Saturday, September 1, 2018

Is the Trans Mountain stall the end of Canada’s incipient oil boom?

If Trans Mountain stalls unless appealed and won in the Supreme Court of our country, then is this the end of the not-yet started oil boom?   It may restrict access to world oil markets and thus less global oil supply but the effect of that would be even higher oil prices and the old discount will of course remain somewhat longer. But revenue, although not as high, will rise if oil prices rise. So, no not the premature end of the oil boom. Also, larger operators will be getting preferred pipeline access and the juniors won’t. Sorry guys now it will be even more difficult to raise capital if you are small.

Regarding the discount on our crude, this is not so much dependent on Trans Mountain as on pipeline capacity to the U.S.  This, although taking some time, will be addressed by Line 3 and Keystone. Trans Mountain will provide better access to non-U.S. international markets.  In times of poor U.S. prices this will help offset those prices with, hopefully, better world prices. Yes, it is no fun to be nearly solely dependent on the U.S. markets and Trans Mountain will reduce the discounts. 

Part of the U.S. discounts are simply the transportation costs from Canada to Texas. Another part is oil quality - West Texas Intermediate (39 degrees API) is not heavy oil , it is considered a better quality of oil than our Western Canadian Select (20 degrees API).   

I don't know how to break down the magnitude of these components of the discounts. However, in time of sufficient U.S. demand and sufficient pipeline capacity those discounts can be as low as $7 to $10 per barrel instead of $30.

When an asset is short in supply then its value increases. Count on the increased value of existing pipelines and possibly even of the railway companies (CNR or CPR?). Oil by rail!  So, buy Enbridge and TransCanada even buy the local pipelines. I bet their dividends are on the rise and safe for years to come.  You better bet that Canada signs an OK NAFTA or an equivalent agreement because with rising energy prices and increased OPEC imports, we not only support terrorist countries such as Saudi Arabia, but we also lose even more of our competitive edge. That with an unfavorable NAFTA outcome for car makers, places not oil but cars as a sunset industry. 
A Trans Mountain stall probably says ‘bye-bye’ to Notley – not that she was sure of re-election in Alberta even before this fiasco. Trudeau yet again underestimated the backlash from a continuous stream of poor Liberal decisions.  With Trudeau standing in his own way, who needs Andrew Scheer as an effective opposition leader?  The Liberal government is now at the end of its mandate and has nothing to show for, other than failed issues and numerous selfies. Will Justin be re-elected, I doubt it even despite Maxime Bernier’s ego trip. I liked many of Max’s ideas but not his splitting of the conservative vote. So good riddance Max!

Will Alberta become even more dissident from Canada and is that why Notley distances herself from Justin by cancelling her support for a national carbon tax? What else can she do?  She just crashed into the railing of her carbon-tax road-plan! Yes, Western Separatists will have a field day, but really, 4 million against 33 million other Canadians?  Even if separated, Alberta will remain landlocked.  Canada should realize that 20% of its GDP is from less than 10% of its population; I mean Alberta Oil!  The oil price drop in 2016 resulted in $4.6 billion less federal income taxes from Alberta! That is half of the money that Quebec receives in transfer and related payments.
Canada does not seem to appreciate how much resources, including oil and gas, contribute to its prosperity!  Canada does not realize how much of the subsidies that keep Bombardier alive come from those annoying ‘polluting’ resource industries!  And then to recall that Justin thinks that oil-sands are a sunset industry!  You really have to be an imbecilic to state that!  Maybe this court case is just a temporary road block at worst.  It is not likely to crush our incipient oil and gas boom but it may crush Justin and Rachel.  I kind of feel bad for Rachel.  Justin? The faster he is gone, the faster Canada can show that we are again open for business!

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