Thursday, 27 August 2015

The Art of Politics... And Pipelines

Originally published in a Resource Works' email newsletter on the morning of August 27th, 2015. Sign up to receive email newsletters on the main page of their website:  

Thank you, comedian Groucho Marx, for this definition: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

There are 54 days to go until federal voting day on Oct. 19, plenty of time for political leaders to do all of the above—and to change their minds, or finally make them up—on key energy issues.

So far, only the Conservatives and Greens have spoken clearly on the big pipeline issues: Northern Gateway, Kinder Morgan, Energy East and Keystone XL. In a nutshell: Conservatives yes, Greens no.

NDP leader Thomas Mulcair and Liberal leader Justin Trudeau are both against the Northern Gateway line through BC, period.

But they have taken no such definitive position (yet) on the other proposed pipelines. Both say they proposals should go through a more rigorous review process than the current National Energy Board examination.

Mulcair initially appeared to support the Energy East pipeline from Alberta to New Brunswick, but he later backed off. He now says it needs a more stringent review—and that such reviews should also take into account whether the projects would significantly increase Canada’s greenhouse gas emissions.

Liberal leader Justin Trudeau says we do need to get our oil to markets, and that the alternative to pipelines is oil by rail “which nobody wants across the country." But he, too, proposes tougher reviews, and “a better process of getting community support and community buy-in.” The NEB, he says, has become politicized and if elected he would strengthen and reconfigure it.


Tell the candidates in your constituency where you want them and their party to stand on pipeline and energy issues. Not all candidates have yet been named, but for those who have been selected, you can (if you persist) find contact information here:






It’s been interesting to watch a provincial politician, Marge McCuaig-Boyd, settling into her new role as Alberta’s NDP energy minister.

She began by recognizing that there is uncertainty in Alberta because of plunging oil prices and a new NDP government that has promised a review of Alberta’s energy royalties.

“It is a good time to do a royalty review. Industry is down. We have time to talk to them and we have time to be prepared for when we move on.” She even said that Alberta might (might) be open to offering economic incentives to oil and gas companies.

Then a new paper from a political scientist and energy scholar from the Manning Centre identified 13 specific policy risks posed by the NDP government to Alberta’s oil and gas sector. “The fear is ‘death by a thousand cuts,’ and the mood is pessimistic.”

Now we learn that McCuaig-Boyd told a private gathering of oil and gas executives it’s time Albertans “quit apologizing for our oil industry because we are the best.”

And she went on to cite a Fraser Institute report that found moving oil and gas by pipeline in Canada is 4.5 times safer than transport by rail.

We can't wait for her to go public with such points.

Resource Works

Wednesday, 26 August 2015

Magic Pixie Dust = An Energy Source Without Consequence...

By: Licia Corbella 

Article originally published by the Calgary Herald on May 14th, 2014, and can be found here: 

As Alberta celebrates the 100th anniversary of the discovery of oil in this province, there are many people across Canada and around the world who have made it clear that they wish that day had never happened.
So I thought it would be fun to play fairy godmother to those people and grant them their wish. Wave magic wand and poof! Wish granted. That black mark on Canada’s reputation has never existed. Oil was never discovered in Alberta on May 14, 1914, and therefore the rest of the country doesn’t have an oil industry either, since it was very much Alberta’s vision that spurred most of the other regions to get into the game — albeit much later than Alberta.
Immediately, 1.38 million barrels a day of conventional crude and 1.94 million barrels per day of oilsands bitumen is suddenly no longer being made! Hooray! It’s so much fun to be a fairy godmother.
Of course, natural gas hasn’t been found either — meaning that 13.7 billion cubic feet per day of this cleaner fuel is also non existent, so many more Canadians must use mostly coal to heat their homes. Oh dear. That’s not very positive, since coal is not as clean as natural gas. Fairy godmother just hates being the bearer of bad news.
Shutting down Alberta’s oil and gas industry will result in an immediate reduction of Canada’s greenhouse gas (GHG) emissions by 163 megatonnes (MT) per year.
Yipee! Fairy godmothers just love delivering cheery news! But wait a minute. While that sounds like a lot of GHGs, it’s really just a drop in the bucket. Canada produces just 1.8 per cent of the world’s man-made GHGs and the oilsands produce just eight per cent of that, but almost one-quarter of the wealth on the Toronto Stock Exchange.
Wave magic wand and poof — all of that wealth has disappeared too. That means you can’t retire until you’re 85. But take it from fairy godmother, working forever is fun!
You may think by taking all of that oil and gas out of production, prices would spike in Canada and the U.S. But not to worry, oil and gas will still flow, only now it will come from somewhere else, mostly Saudi Arabia — which uses a good portion of its oil wealth to fund al-Qaeda and other groups like that. Bloody oil, is, after all, so much nicer than Alberta’s so-called dirty oil. Other oil will also flow from Venezuela, Iran, Russia and fabulous places like that, where protesters don’t dare tread.
More than 116,000 jobs in Alberta would be lost that are directly tied to oil and gas — or rather, they never existed to begin with. Which is too bad, because they are among the most high paying jobs in the country, providing billions in taxes to the federal and provincial treasuries from individuals alone. Poof, gone! But waiting even longer for a heart or hip operation is a small price to pay for doing away with the blight that is our oil and gas industry.
Tens of thousands of other jobs across the country, including manufacturing jobs in Quebec and Ontario, will disappear like a mirage too. By closing down all of Canada’s oil and gas industry, all of those Hollywood stars like Neil Young and Daryl Hannah won’t be focusing on Alberta and Canada and perhaps will start focusing on U.S. coal instead — which belches out 27 times more GHGs than the oilsands industry in Alberta.
The top 50 polluting coal fired plants in the United States produce two per cent of the world’s GHG emissions, which is more than all of Canada’s GHGs for everything — transportation, home heating, manufacturing, the oilsands, agriculture — everything!
According to Alberta Finance, in 2011 alone, Albertans paid $39.6 billion to federal coffers and got back $20.6 billion in federal services, which means the rest of the country got to share $19 billion of Albertans’ money. That’s the equivalent of $5,012 per Albertan that gets distributed to help pay for the health care of our brothers and sisters in Newfoundland and Vancouver Island. That makes Alberta the largest net contributor to Confederation — by far. Fairy godmothers just love sharing. But oops, I forgot, wave wand and poof! Most of that money is gone now. Indeed, Alberta isn’t much of a province at all today. There’s some really great agricultural activity going on, but not much else. Alberta is now a have-not province, just like every other province in Canada. Our GHG emissions are way down because no one can afford to drive anywhere, let alone fly.
But not to worry, Neil Young is still flying here in a private jet — not to protest the oilsands, but to do some fly fishing.
Sometimes being a fairy godmother isn’t as fun as it sounds.
Licia Corbella is a columnist and the editorial page editor.

Friday, 21 August 2015

When Oil becomes an election issue, it is rarely good news

By: David Yager, National Leader Oilfeild Services, MNP

Article originally published in MNP's Oilfield Service News - August 18th, 2015

When oil becomes an election issue it is rarely good news. After Joe Clark’s minority PC government was defeated in 1979 over gasoline taxes in a budget, the subsequent Liberal administration introduced the National Energy Program. In 2008, Ed Stelmach’s Alberta PCs campaigned on the New Royalty Framework and won big. Alberta’s new NDP government promised higher corporate taxes and a royalty review if elected. The taxes became law July 1 and royalties will hopefully be clear soon.

Historically, the issue has been revenue; producers are excessively profitable, consumers should pay less and government must collect more. Taxes and royalties have gone up and down but, eventually, industry has been left with sufficient cashflow to maintain and grow the business. However, on multiple occasions, levies were raised first then cut later only because of devastating economic outcomes.

Oilfield services (OFS) is usually the first casualty of major energy policy changes. Often OFS job losses and bankruptcies provide clear signals policies are damaging. But as a key stakeholder, OFS has yet to figure out how to prevent the damage.

The essence of the oilsands debate this election is whether output should be allowed to grow. Some don’t want oilsands produced at all. NDP leader Thomas Mulcair, currently leading or tied in public opinion polls, is avoiding being this clear, preferring to dodge and weave on major pipeline projects. While the outcome won’t be known until the votes are counted on October 19, there is good reason to be concerned whether this giant economic driver of the modern Canadian economy will grow at past levels anytime soon, if ever. 

Oilsands have been politicized for years. Fierce opposition to all four major pipeline proposals  to carry bitumen to tidewater and global markets have delayed them all. Energy East is a significant political issue in Quebec while Northern Gateway and Kinder-Morgan/Trans Mountain is vocally opposed in B.C. 

Canada is the world’s fifth largest combined oil and gas producer. Of all major hydrocarbon producing jurisdictions, Canada is the only one facing active and vocal domestic and international opposition to gaining international market access for its crude, for the sole purpose of lowering global emissions.

What turned up the intensity of the election debate was star Toronto NDP candidate Linda McQuaig’s comments on national radio, when she stated that for Canada to meet its future climate change obligations, “a lot of the oilsands oil may have to stay in the ground.”

Why is McQuaig a star NDP candidate? Because she has authored multiple books criticizing capital markets, big business and pretty well everything that makes money. 

The inside cover from McQuaig’s 2005 book, It’s the Crude Dude: War, Big Oil and the Fight for the Planet, reads in part, “As surely as smoking causes cancer, gas-guzzling SUVs are hurrying us towards global climate change. In the face of this potentially devastating threat, the world has moved with unprecedented speed to try to head off disaster. Only a small group is resisting. But in its ranks are the most powerful corporations on earth, well connected to the most powerful governments on earth. The outcome of this titanic struggle — the world versus the oil lobby — will likely determine nothing less than the future viability of the planet.”  

Other notable anti-corporate titles by McQuaig include, Behind Closed Doors: How the Rich Won Control of Canada's Tax System ... And Ended Up Richer; The Quick and the Dead: The Wealthy Banker's Wife: The Assault on Equality in Canada; All You Can Eat: Greed, Lust and the New Capitalism; and, get this; Billionaires' Ball: Gluttony and Hubris in an Age of Epic Inequality. 

Outrage over McQuaig’s comments was immediate front page news. NDP Leader Mulcair jumped to her defense, claiming she was taken out of context. But the actions of two of McQuaig’s NDP ideological soulmates – Mulcair and Rachel Notley – should cause oilsands proponents to be concerned.    

In the August 13 Daily Oil Bulletin it was reported the NDP under Mulcair would include emissions from the contents of the pipeline in any regulatory decisions. He said, “An NDP government would bring in a credible, thorough environmental assessment process that will include measuring greenhouse gas emissions. We will start the process over again with a project like Energy East and find out whether or not it can be accomplished safely for the environment and the economy.” 

So, while Mulcair didn’t say no to Energy East or expanded oilsands development, nobody can possibly determine the NDP definition of yes. Or when a decision might finally be made. 

Linking pipelines to emissions is the crux of criticisms by oilsands opponents  of the National Energy Board (NEB) pipeline hearing process. They want the NEB to include the environmental impact of the crude oil carried in the pipe. The NEB has said consistently it is not within the board’s mandate to decide whether or not society should produce and burn oil, nor has it ever been.  

This is a technical and somewhat arcane argument for Joe Public. But it is of critical importance to industry. A pipeline hearing process that would now have to dovetail with climate change legislation - and, as McQuaig’s book cover stated, “determine nothing less than the future viability of the planet” - would require a complete rebuild of the NEB’s enabling legislation and hearing process, plus supporting environmental policy. This could take years.

Meanwhile, a complete rebuild of environmental legislation is what’s underway in Alberta. On August 14, the Notley administration revealed the mandate and composition of its promised environmental and climate change review panel. It includes two industry representatives but also the environmental organization Pembina Institute and Unifor, a major labor union. 

Alberta Environment Minister Shannon Phillips vowed “real action” to reduce emissions linked to global warming and climate change. She was quoted as saying Albertans “have waited far too long” for leadership. The framework will be hammered before December when Premier Notley attends the United Nations climate conference in Paris. An August 15 Calgary Herald article read, “The minister (Phillips) said the climate change panel will provide advice on how to price carbon, how to grow the renewable energy sector, how to promote energy efficiency and how to reduce the province’s reliance on coal-fired electricity.” 

Panelist Stephanie Cairns of the Pembina Institute, who lives in B.C., was pressed by reporters to comment on whether the oilsands must indeed stay in the ground. She responded, “I think that’s part of the conversation we’ll have to have.” The Canadian Association of Petroleum Producers (CAPP), generally supportive of this process if for no other than to achieve the policy clarity its members require, cautioned, “We must be mindful of the cumulative costs of government policies, in light of royalties, climate and other policy changes, to keep this industry healthy and to protect the jobs of Albertans.” 

That the NDP will form the next federal government is unknown. That Linda McQuaig is going to become Canada’s next minister of energy remains remote. Of the long list of challenges the industry faces daily, oilsands becoming an election issue, while important, not at the top. 

Nor is NDP policy necessarily hopeless if it is appropriately balanced. Perhaps increased carbon taxes will be offset with reduced royalties or taxes as a way to drive lower-carbon behavior and technology without, as CAPP cautions, jeopardizing the business. The concept of replacing profitable hydrocarbon energy and employment with higher cost renewable energy and jobs has been a red herring everywhere it has been tried. But perhaps there’s an angle to this that hasn’t been conceived or considered. 

The current mantra that the oil industry of the future will be different is true, but most commentators are only talking about commodity prices. In Canada, with an NDP government in Alberta and possibly Ottawa, it’s clearly a lot more complicated. 

Wednesday, 19 August 2015

Notley to save the planet... Who needs the oilsands when you have the PST?

By: Kenneth P. Green, Senior Director Natural Resources Studies, The Fraser Institute

Article originally published as a special to the Financial Post on August 18th, 2015. Can be found here: 

Notley plans to transition Alberta away from oil, toward a knowledge-based economy

The government of Alberta has released its Climate Leadership Discussion Document, which is supposed to inform citizens about climate change and prepare them for a public opinion survey on the subject.
Every Albertan should read the Document closely. It makes it abundantly clear that despite all the nice words that the Notley government has been throwing around in meetings with oil company executives and oil and gas investors, the oilsands have very little place in her administration’s vision of Alberta’s future. 
On page 7 of the document, we learn that "Alberta has much more to offer Canada and the world than its energy products." Alberta, we are told, can "transition to a knowledge-based, lower-carbon economy." On page 8 we're told that the vision which belongs to "all Albertans" is one of "sustained" economic growth, and "steady" job creation. Not a strong economy, not a booming economy, not Canada's strongest economy, but one that is "sustained" and "steady."
Digging into the Document, we find that in the entire section labelled “Alberta’s Vision,” the oilsands are not mentioned at all. But we should rejoice, because the Document goes on to tell us that “Reducing emissions does not mean halting all economic activity.” Rather, it envisions downshifting to something “sustainable” within a changing global market that, we’re told early in the report, doesn’t want high-carbon fuels any more. 

So how long do we get to this green Shangri-La of an Alberta composed of clerks tracking wind turbines and solar panels? The Document offers up the standard laundry list of failed (or rejected) green policies. 
For the oil and gas sector? Some combination of “much higher” carbon pricing, technology initiatives, and subsidies for green technology head up the wish list, followed by performance standards on everything from products to technology to fuel choice, and/or standards for the entire sector.
For the electricity sector? Alberta gets the dubious privilege of following Ontario’s Green Power disaster, with feed-in tariffs to subsidize wind and solar power, tax credits and subsidies to producers of “green” energy; Renewable Energy Certificates; government-backed loan guarantees and power purchase agreements; and, of course more performance standards such as Renewable Portfolio Standards. How did that approach work in Ontario? Badly. Power prices skyrocketed, and are slated to continue to rise while Ontarians subsidize Americans to use their wind power.
Lest you think you’re getting off the hook in your personal life, the goal for the transportation sector is “Increasing use of public transit, encouraging car-pooling, fuel taxes, clean vehicle technology and transportation design techniques that minimize vehicle use and promote active transportation.”
How will that happen? You guessed it — still more carbon taxes used to build transit infrastructure and perhaps more performance standards, and government mandates to transition fleet vehicles to alternative and renewable energy sources.

Finally, there’s the ever popular “energy efficiency and conservation measures” for homes and businesses. Here we’re told,“Energy efficiency improvements can be one of the most cost-effective ways to improve the affordability, and reduce the environmental impact of energy consumption.” 

Apparently, the authors of the Document missed a recent study by Fowlie et al.  that looked at the effects of America's largest residential energy efficiency program on a sample of 30,000 households, and found that the up-front costs came out twice as high as predicted, and the energy savings were 2.5 times smaller than predicted. The Fowlie study concludes: “Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5 per cent annually.” And efficiency standards for office buildings don’t fare much better

Despite all the talke from the Notley government about continuing to develop Alberta's oilsands, the plans offered in the Document call for a wrenching change in Alberta's economy, away from energy development. 

Now, some Albertans may want that. But either way, the premier should be honest where she plans to take Alberta so that, at the very least, Alberta's energy sector can start checking the rents in Saskatchewan and British Columbia.

Kenneth P. Green is senior director, natural resource studies at The Fraser Institute.

Tuesday, 18 August 2015

Climate change policy in Alberta will need a balanced approach

August 14, 2015

Published as a news release by CAPP on August 14, 2015. Original version can be found here: 

Oil and natural gas producers will continue to work with the Alberta government to tackle climate change with balanced and realistic solutions that reduce greenhouse gas (GHG) emissions while spurring investment and growth of the province’s top job-creating industry, the Canadian Association of Petroleum Producers said today.

“Climate change is a complex challenge with no easy solutions for Alberta, where oil and gas is such an integral part of everyday life in every corner of the province that drives jobs, government revenues and the economic prosperity of Albertans,” said CAPP president and chief executive officer Tim McMillan.

“The Alberta government wants to do more to address climate change – but it wants to grow the oil and gas industry, too. I believe we can find a balanced approach that achieves both,” McMillan said. “Climate change is not a challenge just for our industry but for all Albertans.”

CAPP will participate fully in Alberta’s climate change panel process announced today and has confidence in the panel headed by Dr. Andrew Leach, a professor at the University of Alberta.

McMillan said CAPP will propose three key themes for the panel as it develops climate change considerations for the Alberta government this fall. 

1. Industries should work more collaboratively across Alberta, and Alberta should work more collaboratively across Canada, to find common ground and to make real progress. 

2. Industry should pursue more innovations in energy efficiency across industrial operations, such as greater use of cogeneration or renewable electricity.

3. Government should encourage in new emission-reducing technologies to ensure a sustainable, long-term future for Alberta's oil and gas assets.

“Technology is critical to getting Alberta’s oil and natural gas out of the ground responsibly in a lower-carbon future,” McMillan said. “We are committed to exploring more opportunities today to reduce greenhouse gas emissions that build upon and enhance what we have done.”

The oil sands industry has invested nearly $1 billion to share 777 technologies and best practices through Canada’s Oil Sands Innovation Alliance to find innovative solutions to reduce GHGs, minimize impact on land, reduce water use and improve the management of tailings. Environment Canada reports that since 1990, the emissions per barrel of oil sands oil have been reduced by 30 per cent.

The oil and gas industry’s balanced energy policy is based on four objectives: environmental sustainability, fiscal competitiveness, regulatory efficiency and enhanced market access.

“Balancing these objectives is critical to ensure Alberta’s new climate change approach is effective,” McMillan said. “We must be mindful of the cumulative cost of government policies, in light of royalties, climate and other policy changes, to keep this industry healthy and to protect the jobs of Albertans. When Alberta’s oil and gas industry is healthy that’s good for Alberta’s economy, that’s good for government revenues and that’s good for Alberta families.

Monday, 17 August 2015

Fort Mac - Catching up on itself...

By: David Yager, National Leader Oilfield Services

Originally published in MNP's Oilfield Service News, titled "Fort McMurray Housing Under Pressure - August 4th, 2015

The housing market in Fort McMurray is experiencing a correction after several years of steady growth. An August 2 Globe and Mail article reported house prices and rents are falling and vacancy rates are rising. A four bedroom house that once rented for $3,200 a month is now available for $2,700. The unemployment rate in the Wood Buffalo-Cold Lake regions has doubled to 8.2%. In April, the vacancy rate for one-bedroom dwellings jumped to 21% compared to 5.8% a year ago. The average price of houses sold was $544,000 this year, down 9% from $597,626 in 2014. 

But not all the news is bad. For people accustomed to long waits and poor service for almost everything in Fort McMurray, the slowdown has some positive effects. Passenger traffic at the new airport is down 11.8% for the first six months of 2015 from the same period a year ago. Charter airline passengers are down 47.1% according to research from AltaCorp Capital Inc. This makes arriving at and departing from the airport less hectic. 

Anecdotally, the wait for service at one of Fort McMurray’s three Tim Hortons shops is only 10 minutes, half of what it used to be. Traffic on highway 63 to Fort McMurray and further north to the oilsands mines is also reduced, welcome news for those accustomed to driving these roadways.  

The other good news is production from oilsands projects in and around Fort McMurray will continue to rise in 2015, 2016 and 2017 as projects under construction are completed. Decline rates for oilsands production are nominal compared to conventional production and almost flat compared to shale oil. Providing prices don’t drop to the point where production is shut in, this will provide a steady employment and income base for Fort McMurray for years to come.

Thursday, 13 August 2015

Five Things You Need to Know About Canada’s October Election and Why You Should Care About the Outcome

By: EnergyNow Media 

(Bloomberg) — Canadians head to the polls on Oct. 19 for the 42nd time in the country’s history.
Prime Minister Stephen Harper faces the fight of his political life, with his Conservatives deadlocked in the polls against the left-leaning New Democrats and the centrist Liberals.
Here are five reasons you should care about the outcome:
The Incumbent
On the world stage, Harper champions budget austerity within the Group of Seven, often pitted against the U.S., and is one of the fiercest critics among western leaders of Russian President Vladimir Putin.
Opponents say Harper’s fractious relationship with President Barack Obama has hindered the approval of TransCanada Corp.’s Keystone XL pipeline project, with environmentalists accusing him of moving Canada in the wrong direction.
A victory in October would make Harper, 56, the first Canadian prime minister in more than a century to win four consecutive elections, and would entrench his agenda of cutting taxes, promoting the commodity sector and reducing the reach of the federal government.
The Socialist
Harper’s chief rival is Tom Mulcair, a 60-year-old lawyer who leads the New Democrats, a party with socialist roots that broke through in the 2011 election and now has a chance to take power nationally for the first time.
Mulcair became leader in 2012 and spent much of the previous parliament as Harper’s interrogator, with his cross examinations of the prime minister earning him accolades and a nickname: “Angry Tom.”
The party’s Achilles heel is economic credibility. The Conservatives will attack Mulcair as hostile to the nation’s oil industry and a free-spending, risky leader at a time when the country needs Harper-style fiscal discipline.
The Heir
For more than a century, Canada’s Liberals were the party to beat. Harper has chipped away at that dominance since he took power in 2006, reducing the Liberals to just 34 seats in 2011, the least ever.
For salvation, the party turned to Justin Trudeau, 43, the son of one of the country’s iconic prime ministers, Pierre Trudeau. His support has whipsawed, soaring soon after he became party leader in 2013 before plunging this year to third place. Harper has attacked Trudeau — the youngest party leader by more than a decade — as unqualified.
Now Trudeau faces a daunting task: He must counter the attacks, revive his poll numbers and win back ground from the NDP. Some fear failure would marginalize the centrist party for good and fuel American-style polarization of the political system between the right and the left.
The Economy
The election campaign kicks off with an economy ravaged by falling crude prices. Gross domestic product shrank for the past five months as the oil shock widens, while a rebound in exports has failed to materialize, leading the country’s central bank to cut interest rates for a second time in July. The downturn is undermining Harper’s credentials as a strong economic steward.
Conservatives say growth will rebound in the second half, and the job market is still strong. The opposition claims the weakness highlights the need to move away from Harper’s economic agenda and toward more activist government.
Investors may be concerned with a change in government or an unstable minority in which no party can unilaterally push through its agenda.
The Canadian dollar was one of the worst performing currencies in the month leading up to the 2011 election, and the country’ stock market also underperformed, amid worries at the time the NDP would form a minority government.
An NDP victory in the 2015 vote “would not be viewed as a loonie-friendly event,” David Rosenberg, chief economist at Gluskin Sheff and Associates, wrote in the Globe and Mail newspaper July 23. The currency is already down 11 percent this year on the oil shock.
The day after the NDP won power at the provincial level in oil-producing Alberta earlier this year, the Toronto Stock Exchange’s energy index dropped 2.5 percent.

Tuesday, 11 August 2015

Oil: The good, the bad, and the ugly

By: David Yager, National Leader Oilfield Services

Originally published in MNP's Oilfield Service News - August 10th, 2015

Things will get better because they can’t get worse. We’re at or near the bottom. Better times ahead.

But you’d never know that based on oil prices or the news. WTI closed Friday August 7 at US$43.75 a barrel, slightly above the 2015 low of US$43.39 set March 17 and a price unseen for more than six years, since the dark days of 2009. The commentary is universally bearish. Everyone from analysts to oil company CEOs are saying what you see is what you get for the foreseeable future. Comparisons to the great price collapse of 1986 and the 15-year nuclear winter that followed are again making headlines. It’s not awful; it’s worse.

Numerous challenges exist. Every day there’s yet another reason why oil prices will never increase or economic conditions improve. Iran. China. Greece. Global inventories. OPEC overproduction. Rising North American rig counts. Carbon taxes. Corporate tax increases. Royalty reviews. No pipelines. The news is so depressing, more are saying this downturn is the worst ever, although there is significant evidence to the contrary.

This is not new. What the industry has always done is extrapolate; whatever happened yesterday will continue. If things are good, they always will be. If it is bad, it will remain so forever. After 36 years of writing about the always-volatile oilpatch, the only constant is the herd is usually wrong, regardless of the direction it is headed.

There are two buckets of information essential to reaching a reasoned independent analysis. Bad news first. 

  • The modern oil industry has never operated without Saudi Arabian or OPEC supply management. When prices went too low, the Saudis would always withdraw output to stabilize markets. In 1986, the Saudis shut in over 5 million barrels per day to get crude back to US$18. Today the Saudis claim to seek market share, not price. OPEC production in July was reported at 32.1 million b/d, 2.1 million above its June 5 quota of 30 million b/d. This is about 3 million b/d above stated OPEC internal demand for 2015. The spectre of Iran increasing production, if its nuclear inspection agreement is ratified, weighs heavily on market sentiment. 

  • Commodity prices as a group – oil, potash, iron ore, coffee, and copper – are at lows unseen since early this century. This is made worse by a strong U.S. dollar. Hedge funds specializing in commodities are losing money and shrinking as profits become more elusive. The futures market for oil is very bearish. WTI five years out for September 2020 was only US$61.80 on August 7, reflecting nobody figures the price of oil is going anywhere and no speculative investors are taking risks. 

  • Future oil demand is in doubt for three reasons.  

1. China, the world’s second largest economy, has serious financial problems the long-term impact of which are unknown. For years, the mantra was China’s growth would power demand for oil and other commodities. The party is over. China’s stock market problems are in the news, while enormous and unsustainable internal debt should be.  
2. Governments in most western countries unquestioningly link oil consumption with climate change and are taking steps to ensure consumers use less. We’re told daily the future of mankind depends on using less oil.  
3. Western government economic stimulus via near-zero interest rates and quantitative easing have run their course and can no longer stimulate meaningful economic growth. This affects commodity demand and price. 

  • The replacement cost of tomorrow’s barrels seems unknown. Current production is thought to be impervious to price. Because of legacy investments, output is rising in the oilsands and the Gulf of Mexico. Very little oil has been shut in because cash operating costs are at or below current prices. Thanks to aggressive drilling, Saudi Arabia is able to sustain record output (123 rigs drilling in July 2015, up 50% from July 2012 according to Baker Hughes). Based on bad data or miraculous geology, U.S. shale output is reported to still be rising despite a 60% reduction in the number of rigs drilling for oil. The Baker Hughes U.S. oil drilling rig count was up only 52 rigs to 670 on August 7 from a multi-year low. Yet somehow this is proof U.S. shale production will not experience any material declines soon.

  • The Canadian political climate is depressing but hopefully not hazardous. Alberta’s 20% corporate tax increase in July 1 resulted in over $1.3 billion in Q2 book losses by only three large producers; Canadian Natural Resources Limited, Imperial Oil Ltd. and Suncor Energy Inc. Billions more will follow. While the losses are largely non-cash for now, the optics are awful. The federal election has opposition parties claiming a lack of carbon taxes and environmental protection legislation are the reasons no pipelines have been approved. In Alberta, the outcome of the pending royalty review and a new environmental policy appropriate for a 21st century NDP government are not confidence builders. 

Hide the sharp objects. This is a big batch of misery for today’s battered oilpatch. But there are also some positive aspects.

  • With the exception of oilsands mines, all reservoirs yield less oil tomorrow than today. Typical decline rates for the best conventional reservoirs is 3% to 5% per year and the output of most shale oil wells falls 50% or more in the first year. At 4% globally, this is 3.8 million b/d at current world oil production of 96 million b/d. Announced capital expenditure cuts are estimated at US$180 billion over the next few years. This will have a meaningful impact on future supplies. The International Energy Agency (IEA) estimates average annual investment on new crude output from 2010 to 2013 was US$320 billion. If the recent CAPEX cuts are over three years, it equates to an annual investment decline of about 20%; this rises to 50% if the cutbacks occur over the next 15 months. Regardless of why current output remains high, the global oil and supply demand curves simply must and will cross in the not-to-distant future. 

  • Comparisons of the current situation to the mid-1980s remain ludicrous. When oil prices collapsed in 1986 and remained low in real terms for 15 years, world oil supply exceeded demand by about 14 million b/d. This was nearly 25% of world demand of 60 million b/d. The current surplus of supply over demand is about 3 million b/d, or 3%. The IEA reports Q2 production was 96 million b/d but demand will reach 95 million b/d in Q4 of this year and 96.4 million b/d in Q4 2016. Depending on production increases, the surplus will fall to 1 million b/d then zero. This is nothing like the situation in the mid-1980s and to suggest otherwise is uniformed and irresponsible.

  • Rig counts are rising in the U.S. and Canada because they must. The rise is not meaningful compared to historic levels but are a reminder of several factors: oil companies must drill to stay in business, cost and technical efficiencies always emerge when they become essential, and every reservoir and the economics of its development are different. In the U.S., how putting 42 of 981 laid down drilling rigs back to work will sustain or increase 4 million b/d of shale oil production is difficult to conceive. 

  • Canada is the fifth-largest hydrocarbon producing jurisdiction in the world, on a barrel of oil equivalent basis. It is a major driver of the Canadian economy and a big reason why North America remains a global economic island in terms of its long-term energy costs. People will figure this out, including voters in the October 19 federal election. 

  • The next market turn will be dramatic and it will be up because it can’t go down. The current mantra is, for the first time in recent history and without supply management (see above), somehow crude oil is the only commodity that will trade in a narrow and predictable band when supply and demand reach equilibrium. Every other commodity without the supply management oil has enjoyed for over four decades is very volatile. Oil is no exception. 

There is likely no good news in the short term, the next couple of months. Prices may go lower again based on market sentiment. Keep the faith. 

In the medium term—the next six months, hopefully—there will be growing stability and confidence if federal and provincial politicians don’t do anything really awful. 

But the long term looks good. The herd is wrong again and global oil supply and demand will prove it.   

Friday, 7 August 2015

Is The Slumping Oilpatch Dragging Canada Into Recession? That is Only Part of the Story

By: David Yager, National Leader Oilfield Services, MNP

Article originally published on August 5th for EnergyNow. and it can be found here:  

The Globe and Mail headline August 1 declared, “Canada in ‘mild recession’ after economy shrinks five months in a row.” In May Canada’s GDP shrank by another 0.2%, continuing a pattern that began in January.  While the slump in the oilpatch is well known, the biggest single decline was in manufacturing, which contracted by 1.7% compared to only 0.7% for mining and oil and gas extraction. Two consecutive quarters of economic shrinkage is the technical definition of a recession. But with the October 19 federal election officially underway as of August 2, it is unlikely the federal government will admit this is the case.
With the Canadian dollar hitting multi-year lows and the lowest prices in years for gasoline, diesel and jet fuel (notwithstanding tax increases), one might assume the sectors of the economy not reliant on the oil industry would be doing quite well. Only three years ago, NDP and federal opposition leader Thomas Mulcair blamed the economic problems of central Canada’s manufacturing and industrial sector on high oil prices, massive oilsands investment and a Canadian dollar at par with its U.S. counterpart.
In a CBC interview in May of 2012, Mulcair charged Canada had a petro-dollar and the country was suffering from so-called Dutch disease, whereby the success of the oilpatch comes at the expense of the rest of the country. Western Canada’s booming oil-driven economy was “hollowing out” central Canada’s manufacturing sector.
This problem is certainly solved. Maybe.
Muclair’s accusations were disputed by then-federal Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney. Carney called Mulcair’s comments “far too simplistic” while Flaherty added, “I think his logic is off and doesn’t make sense.” With the dollar down nearly 25%, oil prices over 50% and an NDP government in Alberta, Mulcair hasn’t raised the petrodollar issue recently.
So what’s going on in the rest of the country? Does Mulcair have any idea how the economy works or what drives it? Does anybody know? While most in oil and gas would willingly answer “no” to the first question, everyone should be worried if the answer is also no for the second.  Apparently, the positive impact of the oil and gas industry on the Canadian economy is still not widely appreciated.
When most folks think of manufacturing, they think of automobiles. Lower fuel prices and a sinking loonie should benefit Canada’s automotive industry and they do. In June, vehicles sales in Canada were up 1.2% from the previous year but lower fuel prices are pushing drivers towards bigger vehicles. While car sales fell by 11.7%, in June truck sales rose 11.5%.
The Conference Board of Canada is very optimistic about Canada’s automotive industry. In a June 24, 2015 report it wrote, Thanks to record North American sales and the lower Canadian dollar, Canada’s auto manufacturers will likely see their highest profits in years in 2015, according to The Conference Board of Canada Spring 2015 Industrial Outlook reports. Industry profits are forecast to reach $2.3 billion in 2015, up from $1.3 billion in 2014.
  • A weaker loonie will increase Canadian auto makers’ profits to $2.3 billion this year as domestic vehicle production becomes more competitive.
  • Auto and motor vehicle parts production is expected to grow by 2.5% in 2015 but remain relatively flat in 2016.
  • Strong economic fundamentals, ultra-loose credit conditions, and low gas prices are fueling North Americans’ appetite for motor vehicles.
  • Sales of light trucks have been particularly strong and continue to be responsible for the majority of the growth in sales.
“With more than 80 per cent of the vehicles produced in Canada exported to the U.S. market, the lower Canadian dollar is a boon to the industry’s bottom line,” said Fares Bounajm, economist, with The Conference Board of Canada. “The lower exchange rate means that cars made in Canada fetch a higher price in Canadian dollars when they are sold in the U.S.”
So what’s the problem with Canadian manufacturing? In the Financial Post on July 31, several economists were interviewed under the title,“The quarter (Q2) is looking ugly: What economists are saying about Canada’s shrinking economy.” Dr. Sherry Cooper, chief economist of Dominion Lending Centers, responded, “What is particularly troubling about this one is that the main culprit for the decline in May GDP was manufacturing, a sector that was supposed to be boosted by the weak Canadian dollar.”
But on August 1 in a Globe and Mail article, Mike Holden, director of policy and economics at Canadian Manufacturers and Exporters, figured the oil industry downturn was the biggest problem. He said, “The oil and gas sector accounts for 25% of all of our capital spending. It’s not the largest driver of manufacturing activity in Canada, but it’s been responsible for a lot of the growth in recent years. You cut out that growth driver and suddenly you’re left in a situation that looks like this.”
This is congruent with what the oil industry and Alberta have been saying for years while seeking approval for pipeline construction and fighting a continuous uphill battle for the legitimacy of oilsands development. The oil and gas industry in general and the oilsands in particular drive job and wealth creation right across the country. But where? And by how much?
This is where all governments fail in understanding how the oil industry really works. While anybody can count the direct jobs lost by following the news and totaling announced layoffs, the impact on the indirect support sector remains a mystery. Even in Alberta. The province’s monthly Labor Force Statistics simply reprint Statistics Canada data. The oil industry doesn’t even rate a separate line. In June 2015, the report had 158,800 people working in the category of “Forestry, Fishing, Mining, Oil and Gas,” down 20,900 from 179,700 in June 2014.  This is only a fraction of the lost jobs as anyone who works in this industry knows.
Statistics Canada industry and employment categories provide no granularity on the various support industries. Manufacturing is only one example. Transportation is another. Previous studies by MNP and Petroleum Services Association of Canada (PSAC) have shown when drilling and completing deep horizontal wells, 20 to 30% of the direct employment comes from hauling equipment and supplies to and from the location. Yet Statistics Canada has only one category called “Transportation and Warehousing.” This is classified as a support service, not a key element of a “goods producing sector.” According to the province, Alberta employment rose 14% in that sector in June 2015 to 143,600 jobs, compared to 125,900 in June 2014. With oil prices down 50% and every oilpatch activity metric off sharply on year-over-year basis, 17,700 new jobs in this area is not intuitive.
When PSAC undertook ground-breaking studies in 2010 and 2015 to determine just how big the oilfield services industry was in Canada, it included various essential elements of the oilfield supply chain not classified by governments as supporting or driven by oil and gas. But almost every time these figures are presented, one level of government or another responds, “This does not match with our data.” That’s because after more than a century of Canada being a significant producer of oil and natural gas, governments still don’t truly understand its impact on the economy.
That the oil industry appears to be right about its economic benefits and the rest of Canada wrong is a hollow victory. The oilpatch has been saying for years it is a national economic driver impacting every region of Canada through direct and indirect employment, the purchase of goods and services, and paying billions in taxes in all provinces at all levels.
As Canada flirts with recession, in part because of the dramatic downturn in the oil and gas industry,   hopefully this will lead towards more enlightened decisions on royalties, taxes, and pipelines.

Wednesday, 5 August 2015

Part 1: Why we still need fossil fuels - Part 2: Being smart about shifting from fossil fuels

This post contains two parts, both written Bjorn Lomborg.

The first part is an article originally published on August 22, 2014 for Forbes, it can be found here:  

The second part is an article originally published on July 7, 2015 for Forbes. it can be found here:  

Bjorn Lomborg is a professor at the Copenhagen Business School, director of the Copenhagen Consensus Center (a non-profit think tank), and author of the best-selling book, The Skeptical Environmentalist. 


What is the biggest global environment problem? Many believe it is global warming, after all, the issue gets the lion’s share of headlines and accounts for much of the hell-in-a-hand-basket environmental news we come across. But, as I previously wrote on this blog, 2.9 billion people living in energy poverty people face a more immediate problem: indoor air pollution. They are desperately poor, and many cook and heat their homes using open fires or leaky stoves that burn dirty fuels like wood, dung, crop waste and coal.

About 4.3 million of them die prematurely each year as a result of breathing the polluted air inside their homes, which is between 50 and 250 times (depending on different estimates) more than the deaths attributed to global warming.

Still, air pollution doesn’t garner the headlines afforded to global warming because it’s not nearly as interesting. In the West, we take our supply of reliable electricity for granted. We have already forgotten that electrification has ended the scourge of indoor air pollution in the rich world, saving millions of lives. Rather, we’re very concerned with climate change.

Now our politicians have second thoughts about further electrification of Africa and Asia because of rising CO2 emissions. Instead of helping the 2.9 billion people gain access to cheap and plentiful electricity, thus combating both poverty and the biggest environmental killer, indoor air pollution, we insist that developing countries focus on renewable energy. For example, the U.S. has decided to no longer support the building of coal-fired power plants in developing countries.

But this is hypocritical: in the Western world we get only 0.8 per cent of our energy from solar and wind, and we also use a lot more energy than developing countries. In sub-Saharan Africa, for instance, excluding South Africa, the entire electricity-generating capacity available is only 28 gigawatts — equivalent to Arizona’s — for 860 million people. About 6.5 million people live in Arizona.

In just three decades, China has lifted 680 million people out of poverty. It did so not with solar panels or wind turbines, but through a dramatic rise in access to modern energy, mostly powered by coal.

Today’s global warming policies like solar and wind, on the other hand, remain largely inefficient and expensive. They cost $60 billion in subsidies but provide less than 1 percent of global energy. At best, they’ll provide just 3.5 percent in a generation’s time.
An analysis from the Center for Global Development quantifies our disregard of the world’s poor. Investing in renewables, we can pull one person out of poverty for about $500. But, using gas electrification, we could pull more than four people out of poverty for the same amount. By focusing on our climate concerns, we deliberately choose to leave more than three out of four people in darkness and poverty.

"But even as we push to get serious about confronting climate change, we should not try to solve the problem on the backs of the poor. For one thing, poor countries represent a small part of the carbon-emissions problem. And they desperately need cheap sources of energy now to fuel the economic growth that lifts families out of poverty. They can’t afford today’s expensive clean energy solutions, and we can’t expect them wait for the technology to get cheaper."

This message is obviously not popular with everyone, and Bill Gates has been attacked for his very sensible stance, as Alex Epstein points out in his recent Forbes op-ed. Yet, Gates clearly says that we still need to fix global warming in the long run. The point is, this requires the rich Western countries to step up investments into research and development in green energy technologies to ensure that cleaner energy eventually becomes so cheap that everyone will want it. But until then, unrealistic green goals should not stand in the way of poorer nations having a chance of getting out of poverty with fossil fuels.


Reliable and affordable energy is vital for today’s developing and emerging economies. Driven mostly by its five-fold increase in coal use, China’s economy has grown 18-fold over the past thirty years while lifting 680 million people out of poverty.

Almost three billion people still don’t have access to modern energy, they use firewood, dung and crop waste for cooking and heating indoors, which is so polluting, the World Health Organization estimates they kill one of every thirteen people that die on the planet. Most of these are women and young children. Women and children are also the ones who have to spend their time fetching firewood, often from quite far away.

But because electricity is often powered by fossil fuels it does contribute to the problem of global warming, for which reason climate-worried campaigners suggest that developing countries should skip the fossil step and move right to clean energy. However, rich countries are already finding the move away from coal and oil to be a difficult one, and there are no easy answers for developing economies.

Today’s crucial question is: what should the world prioritize? Fifteen years ago, the world agreed the Millennium Development Goals, an ambitious set of targets to tackle poverty, hunger, health and education. The UN is now considering the next set of targets for 2016-2030. My think tank, the Copenhagen Consensus, has asked some of the world’s top economists to make analyses within all major challenge areas, estimating the economic, social and environmental costs and benefits of different targets.

Isabel Galiana and Amy Sopinka, the two economists who wrote the main paper on energy, argue that providing cleaner cooking facilities – efficient stoves which run on liquefied gas – would improve health, increase productivity, allow women to spend time earning money and free up children to go to school.

The economic benefits of getting everyone off dung and wood are as high as the human welfare ones: more than $500 billion each year. Costs would be much lower. Including grants and subsidies to purchase stoves, annual costs would run about $60 billion. Every dollar spent would buy almost nine dollars of benefits, which is a very good way to help.

A more realistic target of providing modern cooking fuels to 780 million people at the much lower cost of $11 billion annually would be even more efficient, with $14 back on every dollar spent.

While clean cooking is important, electricity can bring different benefits. Lighting means that students can study after dark. Clinics can refrigerate vaccines and other medicines. Water can be pumped from wells so that women do not have to walk miles to fetch it.

The value of getting electricity to everyone is about $380 billion annually. The cost is more difficult to work out. To provide electricity to everyone would need the equivalent of 250 more power stations, but many rural areas might best be served by solar panels and batteries. This is not an ideal solution, but would still be enough to make an enormous improvement to people’s lives. The overall cost is probably around $75 billion per year. That still does $5 of benefits for each dollar spent.

If we want to tackle global warming, on the other hand, there are some targets we should be weary of, whereas others are phenomenal. One prominent target suggests doubling the world’s share of renewables, particularly solar and wind, but this turns out to be a rather ineffective use of resources. The extra costs of coping with the intermittent and unpredictable output of renewables makes them expensive, and the cost likely to be higher than the benefits.

However, the world spends $548 billion in fossil fuel subsidies, almost exclusively in developing countries. This drains public budgets from being able to provide health and education, while encouraging higher CO₂ emissions. Moreover, gasoline subsidies mostly help rich people, because they are the only ones to afford a car. To phase out fossil fuel subsidies would be a phenomenal target, because it would cut CO₂ while saving money for other and better public uses. The economists estimate that every dollar in costs would do more than $15 of climate and public good.

With such high-return targets, the economic evidence shows that – if carefully chosen – energy targets should definitely be part of the promises for the next 15 years.