Sunday, September 8, 2013

Thank you Mr. Obama for dithering on Keystone and for opening our eyes to opportunities in the rest of the world.

Dithering is bad politics, just ask Paul Martin. A major setback in life often spells an unexpected opportunity and a new start. Canadians are so used to selling their products to their Southern neighbours; they have become blind to opportunities in the rest of the world.

Stopping Keystone will hurt the U.S. more than Canada. Environmentalists have seen already some of the unintended consequences of their actions. Texas refineries are lacking supply as sovereign oil companies like Saudi Aramco, Petronas, PDVSA and Mexico’s Pemex all suffer declining exports. Oil production is falling off at these sovereign Companies because of a lack of entrepreneurship and innovation while local demand for subsidized petroleum products is sharply increasing.
To top it off, oil producers, being forced away from cheaper and probably safer oil transportation by pipeline are turning increasingly to transport by rail.  As a side effect of the switch these oil producers also realize that transport by rail makes them less dependent on large refining centres and oil hubs such as Cushing Oklahoma. Thus the much feared oil price differential that should force a stop to expanding oil mines is melting like snow in the sun.
This is in spite of the unconventional hydrocarbon revolution that has cranked up North American oil production to multi-year highs. Just wait until the North American economy and that of the world is recovered and expand full blast once again. It may push oil prices to new highs, thus capping economic growth in a much more natural way than by government or central bank intervention. It always amazes me how much we trust government above Adam Smith’s ‘Invisible Hand’. This certainly does not bode well for humans giving up driving control when switching to autonomous cars. But that is a different topic.
Canadians are becoming increasingly pee’d with American busybodies telling us how to run our affairs. And now these busybodies think they can even stoke the fires in BC’s pipeline debate. As if Canadians can’t think for themselves! If those U.S. boozos think that we Canadians don’t appreciate the beauty of our country, then they are even dumber than I think they are reactionary (they are the same kind of people that were fighting the first steam locomotives).
In the meantime, we’re learning that we can build pipelines within Canada. Vancouverites who dominate the B.C. political landscape may have lost touch with where their bread is buttered. Now they are confronted with putting in their own natural gas pipelines. Many BC people in the interior parts of that province know that you cannot live of a pretty country and tourism alone.  They know they have to live off their land through agriculture, mining and oil & gas. But, they also want to keep their house clean, i.e. they love their pristine nature, harsh as it may be to make a living.
Now B.C. has opportunity knocking on their doors. In addition to mining, the West Coast of Canada can become an even larger center of commerce – a veritable gateway to the rest of the world. Kitimat could become a major LNG port and an export center for oil to Asia. There is opportunity for a large population center such as Vancouver to develop a new petrochemical industry. Yes it should be done in a sustainable manner, but wouldn’t it be great to own the house you live in, rather than paying rent to overseas speculators?
NE BC has a spectacular wilderness but many people there know that to live there they need jobs. Many work for the oil industry, in forestry and in agriculture. With LNG ports potentially opening along the coast, this area is about to experience a jump in prosperity and growth.
In Alberta, technology has opened up enormous additional reserves of oil and gas. Yes, not all the kinks are worked out, but we’re getting better at it every day. Building heavy oil mines is one thing, but increasingly we can access our bitumen in less environmentally dramatic approaches such as Steam Assisted Gravity Drainage (SAGD) techniques using all kinds of variations ranging from high frequency cyclical injection to slow soaking strategies. The result is that we’re now producing nearly as much bitumen from the subsurface than we do from open pit mines.
Even better, the higher oil prices now allow us to revisit older pools and increase our recovery by nearly 50 to 100% using horizontal wells and multistage frac’ing. The decline rates of new wells are high and drilling is expensive but we can do it with today’s economics and overtime we’ll get only better. Combined with natural gas combustion engines, electricity generation using natural gas that replaces coal and evermore efficient gasoline combustion engines we will have enough energy for a hundred years. Yet, over time we also use less energy per unit of production and thus everyone wins.
In Eastern Canada we have a large industrial base that trades intensely with the U.S. But the East with their heavy industries also provide lots of the consumer products and equipment needed in Alberta and for the construction of pipelines all through North America. Now, thanks to Obama’s dithering, we realize that the East can also get cheaper energy, rather than having to import expensive oil from overseas dictatorships.
There is an opportunity to construct and convert the energy infrastructure. Building new pipelines that feed refineries with cheaper Canadian oil and gas. Not only to refine oil for local consumption in Eastern Canada but also for export to Europe and other markets. This will give Canada a place of its own in the world rather than being a flunky of the U.S. The American Dream is to own your own house – Canada’s dream is to have our own place in the world!
Have you noticed what the energy revolution is doing for the U.S.? In the nineties when commodity prices were depressed, manufacturing was booming. We had the High Tech boom and under Bill Clinton the U.S. reversed its decline that became so clear under Jimmy Carter’s presidency and with the humiliations bestowed on the U.S. by OPEC and by Vietnam.
Now, Ontario and other Eastern provinces have the West as clients for their products, they have access to reliable and affordable energy for their manufacturing plants. They have the opportunity to become a major energy export hub to the rest of the world. The big weak spot in the West is the lack of labor, but there are plenty such resources in the East. Economic growth spurs economic growth and I am sure with a blossoming oil and gas industry that High Tech in Canada will also find a fertile soil for once again standing at the leading edge of the world. So, thank you Mr. Obama for dithering on Keystone and for opening our eyes to opportunities in the rest of the world.

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