By David Yager
December 16, 2019
Despite the relentless onslaught of bad news since oil prices collapsed five years ago, the industry still enjoys 100% rock solid support 24/7/365 where it matters the most.
Where can that be? Hint. It’s not in the mirror or among your colleagues in the oilpatch echo chamber.
Everyone still loves us at the gas pump, the airport and the burner tip.
That’s right folks. No matter how awful things appear; no matter how discouraging the news reports; no matter how much the value of your oil and gas investments have declined; no matter how challenging the job prospects are; and no matter how many times we’re told how the only way the world will survive is if we all lose our jobs, houses and companies; demand for our products is solid and growing.
Even pipeline opponents fuel up with gasoline on their way to the next demonstration. Ignoring the hypocrisy, climate alarmists fly to the huge international gatherings to figure out how make the world come to its senses and ban the very airplanes that got them there.
Whatever may be said and written about the miracle of interruptible renewal energy like wind and solar, there are no substitutes for hydrocarbons for plastics, petrochemicals, airplanes, ships, transport trucks, most trains, and fuel for 99.8% of the 1.3 billion of the cars and light trucks on the road worldwide. Two-thirds of world’s electricity comes from coal, natural gas and oil.
And, most importantly, nobody appears ready to do what we’re repeatedly told we must do; live without any of the foregoing. This is surely the most bizarre love/hate relationship in history.
Demand for Canada’s oil and gas production remains unimpacted by the events of the past five years. Our industry will exit 2019 producing an average 7.6 million barrels of oil equivalent per day (boe/d), only slightly below 2018’s all-time record.
Noteworthy is total output is 880,000 boe/d higher than 2014. Things are not as awful as we tell each other. ARC Energy Research Institute estimates that total revenue from production in 2019 will be $114.8 billion, the highest since 2014. After-tax cash flow is estimated at $50.2 billion, also the most since the high-water mark five years ago.
Drilling and capital investment declined again in 2019. That hurts. However, accord to CAPP data spending on operating costs is up. In 2018 producers spent $45.6 billion keeping their wells and plants going, marginally higher than $45.5 billion in 2014. This large segment of the industry rarely rates public mention, but it is very steady, at least from this perspective.
What the industry suffers from most is a near-existential crisis of confidence. When you’re told repeatedly that your existence is the enemy of mankind and that your future is doomed, this is hardly surprising. The relentless, multi-pronged onslaught against fossil fuels wears you down, sapping the spirit of even the most optimistic. It permeates politics, governments, capital markets, schools, coffee shops, and virtually every form of mass media. The raw us-versus-them polarization of the climate issue is affecting friends and family and damaging our province and country as we retreat further into opposing tribes.
The most disturbing element of the so-called “climate crisis” too many vote-seeking, virtue-signaling politicians have proudly declared is that it has little to do with the chemical composition of the atmosphere, the so-called science which is supposedly settled. You’d think this is what the discussion would be about if a “crisis” truly exists.
Because no matter how many preach their deep concern, worldwide demand for fossil fuels is on a mono-directional upward trajectory with no end in sight. In the absence of viable hydrocarbon substitutes or mass voluntary reduction in consumption, not a single credible forecast for global hydrocarbon consumption and commensurate emissions predicts a material reduction for either in the next 20 or 30 years.
Demand for our products is safe, even in Canada. We cannot live in this country without fossil fuels. Period. Why nobody can say this in public is beyond me.
What is most damaging about the “climate crisis” is the chaos it is creating in politics, public policy, investment decisions and the behavior of our fellow citizens. It is squeezing common sense and rational debate from civil public discourse. The country is gripped with a cerebral climate disease it cannot cure. Our politicians, and by default industry leaders, are preoccupied with an expensive and ultimately futile attempt to have Canada alone solve a problem the world is unable and unwilling to resolve itself.
Nobody is less qualified to solve global challenges of this magnitude than the last crop of politicians we sent to city council, the provincial capital or Ottawa. It defies logic why so many believe once-ordinary people from all walks of life miraculously become altruistic public policy geniuses when elected to a three to five-year term in government. I wrote extensively about the inherent limitations of Canadian governments in my book From Miracle to Menace, Alberta – A Carbon Story.
This appallingly shallow debate about climate change and what to do about it will not go away anytime soon. However, the good news is that neither will demand for oil and gas.
Therefore, the rest of this article will focus on why 2020 will be better than 2019, if of course we take the time to appreciate a half empty jar is also half full.
The best news is natural gas. While the focus has been on oil prices, oil pipelines and oil price differentials, a major prosperity killer has been natural gas prices which have been, on a seasonal basis, 25% or more below 2014 prices.