Saturday, September 30, 2017

Wake Up Canada. Declaring the demise of oil and gas is premature!

Leftist Hype or reality?  Several European governments have now voted for the demise of the combustion engine within 15 to 20 years. Laws can be changed or ignored; look no farther than the old Kyoto agreement now replaced by the Paris accord.  I live in a neighborhood that votes liberal, don’t ask me how I ended up here but we have a hospital and the university nearby, so…   Fact is that we have now for years hybrid cars in the market and electric cars, despite claims from Tesla about a revolutionary vision, are offered by GM and Nissan and others for at least a decade.  If it is really so environmentally friendly how come that I haven’t seen any electric cars here and apart from taxis there are virtually no Toyota Priuses in the local car fleet. What’s wrong with those people, shouting everyday about evil oil and they can’t be bothered to support the new energy paradigm.  Ontario is better because the government has forced environmentally friendly energy on its population and the electricity prices are shooting there through the roof and that, while Ontario has most abundant hydro resources and most hydro-generated electricity generation in Canada.  Talking about losing its competitive edge – now we are aligned with Mexico otherwise the U.S. will roll over us without a thought.

Reality is that despite all the dreaming, our renewable resources won’t be able to power our transportation and heating systems economically. So, it has to be subsidized big time. Even if we would create an effective distribution system for loading up our electric cars; most electricity would be generated from nuclear and natural gas. Sorry. Even if electricity was extensively used for transportation and heating (to mention just a few of our energy consuming habits) it would for a large portion be generated from hydrocarbons. Being a petroleum geologist, you may call me biased; but I think Justin Trudeau is deluded and more interested in playing Mr. Popularity than facing reality.

World demand for energy continues to rise including the demand for oil. Many studies indicate that we’re dependant on fossil fuel for generations to come. Especially if large populations such as those in China and India, aspire to join our posh lifestyle. So, my guess is that the current oil downturn is coming to an end; possibly soon. There are indications that plays like the Permian have reached their maximum efficiency. With ‘low hanging fruits’ having been harvested we may find out that we need to do a lot more drilling to replenish our hydrocarbon reserves and that production from the Permian and plays such as the Montney in Alberta are only a small portion of our total energy supply and that the cost of finding and producing these reserves will increase soon. Especially if the oil industry overall improves, the price of drilling and fracking will go up and $50 oil will be much less available than the end-of-peak oil crowd thinks.  Give two industry ‘experts’ today’s oil supply and demand numbers and one will be bearish and the other, with exactly the same data, will be bullish.  How come?  Because our databases are far from perfect despite the stern faces and voices full of confidence of our forecasting ‘experts’.

My guess, we have had for a while now a balance between production and consumption. It is just that this hasn’t penetrated the traders’ minds. Those who trade every barrel of oil several times. So, I know with virtual certainty that oil prices are going to rise; maybe the current uptick above $50 is the start; probably not. So, I know oil prices are about to rise but I don’t know when. Maybe by yearend we’re getting $60 oil and later next year we’re getting $70.  That would unleash a new boom in drilling and yes, there is likely a cap in how high oil prices will go in the short term and possibly over the long term as well. A lot will also depend on the stability of regimes in, say, Saudi Arabia. What would happen if the regime there is overthrown and replaced by a left-wing fundamentalist government?  After all, even Nazi’s (National Socialism ) are rooted in socialism. The political spectrum is about more (left) or less (right) government intervention.  I digress, but for me any totalitarian government is rooted in socialism regardless of racist tendencies.  Our whole political discussion is about how much government may interfere in the lives of its citizens.

Anyway, ‘God’ will give Alberta another oil boom and despite low oil prices, heavy oil production from Alberta is still on the increase. In 10 or 20 years we may produce and export close to 4 million barrels of this heavy stuff per day. In the meantime, Eastern Canada will become less competitive and more automated.  That means a sizable portion of its population may become obsolete truck drivers or factory workers. Alberta will probably, in that regard not be far behind. Especially if JT and cronies are intend on ostracizing small business. All kidding aside; the need for resources will likely remain long into the future. In that future, we may also award people based on different contributions than on the production of cars (which will likely be produced entirely by robots) or accounting (replaced by scanning devices and computer programs).  I also think that adding to the bureaucracy with ever more civil servants with defined pension benefit plans is not feasible.  In the future economy, I think people may get involved in more creative endeavors such as art, entertainment, thought provoking writing. etc. and they will get paid if those creative endeavors are considered to be valuable by society. I don’t think a minimum lifestyle sustaining income handed out by our government to our citizens is feasible. If we don’t get financially rewarded for doing things that society considers valuable we will be falling back to an undisciplined grey mob of dissatisfied people without ambition to do anything. Even in the Star Trek series there are different levels of social status and privileges so money in one form or another will always remain.   I don’t believe in the musings of authors like Jeremy Rifkin which I think are deeply rooted in leftist thinking and denial of the rights of the individual. The more government, the lower the value of an individual – you fit in or you’re out!  And don't forget, the consensus is often wrong!

To be truly creative and to be valuable to society, people must be rewarded and recognized. That is typically expressed in privileges and rewards, i.e. money. Money is just an abstract form of rewards points that its owner can use according to his/her personal preferences.  20 or 50 years from now, we may have fancier toys and we may no longer work in factories but we still have an economy and people are rewarded for whatever they do in terms of money; whatever form that may take.  My guess, Canadian dollars, cryptocurrencies and gold.  The more things change, the more they remain the same. So, we may get a more diverse energy system but oil and gas will remain as long as we’re living on this planet or at least the next 100 or so years.

This may sound to you like futuristic fantasy but how can one plan one’s life without a vision of where the world is going?  In my opinion, today and in the future there has to be a balance between government and the individual.  In this world, where everything is regulated and requires a ‘social license’, I think we’re veering too far towards losing our personal accountability and our rights to determine our own life path. When people get fired because they express themselves in ways offensive to the sensitivities of the masses; basically getting lynched on the internet, I think we have gone too far.  We need room for individuals to express themselves even if this may be offensive to the ‘elites’. Steve Jobs and Bill Gates were rebels; not consensus or committee types. Were they nice people? No.

I know that I seem to have veered far from the issue of oil and energy, but I think we’re currently delusional about where we as a society are going. We seem to dream of this utopian future of all nice people and ‘clean energy’. We seem to be floating in the air, high on ‘new technology’, recreational cannabis, and social equality while in the rest of the world people pass us by. Just like our Canadian opposition to pipelines  (do you know how many kilometers of pipeline were build in the U.S during Obama?). Wake up and learn that the U.S. is exporting all the LNG, oil and gasoline they can lay their hands on while financing the opposition to economic development here in Canada. Now Boeing is bullying Bombardier and Trump is trampling our freedom to trade by making outlandish demands in the NAFTA negotiations.  Canada should wake up and realize that this world is not as nice and dreamy as we would like it to be. Canada wake up. Accept oil and gas and many other resources that we have are our financial backbone for generations to come. If we don’t want to become puppets of the U.S.A. but rather a nation on our own, we better wake up to the realities of this world. And objecting to oil and gas, while dreaming of emission free industries is not the way to achieve that.

BC and Ontario’s real estate boom has helped many baby boomers to achieve a wealthy retirement despite not having saved much except for paying off the mortgage. To think that this is sustainable and that our economy can grow on a real estate boom only is naïve. By dreaming that we can get rid of fossil fuels  is like shooting in your own foot. Most of urban Canada is doing fine right now and ‘who needs farmers, oil people and miners anyway?’ This is naïve and terribly self destructive. Believing that Canada can compete effectively with the U.S. in the auto industry or high tech is unreal. Look how we beg for Amazon to open their offices in our communities. Look how Apple wiped out Blackberry.  We are only a branch office – how can 37 million people have more geniuses than 330 million?  It is a matter of statistics and Canada will bite the dust. The thing that makes us strong are our resources: water, oil, agricultural land. The grey masses in Toronto and Vancouver forget this and call those who don’t agree ‘Bigots’ or ‘Deniers’ while losing sight of what our real strengths are. Yes, we are on the path of losing our privacy to the Googles, to Homeland Security agents and to the Apples of this world.  We’re falling asleep (and dream of utopia) at the wheel on the road to recreational cannabis while forgetting what our real strengths are.
So wake up. The demise of our resource industry, of our oil and gas industry or our mining industry is assumed prematurely. Don’t waste our opportunities!

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