Crude Observations

On the Road…

Shorter missive this week as I am on the road, exploring Canada from the comfort of my gas-guzzling SUV’s Captain Kirk commander seat – keeping the revs high, passing indiscriminately and wearing those tires down as quickly as humanly possible. No one can ever accuse me of not “walking the talk” when it comes to wanton consumption of oil and oil based products. We even ate KFC – it doesn’t get any greasier than that.


One thing about the open road, aside from random snoozes on hairpin turns, you do have lots of time to think. Which in my case I suppose is maybe not such a good thing… Herewith some random thoughts that occurred to me whilst driving.


There are a lot of trees in Canada.


Seriously. This is something we never really talk about unless some evil forestry company is clear cutting some section of a random mountain or there is a mountain pine beetle or there are soul crushing forest fires like are now happening in British Columbia. But let’s admit it, there are a LOT of trees in Canada and all we saw were those on the side of the narrow ribbon of highway which is Canada’s longest continuous construction project. I mention this because there is a school of thought that thinks Canada gets very little credit from the enviroworld for its massive carbon sink forests – never mid the boreal forest in the north but pretty much all of BC, much of Alberta, not to mention Quebec and Ontario.


Brad Wall claims Saskatchewan is eating Alberta’s lunch.


A friend recently tagged me to an article about how Saskatchewan is killing Alberta when it comes to oil and gas capital spending and it’s all because of Brad Wall’s genius in managing Saskatchewan’s regulatory environment, low royalties and courageous opposition to the dreaded carbon tax. She wanted to know if this was “true”. Suffice it to say – can we cool it with the Alberta bashing? I’m not a fan of the NDP, but they reviewed the royalty rates. Implemented industry friendly changes and have been for the most part MIA on anything energy related aside from pipelines since. Cut them some slack. I can’t believe I even said that. At any rate, my (slightly edited) response to my friend is below.


Sort of yes, sort of no.


With the growth in capital spending in Alberta about equal to the total spend in Saskatchewan, I wouldn’t be touting that number too aggressively.


Activity levels are about the same on a utilization basis (30 and 37%) in both provinces, but realize that Alberta has at least 4 times the rigs as Saskatchewan so there’s a lot more working here on an absolute basis.


Plus, the comments in the article are really about the thermal side (oil sands and heavy oil) and no one is building new right now, but there is a lot of brownfield/debottlenecking and expansion going on which is what Black Pearl (one of the subjects of the article) is doing in Saskatchewan. If they could raise their $800 million they’d be hard at work in Alberta. Between Cenovus and CNRL, more than $4 billion is being spent in their Alberta Oilsands portfolios. This is almost all of the projected capital spend in Saskatchewan for 2017.


Activity is picking up in the Bakken because it’s relatively lower cost, but the Montney (straddles Alberta and BC) has the second most rigs working in a basin after the Permian in Texas. That said they are totally different plays.


The royalty and regulation comment is fine, and Saskatchewan is to be commended for setting a competitive environment and, most importantly resisting the urge to tinker, but Alberta has a massive resource and a regulatory system that is recognized as a global leader, particularly when it comes to managing a resource as complex and diverse as we have.


Plus there are incentives for other types of activity in Alberta that don’t exist in Saskatchewan.


The carbon tax is a good political point scoring thing to bring up, but with specific heavy emitter exemptions and grandfathering in for industry it’s really a bit of a dog whistle.


Money goes where the cheapest, most prolific resource can be extracted.


Right now in Canada that is northwest Alberta and southeast Saskatchewan.


And some brownfield thermal development.


Does that answer your question?


Does anyone actually appreciate the complexity of any of these planned pipeline projects?


Look. It’s all good to talk about a project and that it is going to cost $X billion and travel from Edmonton to Burnaby or Fort Saskatchewan to Prince Rupert or Red Deer to the Yukon (OK, that one’s not real) and that somewhere between one and ten thousand man years of jobs are going to be created. That’s all abstract. Here is the reality – our governments can’t even fully twin the freaking TransCanada Highway all the way through the Rockies because of money and logistical problems with mountain passes and river crossings. But a private company was able to lay a pipeline from Edmonton to Burnaby across equally challenging terrain, bury it and operate without major incident for more than 60 years. Now they propose to twin it. Drag their equipment into the backcountry and do it all again on their own dime. And we question their capabilities? Where does that even come from?


Natural Gas – So Wait, now there’s too much?


Just read somewhere that the Potential Gas Committee (what a name! It’s a real thing!) has determined that the US has some 2,817 Trillion Cubic Feet of technically recoverable gas. This is enough to supply the US for the next 100 + years. Which is awesome right? Well, wait. What do they mean by technically recoverable anyway? Proved, probable and potential. Aha! This includes gas that hasn’t even been found yet! And wait, turns out the PGC is an industry group. And some of these theoretical reserves are under major population centres. Like Philadelphia and New York. Other parts of the reserve are offshore Atlantic. Perhaps I need that grain of salt after all.


We are Electric Vehicles and we are here to take over the world


One of the nice things about driving the TransCanada Highway was the complete and utter absence of electric vehicles. Wait, there was that one Tesla I saw, at the side of the road. There was a tow truck beside it. I guess when he passed the sign that said “check your fuel” he just laughed like a madman and proceeded to run down his charge climbing to the top of Roger’s Pass before finding out that the service station there not only doesn’t have a recharging station, it actually doesn’t even exist anymore. Oops!


Don’t get me wrong, I like the idea of the EV and it’s great for cities, especially congested ones, but the vaunted roll out and takeover of the world by EV’s is done in by the technical challenges of ramping production to meet the 70 million some-odd vehicles sold each year around the world, the monstrous and under-reported environmental footprint of sourcing all those nasty minerals and metals needed to make an EV, the emerging disposal issues of batteries (much the same as the toxic chaos old solar panels are creating) and, let’s face it – that inconvenient thing called driving distance or “wow the world is really big, isn’t it”. Take that Volvo with your declining auto sales hoped to be rescued by announcements that you’re going to keep building cars the way you have been for the last few years and take that France with your announcement that you don’t care about your domestic auto industry – at least you will still have the baguette and the four day work week.


And don’t even get me started on the outrage of EV subsidies. Sorry, too late. Let me just say this – California is thinking of introducing a state level subsidy for EVs as the federal subsidy comes off. The way it’s proposed, this subsidy could go up to $35,000 for a high end Tesla – paid for by taxpayers. What the ??? How in the world is this even something a self-respecting government can consider? Here poor guy – no health care for you, but at least you paid for part of Leo Dicaprio’s new Model S. This should end well.


Anyway, back to my drive. 500 km today, 400 km tomorrow. No handy dandy charging station, just me and my gas guzzling Chevy. Fully paid for. Had it for 5 years, likely another 5 to go. Didn’t need a  subsidy funded by people living below the poverty line. Just me, the open road and too much time on my hands…


Prices as at July 21, 2017 (July 14, 2017)

  • The price of oil rallied during the week on solid US inventory draws but fell on Friday on concern OPEC supplies might expand.
    • Storage posted a large decrease
    • Production was up
    • The rig count in the US fell marginally
  • Natural gas was relatively flat on the week. This $3 range combined with fairly tame injections feels kinda bullish for summer.
  • WTI Crude: $45.60 ($46.60)
  • Nymex Gas: $2.960 ($2.983)
  • US/Canadian Dollar: $0.7982 ($ 0.7915)


  • As at July 14, 2017, US crude oil supplies were at 490.6 million barrels, a decrease of 4.8 million barrels from the previous week and 1.8 million barrels ahead of last year.
    • The number of days oil supply in storage was 28.7, behind last year’s 31.1.
    • Production was up for the week by 32,000 barrels a day at 9.429 million barrels per day. Production last year at the same time was 8.494 million barrels per day. The change in production this week came from an increase in Alaska deliveries and Lower 48 production.
    • Imports rose from 7.610 million barrels a day to 7.996, compared to 8.134 million barrels per day last year.
    • Refinery inputs were down slightly during the week but still strong at 17.199 million barrels a day
  • As at July 14, 2017, US natural gas in storage was 2.973 billion cubic feet (Bcf), which is 5% above the 5-year average and about 9% less than last year’s level, following an implied net injection of 28 Bcf during the report week.
    • Overall U.S. natural gas consumption was flat during the week – with increases in power and industrial demand offsetting small declines in retail and commercial demand
    • Production for the week was down 1% and imports from Canada were down 1% compared to the week before. Exports to Mexico were up 2%.
  • As of July 10, the Canadian rig count was 198 (31% utilization), 126 Alberta (29%), 23 BC (32%), 42 Saskatchewan (37%), 7 Manitoba (47%)). Utilization for the same period last year was just above 15%.
  • US Onshore Oil rig count at July 14 was at 764, down 1 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was down 1 at 186.
    • Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
  • Offshore rig count was up 2 at 23
    • Offshore rig count at January 1, 2015 was 55
  • US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 56%/44%


  • Minimal here because I am on the road
  • In a more than $500 million transaction, SCF owned Rockwater announced its merger with publicly traded Select Energy Services, creating the largest water solutions provider in the United States
  • While Saudi Arabia considered further cutting exports, Ecuador dropped out of the OPEC/NOPEC agreement
  • Wildfires continue to rage in British Columbia. Please consider a Red Cross donation if you can. It’s simple, easy and it helps.
  • Trump Watch: Healthcare is hard. Spicey is no more.
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