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From fire to floods, climate change hits Canada’s fragile supply chain

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From fire to floods, climate change hits Canada's fragile supply chain
© Reuters. Railway tracks are suspended above the washed out Tank Hill underpass of the Trans Canada Highway 1 during a survey flight after devastating rain storms caused flooding and landslides, noertheast of Lytton, British Columbia, Canada November 16, 2021. Pict

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By Rod Nickel and Nia Williams

WINNIPEG, Manitoba (Reuters) – The massive rains that unleashed floods and mudslides https://www.reuters.com/world/americas/receding-waters-help-flood-hit-canadian-town-avoid-disaster-2021-11-18 in the Canadian province of British Columbia exposed the country’s supply chain vulnerability as crucial railways and roads were severed from the country’s biggest port.

That one storm could within hours shut down a key engine in one of the world’s biggest exporting nations highlights Canada’s unique economic fragility. The majority of Canadian exports, which account for nearly one-third of the country’s GDP, travel to the Pacific coast to reach Asian markets.

But the supply chain route relies on two rail lines and a handful of highways through the Rocky Mountains and rugged British Columbia interior to the Port of Vancouver.

“Geology did not give Canada a lot of options and funnelling a huge amount of exports down the Fraser Canyon increases our vulnerability,” said Barry Prentice, professor of supply chain management at University of Manitoba.

The Fraser Canyon, which stretches from B.C.’s high interior plateau through the Coast Mountains to the lower mainland, suffered some of the most severe highway washouts during the storm. It was also ravaged by a wildfire this summer that destroyed a town https://www.reuters.com/business/environment/wildfire-forces-evacuation-residents-small-western-canada-town-2021-07-01 and closed road and rail routes.

Building a third track through the canyon, roughly 150 kilometres (93 miles) northeast of Vancouver, is not practical since the current tracks are “literally carved into the wall of the canyon,” he added.

Canada is developing a plan to adapt to climate change and this week’s historic flooding underscored the need to protect export routes, Canadian Natural (NYSE:) Resources Minister Jonathan Wilkinson said.

“What this week has shown us is some of those issues around export routes, and around goods routes…are perhaps more important than many of us had even assumed,” Wilkinson told Reuters.

MORE DROUGHT AND FLOODS

British Columbia is not equipped to cope with the increasingly extreme weather it faces, said Simon Donner, professor of climatology at the University of British Columbia.

“These were rainfall totals you would expect to see in a tropical cyclone, not in November in Canada,” he said.

More such disruptions in B.C. will likely force Canada to export more commodities south and east, rather than west, receiving lower prices than Asian markets pay, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

Some work is already underway to make Canada’s export economy more resilient.

The port at Prince Rupert in northern B.C. plans to increase its container capacity by one-third by 2023, offering a more viable, albeit much smaller, alternative for shippers to reach Asia.

In 2017, Canada’s Senate released a report https://sencanada.ca/content/sen/committee/421/BANC/reports/CorridorStudy(Final-Printing)_e.pdf on the feasibility of a 7,000-kilometer northern infrastructure corridor running from the Pacific Coast, across the boreal forest past Hudson (NYSE:) Bay and into northern Quebec.

The report concluded such a project could boost exports but take decades to complete.

Climate change is causing problems for shippers, but it could also offer solutions.

Churchill, Manitoba’s seldom-used port on Hudson Bay near the Arctic may become more viable as melting glaciers open shipping lanes, Prentice said.

The season for ships travelling through the Great Lakes and St. Lawrence Seaway may also get longer before ice closes the route each winter, said Bob Ballantyne, senior adviser at the Freight Management Association, which represents shipping industries.

The solutions provide no near-term fix, however.

“We are in this weird place where climate change means both more drought and more flooding,” said climate professor Donner. “The problem in British Columbia and across Canada and the world, is we are adapted to a climate of the past.”

Commodities

U.S. increased forecasts for crude oil and natural gas production in the country in 2022

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Crude oil and natural gas production will be raised. The U.S. Energy Department raised its 2022 domestic crude oil production (excluding other liquid hydrocarbons) forecast from 11.83 million to 11.87 million barrels per day, the Energy Information Administration (EIA) said in its monthly forecast. The forecast is 0.62 million bpd higher than the 2021 result.

The agency also slightly increased its 2023 production forecast by 30,000 bpd, to 12.34 million bpd. It is close to the annual average. This figure is close to the average annual record for oil production in the United States, set in 2019, – 12.3 million bpd.

Also, the Department of Energy slightly raised its 2022 and 2023 U.S. gas production forecasts. Gas production will be 98.13 Bcf/d in 2022 and 100.38 Bcf/d in 2023 (nearly 1.2 trillion cubic feet of gas per year).

The previous forecast had assumed production of 98.07 and 99.69 Bcf/d, respectively. In 2021, the country produced 94.6 Bcf/d of gas.

While the EIA still expects gas production in the Permian Basin to be constrained in early 2023, it anticipates that these constraints will be removed sooner than previously projected, although risks remain.

The Department of Energy expects natural gas prices to rise from their November level of $5.5 per MMBtu to over $6 per MMBtu in Q1 2023 because of both higher winter demand for natural gas and increased LNG exports. This will impact crude oil and gas prices.

U.S. LNG exports are expected to be 10.6 Bcf/d in 2022, up from 10.85 Bcf/d a month ago, and rising to 12.25 Bcf/d in 2023 (nearly 145 Bcf/d); the previous forecast of 12.33 Bcf/d.

Earlier we reported that the Expert revealed the reason for the sharp fall in oil prices.

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The expert revealed the reason for the crude oil price chart dump

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World oil prices have fallen to the level of early January, as expectations of a sharp decline in oil supplies from Russia after the start of the embargo and more aggressive actions by OPEC+ to maintain prices have not materialized. This is the reason for the crude oil price chart dump.

Live crude oil price in dollars – what’s going on?

On Wednesday, Brent crude oil prices fell below $78 a barrel for the first time since January 3. February futures are trading at $79.6 a barrel.

Prices were probably driven by expectations of a sharp drop in oil supplies from Russia due to the embargo, and more aggressive action by OPEC+ to maintain prices; i.e., production cuts. Neither of these things happened; OPEC+ decided on Sunday not to change its production quota and, judging by media reports, Russian companies prepared for the embargo, including tanker fleet acquisitions.

Meanwhile, the Financial Times newspaper reported on Monday, citing oil traders, intermediaries and vessel-tracking services, that a traffic jam of oil tankers has formed off the Turkish coast since the start of restrictions on oil prices from Russia due to Ankara’s requirements to provide insurance data. According to the expert, a delay in the passage of ships could have led to an increase in oil prices on expectations of a shortage, but this has not happened yet.

According to marinetraffic, a ship-tracking portal, there are about 30 tankers, mostly Turkish, off the Turkish coast near the strait. Five tankers out of this number are Russian. Russia is concerned about the situation off the coast of Turkey, where Russian oil tankers have piled up; this problem is now being discussed through transport and insurance companies. but it may also be taken up at a political level.

Western oil sanctions came into effect on December 5: The European Union stopped accepting Russian oil transported by, and so also the “Big Seven” countries. Australia and the EU, imposed a price cap on such oil at $60 per barrel. Deputy Prime Minister Alexander Novak said Sunday that Russia is considering possible mechanisms to ban the application of the price ceiling for Russian oil supplies.

Earlier, we reported that oil prices fell before the release of statistics on inventories in the U.S.

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Commodities

Crude oil prices today declined before the release of U.S. inventory statistics

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World oil prices on Wednesday afternoon moved to some decrease, according to trading data. Markets are waiting for weekly statistics on commercial oil reserves in the U.S.

Brent crude oil prices were down 0.67% to $78.82 per barrel, while WTI January futures decreased 0.67% to $73.75. Oil prices were weak in the morning.

Later Wednesday, the U.S. Department of Energy will report data on the country’s commercial oil inventories for the week through December 2. Analysts believe the figure fell by 3.3 million barrels. On Wednesday night, the American Petroleum Institute (API) said it estimates a 6.4 million-barrel decline in inventories.

Crude oil prices today continue to be affected by uncertainty regarding the prospects of oil supplies. From December 5, the oil sanctions of the West came into effect: the European Union stopped accepting Russian oil transported by sea; also the G7 countries. Australia and the EU imposed a price cap on such oil at $60 per barrel.

The Russian authorities are developing three possible responses. The first one is a complete ban on sales to the countries that supported the restriction, including through intermediary countries or even their chain; the second one is a ban on exports under contracts that include a price ceiling condition; and the third one introduces an indicative price – the maximum discount of Russian Urals oil to the benchmark Brent grade, and a ban on selling at a higher discount.

Earlier we reported on the Big Tanker Jam in the Bosphorus due to the price cap on Russian oil.

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