Crude Observations

Time for a Sequel

OK, so no more cop-out blogs for at least the foreseeable future. I am instead going to try, this time around, to do a stream of consciousness style ramble, starting on one topic and moving, hopefully seamlessly, to various others, most of them seemingly unrelated except that they probably bother me a little bit. So I guess they do have something in common after all?


COP 23


No better place to start than here. While COP 23 sounds like a bad sequel to a Jackie Chan or Jean Claude Van Damme movie, COP 23 is in fact an even more sinister sequel. Yes, it is the latest (can it be the 23rd already?) annual meeting of the who’s who of the environmental egghead community, with thousands upon thousands gathered together for a two week confab to supposedly decide how best to implement the Paris accords of two years ago and otherwise paint each other green.


Notable in their absence – most heads of state (including Justin Trudeau) and, well, the United States. Wait, what? That’s right, the US Federal government declined to send a delegation. Why you may ask? Well mainly because they have withdrawn from the Paris Accord. OK wait, I stand corrected, the government did send a delegation to extol the benefits of clean coal and natural gas which as you may surmise was as well received as Hillary Clinton at a Donald Trump rally. And then of course there was a sizable contingent of attendees from US states like California (I think the governor met the pope or something), municipalities and lobby groups/think tanks. But no one from the Trump administration.


Nonetheless, the rest of the world banded together in solidarity and vowed to continue to fight on with the implementation of the Paris Accords, buoyed no doubt by the recent declaration of support from Nicaragua and, of all places, Syria. Basher Al-Assad – despot, genocidal lunatic, despoiler of his country and… climate warrior? Makes sense – and it sure was special to see Syria welcomed with open arms by Canada.


At any rate, this year’s event is being held in Bonn, Germany, the actual seat of the U.N. Climate Change Secretariat. Although not as posh a locale as some other years (like for example, Paris), it is still a fab enough place that delegates are able to expense account their way through two weeks of exhausting eating, drinking and … whatevering. Seriously though, what goes on at these conferences that can’t be accomplished through productive, ongoing negotiation with maybe a few less people and a much smaller footprint? Seriously, I spent an hour looking at the program and the calendar of events and it seemed like I was looking at the schedule for the world’s fair or the Annual Calgary Stampede. Who pays for this stuff anyway?


Leading the Canadian delegation of more than 150 people (!?!?) is Environment Minister Catherine McKenna, whose main contribution at the conference was to troll the Americans and their coal presentation and then commit Canada  to eliminating coal-fired electricity by 2030 (yet again! 10th time is the charm? Why can’t these guys do something new for a change – wait, never mind) and joining 19 other countries including such coal consuming and emissions spewing heavyweights as Fiji, Italy, El Salvador and Angola to call for the rest of the world to try and do the same thing.


This is all well and good, but a bit rich, considering these countries are already low coal consumers (2% of the global market!), are already on a path to elimination and are also low growth energy markets. It’s precisely the kind of annoying virtue signalling that underpins governmental approaches to the climate movement: “look at us, we are doing this and so should you”. It draws attention to small and meaningless initiatives in the global context and panders to an audience at home that laps it up while doing absolutely nothing to solve the larger issue. And don’t fall for the “all journeys start with a single step” or “we have to do our part” nonsense. Until the big four heavy emitters get down to business all we are doing is sacrificing ourselves in a battle that hasn’t really started yet.


Case in point, more than 1500 coal-fired power plants are being built/commissioned/planned around the world (most in China and India) as high growth, rapidly industrializing countries seek what we take for granted – consistent, low cost electricity to power manufacturing, water treatment, sanitation, whatever is needed to help lift their societies out of poverty and into the modern world. But Canada can close our baker’s dozen plants and all is well.


Ironically, one of the biggest hypocrites of the whole climate combobulation happening in Bonn is the host country itself! Germany, which has committed to reducing its greenhouse gas emissions by 40% from 1990 levels by 2020 or some ridiculous target is actually the largest user of coal in Europe (40% of its power requirements – pretty much bang on the large industrial country average) and its emissions have actually grown in the past year. Far from cutting back on coal usage, Germany is building new plants, including a coal facility less than 100 km from the epicentre of the anti-climate change movement in, you guessed it, BONN!!!!! And why this addiction to coal? Stable, reliable power and… to protect their industrial base and the coal jobs associated with extraction and processing of coal, including lignite coal, which is the dirtiest. Sheesh.


One of the big topics this year is how to divide the spoils and allocate of the massive wealth transfer from developed countries to developing countries. While the Paris Accord called for $100 billion, the current thinking is that “loss and damages” should be added to this, raising the amount to… I don’t know, likely as much as humanly possible – certainly higher than a rational person can count.


Look, I care about the climate as much as anyone, but this is nothing more than a shakedown. And while Canada’s leaders seem eager to dole out the cash with zero accountability back home, other countries are starting to balk and I suspect will increasingly do so, using the non-participation of the United States as convenient cover to develop a pair of crocodile arms.


As you can tell, I hate these things. I consider most conferences in general a waste of time – it’s just me. The networking is always less than you think it will be, it always seems like the same people in attendance and after a few years of rehashing the same topics, it’s just plain boring. Not to mention the rubber chicken, uncomfortable chairs and dirty, crowded bathrooms.


In the case of the “Conference of the Parties”, by the time you get to the 23rd iteration, you have been chicken-littled out by all the calamitous statements of impending doom and all the vapid and earnest commitments to unchecked, unaccountable action is like pouring artificial sweetener directly from the package into your mouth – blech.


Concurrent with the COP 23, the IEA released its WEO which contained some serious props for the Good ole USA. Translation?


Every year the International Energy Agency issues its World Energy Outlook wherein it prognosticates and pontificates on where oil demand and oil supply are going to go in the future. Notwithstanding the historic inaccuracy of their forecasts and the long term nature of what it puts out, traders and investors around the world will trade front month energy contracts on the basis of these reports.


This year’s report was considered bearish and, true to form, the oil market instantly sold off on its release.


Ordinarily I wouldn’t pick on these folks too much because forecasting anything is hard and they provide some outstanding data and analysis on the micro level, but there was a level of disconnectedness in this report that was puzzling to me, starting from a downward revision to 2017 demand growth  (below the level already experienced YTD which tells me demand is due to fall in the next 2 months?) to the following remarkable statements:


“The United States will be the undisputed leader of global oil and gas markets for decades to come,”

“There’s big growth coming from shale oil, and as such there’ll be a big difference between the U.S. and other producers.”

…. Forecasts for shale-oil output in 2025 were bolstered by 34% to 9 MMbpd… (holy sh** Batman! – that was me BTW)

“The U.S. industry has emerged from its trial-by-fire as a leaner and hungrier version of its former self, remarkably resilient and reacting to any sign of higher prices caused by OPEC’s return to active market management,”

Umm, OK. Sure.


Look, I can accept growth in shale, but this is predicting a doubling of shale output in seven years which, arguably, seems a tad optimistic given that it took the previous seven years, zero spending discipline and free money to get where we currently are. I am skeptical the billions required to get us to that next level, let alone the manpower, equipment and easy to reach commodity are available in the abundance needed to make this forecast happen.


Anyway, in the above scenario, oil prices don’t rise as much as previously forecast, hitting $83 in 2025 from $101. So lower prices and massive growth. I get it. I think?


Finally, in a bizarrely counter-intuitive and alternative “low-price” scenario, the IEA posits a world where US shale output is in fact double what they predict and electric vehicle adoption exceeds their forecast and prices languish at the $60 range – lower for longer, although, if prices are lower doesn’t the trial by fore shale driller stop drilling? And aren’t CI cars more viable? Can this scenario even happen?


Ugh, my head. Anyway, no matter what scenario you pick, according to the IEA, US tight oil has a finite life and production tips over post 2025. Here for a good time, not a long time. The ultimate winner, as always, is OPEC.


Speaking of OPEC, they are suggesting a much more positive forward scenario, released the day before the WEO. I guess how you play this will depend on who you believe more – a price fixing cartel or a bunch of analysts?


By the bye, if you are searching for Canada news in the WEO, don’t get too excited. We are neither a leaner and hungrier version of our former selves nor are we remarkably resilient. No, we get a passing LNG reference talking about export capacity in the 2040 date range in the company of Mozambique.


We also get this “There is also the unresolved question about how oil is transported to demand centres in light of delays in the development of transmission and export pipelines”. Yay.


No pipelines, no oilsands. No buzz. We are the fifth largest producer in the world with the third largest reserves and we barely get an asterisk while our largest trading partner gets billed as the second coming of Saudi Arabia. Even the loons at IEA can’t be bothered to predict anything substantive about us because of our regulatory quagmire.


Speaking of electric vehicles (I was, somewhere up there), last night was the big reveal of the much anticipated and even more hyped reveal of the new Tesla Electruck (my name – cool isn’t it?) – a vehicle that supposedly “drives like a sports car and hauls like a diesel”. I don’t know about you, but the prospect of speed demon, amphetamine-popping long haul driver ripping down the road with a load of … whatever… in an 18 wheeled vehicle that performs like a sports car is, in fact, quite terrifying.


Anyway, the truck looked the part – a cross between a modern Knight Rider transport and a hyped-up nightmare version of Rutger Hauer’s rig from the Hitcher.


But coolness doesn’t get you where you need to go in the heavy haul space. For that you need long distance, low price/costs and it doesn’t appear on the surface that the Tesla truck has either. And one could be forgiven for wondering how Tesla is going to carve out a space for itself in an already crowded and competitive space when it already hemorrhages a billion dollars a quarter on its core business.


Speaking of Knight Rider, Tesla elected to use the introduction of the Electruck to also introduce the newest iteration of its uber-awesome new Model S roadster. This $250,000 beauty rolled out of the trailer Kit style and will be the fastest production car on the market when it arrives in 2019 – 0 to 60 in 1.9 seconds. But at that price, we are hardly bringing the EV to the masses, no matter how awesome the acceleration.


With the Model 3 production disaster continuing to unfold, one could be forgiven for wanting Elon Musk to stick to one thing at a time.


Hey energy infrastructure and first nations! If you’re going to read one article about infrastructure and government hypocrisy today, make it this one. Makes you think, no?


Prices as at November 17, 2017 (November 10, 2017)

  • The price of oil fell during the week on supply concerns but rallied at the end on positive economic news.
    • Storage posted an increase
    • Production was up marginally
    • The rig count in the US was up
  • Natural gas softened during the week – primarily on weather


  • WTI Crude: $56.65 ($56.86)
  • Nymex Gas: $3.124 ($3.216)
  • US/Canadian Dollar: $0.7842 ($ 0.7889)


  • As at November 10, 2017, US crude oil supplies were at 459.0 million barrels, an increase of 1.9 million barrels from the previous week and 31.3 million barrels below last year.
    • The number of days oil supply in storage was 28.3 behind last year’s 31.2.
    • Production was up for the week by 25,000 barrels a day at 9.645 million barrels per day. Production last year at the same time was 8.681 million barrels per day. The change in production this week came from an increase in Alaska deliveries and a rise in Lower 48 production.
    • Imports rose from 7.377 million barrels a day to 7.898 compared to 8.423 million barrels per day last year.
    • Exports from the US rose to 1.129 million barrels a day from 0.869 and 0.481 a year ago
    • Canadian exports to the US were 3.377 million barrels a day, up from 3.201
    • Refinery inputs were up during the week at 16.639 million barrels a day
  • As at November 10, 2017, US natural gas in storage was 3.772 billion cubic feet (Bcf), which is 3% lower than the 5-year average and about 7% less than last year’s level, following an implied net withdrawal of 18 Bcf during the report week.
    • Overall U.S. natural gas consumption was up 14% during the week, influenced by increases in residential demand driven by colder than normal temperatures
    • Production for the week was up 1%. Imports from Canada were up 14% compared to the week before. Exports to Mexico were up 2%.
    • LNG exports totalled 21.6 Bcf.
  • As of November 6 the Canadian rig count was 212 – 152 Alberta, 26 BC, 29 Saskatchewan, 5 Manitoba. Rig count for the same period last year was about 165.
  • US Onshore Oil rig count at November 17 was at 738, no change from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States was up 8 at 177.
    • 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 3 at 21
    • 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%


  • TransCanada reported a spill on its Keystone pipeline system just outside of Amherst, South Dakota. The spill, estimated to be about 5,000 barrels was quickly detected in the control room and the pipeline was shut down. While no explanation has yet surfaced on the spill, the timing couldn’t possibly be more negative give that the Government of Nebraska is to announce their decision on Keystone XL on Monday the 20th. In the absence of any evidence, I am going to assume the worst and say this was sabotage until someone tells me different!
  • The fun continues in Saudi Arabia where it is expected that King Salman will step down on Saturday and hand the keys to the kingdom to his 32 year old son. This continues one of the most remarkable transformations in Saudi Arabian history in what has been a very short period of time. Given this and the new king’s oil strategy, it is not unreasonable to expect the OPEC cuts to continue
  • Premier Rachel Notley goes on a tour across Canada promoting pipelines in general and the TransMountain in particular. Good luck!
  • Trump Watch: Back from Asia! Many good trades. Rescued some knuckleheads from jail in China. Now what to do about Roy?
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