged an industry already plagued by razor-thin margins. Their owners face not only the emotional loss of their business, but also often large debt, little savings and an uncertain future.
Il Gatto Nero started as an Italian social club featuring pool tables and espresso more than 60 years ago. Raviele joined the business in the early 90s and slowly added to the club’s repertoire with a pizza oven, sandwiches and other tweaks.
The club moved to Toronto’s College Street about 18 years ago. At the new location, they saw a lot of success — like when Italy won the FIFA World Cup in 2006 — as well as some down times — like the 2008 recession — that prompted Raviele and his father to dip into personal savings to keep the restaurant afloat. Raviele invested more money in the business in 2014 for a renovation and expanded to a second location, a small cafe in Etobicoke, in October 2019.
When COVID-19 hit and government ordered dining rooms to close, Raviele attempted to shift to take away, but eventually stopped. Bills piled up from utility companies.
“I obviously incurred some debt …,” he said.
But uncertainty over the future of dining was the final nail in Il Gatto Nero’s coffin.
‘Don’t see a future’
Raviele speculated he might be required to remove the restaurant’s 10 bar seats and slash his 65-seat capacity in half to comply with pending physical distancing rules, which would cripple his business.
“I don’t see a future for my business or for my family,” he said. “The model for opening any restaurant is based on feeding capacity versus space, and how many people can you do over the course of a night… I mean, if you have one bad weekend, it could be disastrous for many small businesses.”
He plans to focus on the small espresso bar, add a pizza oven and hustle to keep that business going, which he said he invested his second life into.
“I’m angry, because I wanted to do something good, and now the possibility of losing both is always there.”
Mohammed Bin Yahya, co-founder and chief executive at Plentea, found the coronavirus to be “just like the knockout punch” for his Toronto tea bar.
Shifting consumer habits may change retail forever
Dreams of growing
Before the pandemic, the company was struggling to pay some $5,000 in rent. When they shifted to takeaway to abide by health regulations amid the pandemic, foot traffic dropped dramatically.
The tea shop, which Bin Yahya opened in 2015 with dreams of growing to multiple locations, will close at the end of the month.
“The numbers. Straight up, the numbers don’t lie,” he said.
The company had to pay penalties when closing some of their accounts with cleaning companies, internet and phone providers, and others, he said.
“We are in debt,” he said, estimating they’ll owe some $40,000 in the end.
For now, he’s trying to minimize his expenses, and said he may have to find a side job and move in with family to help pay back the loans.
But he’s keeping the dream alive. Plentea will continue selling tea online, he said, and — for now — he’ll keep the equipment in storage with the hopes of opening again.
With nearly four decades in the food industry, 77-year-old Frances Wood’s retirement plan relied heavily on the Cajun-and-Creole food restaurant she co-owns, Southern Accent in Toronto.
After 34 years in one location, Wood dipped into her nest egg to help cover a move to a new spot about three years ago. It took some time to build up a new customer base and Wood noticed in recent years, lucky restaurants made 10 per cent in profit.
Still, at the start of this year, she started seeing “the light at the end of the tunnel” in making the new location work.
She debated selling the restaurant after her five-year lease ended. But with about 1½ years to go, COVID-19 hit.
Southern Accent also attempted takeaway and delivery, but found with high delivery app fees, it was losing money each day it stayed open.
Wood and her co-owner decided to close permanently in April and have about $60,000 in loans and bills to pay back between them.
In what Wood called “a miracle,” their landlord released them from their roughly $10,000 monthly lease early, Wood said.
“I don’t know what we would have done. We would have to go personally bankrupt, I guess” had that not happened, she said.
The next phase of the septuagenarian’s life “doesn’t look very good.” Wood didn’t draw a salary for the past several years, but the restaurant did pay some of her expenses. She collects Old Age Security, the Canada Pension Plan and has some personal savings, but that hardly covers her monthly expenses.
“My livelihood, what I was expecting to have at the end of 37 years in the restaurant business was some money from the restaurant when I sold it to help with my senior years.”
She planned to sell the name and recipes, and help set the buyer up for success. She even kept the restaurant’s 1940s bar in case a buyer emerges. It’s tucked away in the garage.
Still, she considers herself lucky all things considered.
“I think, ‘OK, I’m lucky. I have my health.”‘
Global stocks buoyant, dollar slips as economies start to unlock – Reuters
NEW YORK (Reuters) – World stocks hovered near three-month highs and safe-haven government bonds inched lower as signs that Europe’s economic downturn has bottomed boosted risk appetite, despite worries over violent protests in the United States and unease over Washington’s standoff with Beijing.
President Donald Trump left a trade deal with China intact Friday despite moving to end Washington’s special treatment for Hong Kong in retaliation for Beijing seeking to impose new security legislation on the city.
China has asked state-owned firms to halt purchases of soybeans and pork from the United States in response, two people familiar with the matter said.
“The Trump rhetoric against China and trade impediments against Hong Kong could have been a lot worse, hence the performance of those markets this morning, which has helped the risk backdrop,” said Chris Bailey, European strategist at wealth manager Raymond James.
MSCI’s gauge of stocks across the globe .MIWD00000PUS gained 0.29% following broad gains in Asia and Europe. The index .MIWD00000PUS is up more than 35% from its March lows.
In morning trading on Wall Street, the Dow Jones Industrial Average .DJI fell 114.39 points, or 0.45%, to 25,268.72, the S&P 500 .SPX lost 11.9 points, or 0.39%, to 3,032.41 and the Nasdaq Composite .IXIC dropped 24.20 points, or 0.25%, to 9,465.68.
Signs of a rebound from the global coronavirus lockdown helped bolster global equities and push safe haven assets lower. France’s manufacturing activity rose in May as the country began to emerge from a nearly two-month coronavirus lockdown, pulling the sector out of a nosedive that had seen activity hit a record low a month earlier, a survey showed on Monday.
An official business survey from China showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened.
Benchmark 10-year notes US10YT=RR last fell 10/32 in price to yield 0.677%, from 0.644% late on Friday.
Bond investors suspect economies will need massive amounts of central bank support long after they reopen and that is keeping yields super low even as governments borrow much more.
“Current unemployment numbers go far beyond what has been experienced in any post-war recession,” Barclays economist Christian Keller wrote in a note. “To the extent that some sectors may never return to pre-pandemic business-as-usual.”
A weekend of violent U.S. protests over race and policing could present another setback for the economy which was only just emerging from the steepest economic downturn since the Great Depression.
Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualized in the second quarter.
The May jobs report due out on Friday is forecast to show the unemployment rate surged to 19.8%, smashing April’s record 14.7%. Payrolls are expected to drop by 7.4 million, on top of the 20.5 million jobs lost the previous month.
In commodity markets, gold added 0.5% to $1,735 an ounce XAU=. [GOL/]
Tensions between the U.S. and China weighed on oil prices. U.S. crude CLc1 recently fell 2.73% to $34.52 per barrel and Brent LCOc1 was at $37.70, down 0.37% on the day.
(Graphic: Global assets – tmsnrt.rs/2jvdmXl)
(Graphic: Global currencies vs. dollar – tmsnrt.rs/2egbfVh)
(Graphic: Emerging markets – tmsnrt.rs/2ihRugV)
(Graphic: MSCI All Country Wolrd Index Market Cap – tmsnrt.rs/2EmTD6j)
Reporting by David Randall; Editing by Nick Zieminski
At the open: TSX starts flat as oil prices drop – The Globe and Mail
Canada’s main stock index opened lower on Monday, dragged down by energy stocks on falling oil prices, as fears of low demand for crude offset OPEC and Russia considering extended production cuts.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was down 15.22 points, or 0.1%, at 15,177.61.
U.S. stocks opened lower on Monday after a strong showing last month, as investors turned cautious amid country-wide protests over race and a flare-up in tensions between Washington and Beijing.
The Dow Jones Industrial Average fell 40.12 points, or 0.16%, at the open to 25,342.99. S&P 500 fell 11.46 points, or 0.38%, at 3,032.85.
The S&P 500 opened lower by 3,044.31 points, or 100.00%, at 0.00. The Nasdaq Composite dropped 18.45 points, or 0.19%, to 9,471.42 at the opening bell.
World stocks hovered near three-month highs and the dollar was flat on Monday as optimism over economies opening up again boosted risk appetite, despite worries over mass protests in the United States and unease over Washington’s standoff with Beijing.
Having risen a whopping 35% from a late March trough, stocks looked set to kick off June with more gains. The MSCI world stocks index has recovered two-thirds of the losses it incurred in the aftermath of the coronavirus outbreak.
Investors were also relieved that President Donald Trump left a trade deal with China intact despite moving to end Washington’s special treatment for Hong Kong in retaliation for Beijing seeking to impose new security legislation on the city.
China has asked state-owned firms to halt purchases of soybeans and pork from the United States, two people familiar with the matter said, following Washington’s move over Hong Kong.
In Europe, stock markets were up 0.8% led by virus-hit sectors such as travel & leisure, banks and miners but volumes were subdued as Germany, Switzerland and Austria were closed for holidays.
“The Trump rhetoric against China and trade impediments against Hong Kong could have been a lot worse, hence the performance of those markets this morning, which has helped the risk backdrop for the European open,” said Chris Bailey, European strategist at wealth manager Raymond James.
In Asia, stocks closed higher, led by China on signs that parts of the domestic economy were picking up. Hong Kong managed to rally 3.4%, while Chinese blue chips put on 2.7%.
Japan’s Nikkei added 0.8% to also reach a three-month peak.
The safe-haven dollar, meanwhile, hit an 11-week low dented by risk-on mood among investors and protests in major U.S. cities over race and policing.
“I agree the riots are not good but the perception is that this is a local issue…and the uncertainty has spilled over into a lower dollar,” Bailey added.
In Philadelphia, one of the cities that had instituted a curfew due to protests there, Nasdaq Inc said it postponed Monday’s planned reopening of its PHLX options trading floor, which had been closed because of the coronavirus pandemic.
The turmoil in the U.S. was a fresh setback for the economy which was only just emerging from a downturn akin to the Great Depression. Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualised in the second quarter.
Yields on U.S. 10-year notes were trading steady at 0.66% having recovered from a blip up to 0.74% last month when the market absorbed a tidal wave of new issuance.
German bund yields were stuck near minus 0.42%.
In currency markets, the euro was last up at $1.1114, after climbing 1.8% last week. The Australian dollar hit a four-month high.
Much of the dollar’s recent decline has come against the euro which has been boosted by plans for an EU stimulus package. The European Central Bank is also widely expected to say on Thursday that it will raise its asset buying by around 500 billion euros to 1.25 trillion.
In commodity markets, gold added 0.5% to $1,735 an ounce .
Brent crude futures were off 8 cents at $37.76 a barrel, while U.S. crude fell 35 cents to $35.14
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