Crude Observations

Icy writer’s block

Ugh, here we are. It happens every year. One week I expend an inordinate amount of energy and mental capital preparing my Fearless Forecast and the next I find myself sitting in my exceedingly messy office, staring hopelessly at my monitor (a nice oversized Hi-Def one by the way but not one of those fancy pants pretentious curved ones that some people get – ahem), shivering from how absurdly cold it is and completely unable to start, let alone finish, the blog.


This of course is truly bizarre to me because there is so much going on in the world. You would think something would get me going. Iran. Impeachment. The Conservative leadership race. Energy prices. The cold weather (wait maybe there’s something there… nope, not yet). So empty – writer’s block is real and it is no fun. And there is really only one way out, at least for me. And you, dear friends, are my unwitting companions on this journey. Yes, unfortunately, my way of breaking the block is to go for a random walk and see where I end (metaphorically of course – it’s still too cold to go for an actual walk).


Look, I won’t be offended if you choose to check out at this point, things could get weird, and I promise to be better and back to myself next week, but this week I’m pretty much frozen.


It might not be pretty but there is typically a silver lining in the writer’s bloc blog and that is they tend to be shorter. So, let’s get out on the ice and hope we don’t slip and fall.


First off – the Fearless Forecast. Yes. I know. Some of it was pretty much out there and I did receive some comments.


First clarification, my forecast was for WTI, not WCS – so please don’t get too excited about my prognostications for oil prices. My gas price was NYMEX, not AECO. So again, please don’t get too excited. Look, I’m pretty cool towards the sector this year – almost cold. At least on the pricing side although in light of the CFA Forecast Dinner last night, I am thinking the inflation/declining US dollar play could be a thing, so I may be forced to rethink. But right now, I am happy with where I’m at. And $60 oil isn’t hurting any Canadian producer at this point.


Second clarification. I know my football picks were bad. Part of my problem when I do these things is that I sometimes become too emotionally invested in what I’m doing. It’s why I think Denver will win the Super Bowl every year – it’s because they are my team, not because I think they are currently competitive. At any rate, I picked Baltimore because Lamar Jackson is a transcendent talent who is by far the story of the NFL this year – must-see TV, the anti-Brady who no one thought should play QB who had one of the best QB seasons of the past decade. And now he’s lost in the first round of the playoffs each of his first two years in the league and really, it’s probably my fault. So Lamar, if you are reading this – sorry. Better luck next year, rest assured I will still be watching. Anyway, revising my Super Bowl pick. Kansas City – sorry Andy Reid, I may have just jinxed you but I don’t think even you can wreck this season for Patrick Mahomes if you just let someone else manage the clock.


Also on football,  yes I picked Clemson for the National Championship because I like their coach more than the LSU coach – that is the only reason. It looked good early but was over early in the second half.


But the rest of the Fearless Forecast? I stand by it.


Whoo, that was good. Block solved? Not a chance.


Hey, one thing we have all been talking about this week, or at least endlessly posting on facebook about has been how absurdly cold it has been in Alberta and Western Canada. Temperatures have been as low as -43 in Red Deer and -34 in Calgary. At one point it was colder in Alberta than in both the Arctic AND the Antarctic. For a brief period, Edmonton was actually the coldest place on the planet! Top that San Diego and your perfect weather.


These are temperatures are inconceivable to many in my readership but ironically are in many ways business as usual up here. In fact we wear those temperatures with pride.


Not stupid pride like wandering around in a T-shirt, more like – we’re tough and can take it pride and look at all the super-fun science experiments I can do outside for the 30 or so seconds I can actually tolerate it.


Sometimes of course, the cold makes think deeply about a lot of things, like how grateful we all should be for the simple things in life we take for granted like roofs, walls and furnaces or a heated steering wheel. And of course while most people are content to hibernate and keep to themselves until their car starts again, there are others making some obvious and politically expedient points.


One of the favourites of course is the “bet you’re thankful for fossil fuels now” people, who claim that without fossil fuels and the “strong and free Alberta energy industry” life as we know it would be impossible in this hostile environment. And of course they are right (mostly and to a point), but pay attention to what they are saying, because those comments come with an agenda. And as an energy person, it is my agenda too, but I’m trying to keep an open mind (and break my writer’s bloc) so let’s unpack this a bit.


First off, It’s not just fossil fuels. Last time I checked, the First Nations people that were here before us survived this weather without a vast network of wells, pipelines and power plants. Look, I’m not comparing an early first nations settlement with a modern urban city, but the point here is that it isn’t just “oil and gas” that helps us survive – it’s cheap and plentiful energy – in all its forms. It just so happens that here in Western Canada our energy has predominantly been provided by fossil fuels, which helps us make it through this craptacular polar vortex. But in all reality, we really don’t have a monopoly on bad weather in Western Canada and other places get their energy from different sources. I grew up in Quebec, the weather there is equally crappy and the power that heats their homes and keeps the lights on comes mainly from cheap and plentiful hydro. And the last time I checked, Winnipeg was one of the colder cities in Canada and they got most of their power from hydro as well.


What’s the point? Well instead of using the cold as a frozen partisan cudgel to bludgeon fossil fuel hypocrites with a bunch of “I told you so’s” and “turn off your furnace now you virtue-signalling, Laurentian, Liberal. Alberta-hating, Trudeau loving, bearded, hipster environmental greenie”, maybe we should instead celebrate the fact that in a country that has one of the most hostile winter climates in the world (as the last week has taught us so well) we have a sufficient supply and diversity of cheap and plentiful energy options that we a) mostly avoid painful death from frostbite and b) carry on with our lives, pretty much as is.


I guess what I’m trying to say is that being able to heat your home in the winter isn’t proof that we must all worship at the altar of fossil fuels. Rather it’s a testament to the ingenuity that goes into making our collective lives better through energy and by any means available.


Just a quick aside here about ingenuity and resilience, because there is something that absolutely needs to be acknowledged and that has to do with the people who produce our energy – in all its forms.


As I alluded to, it’s currently minus a thousand here in Western Canada. Against that backdrop, there were more than 240 rigs working across Western Canada drilling for and producing oil and natural gas – although at these temperatures, many would have been shut down for at least one or two days). There are major pipeline projects underway including Coastal Gas Link and the TransMountain Expansion as well as the many petrochemical construction projects, midstream gathering systems being built and maintained, production being serviced, trucks making deliveries and cleaning waste, remote camps being serviced, critical maintenance and turnarounds being done, remote workers providing standby safety, security and medical services, frozen bricks of bitumen being loaded onto rail tankers, you name it. I don’t really care where you are on the fossil fuel support spectrum but I think it would behoove any of us white collar keyboard warriors sitting in our comfy downtown offices complaining about the cold to remember that all of those people listed above do their work outdoors and in some of the most remote parts of the country. So let’s take a minute before we head to gym or lunch or happy hour to think about and thank all the men and women who are currently hard at work drilling for, producing and shipping the ENERGY we take for granted at times like this as well as those building the infrastructure to store it, ship it and deliver it to the places it needs to be to keep our society creaking forward. And you know what? I’m obviously not just talking about oil and gas here – because the last time I checked, wind farms, solar installations and geothermal wells were still mostly located outside and while they may not be operating at peak efficiency (I mean really, who is in this cold?) they still operate, they still need maintenance and -40 is -40 regardless of whatever “virtue” you are trying to signal.


Sorry, a little soapboxy and just last night I said I didn’t like politicians talking about the “working people” like that because it overlooks all the other people who keep our world working in extreme weather conditions (like the school bus driver who drives a frozen bloc of yellow ice that my kid is currently sitting in). But really, without all of these workers – OK and us white collar people too, we all have a role to play – we wouldn’t have the functioning energy infrastructure across this great country to keep ourselves and our economy going in times like this deep freeze in Alberta, a foot of snow in Vancouver (snicker) or an ice-storm in Quebec.


And let’s face it, energy is the economy. I’ve said it before but it’s true and it bears repeating. The availability of cheap and abundant energy is pretty much exclusively responsible for the evolution and maintenance of our global standard of living, wealth and life expectancy. Countries that are self-sufficient producers of cheap energy have a natural competitive advantage. Countries that have the ability to export surplus energy have an even greater competitive advantage.


Of course, this is Canada in a nutshell, as I meanderingly described above. Craptacular weather and excess energy. Our abundance of energy supports our quality of life and has also made us a great trading nation when it comes to energy whether it is our heavy oil that feeds 20-25% of US refinery demand or cheap hydro from Ontario and Quebec keeping the lights on in New York. We should never forget that and our responsibility to provide that energy is built into our bilateral arrangements.


While electrical power is of course limited in where it can be exported and storage is an issue, fossil fuels have no such restrictions – a barrel of oil is the ultimate energy store and it is highly portable. And of course our fossil fuels (coal, oil and natural gas) are so valuable and plentiful that everyone in the world wants them and is willing to pay whatever price the market sets to get them (and for years they threw money at us to get access). And the producer and exporter of these resources (i.e. us) stands to reap tremendous economic benefit. So why wouldn’t we export what we can after we take care of our own and our neighbours?


Wow – sorry, that went down the rabbit hole and got almost political pretty quick.


What’s the point? We produce a veritable boatload of energy in some of the harshest climate conditions on the planet – seems to me that if we are going to go to all that trouble, we should be willing to get something back for it.


Wow, see what happens when you are cold and have some writer’s block?


OK, I promised I would be shorter this week and so far I am. I just have a few more points to make and then I’m off to warm my hands by the fire I lit in the boardroom (we used to have such a nice table).


This one is weather related and really it’s just a personal beef. Cold weather drivers are the worst drivers of all. Reaction times are slower, our roads are slicked over in ice, vehicles and tires are frozen so they don’t perform as well, Most people know this and plan/drive accordingly. But there is a subset of drivers that drive too fast, too close, don’t clean their snow, are unpredictable, seem to be in the middle of a race that only they are in, have no respect for anyone else on the road and seem determined to wrap their car around the next available light post. And what are they invariably driving? No, not an F150. It is in fact an Audi. Amirite or what? Look around. Pay attention. It’s a thing. I don’t know whether it’s the sporty engines overwhelming people or the excitement of leaving behind the Cabvalier, but something is wrong here. And if you drive an Audi, I’m sorry. It’s nothing personal. Some of my best friends are Audi drivers. But people – keep it under control.


One last thing before I end this rambling nonsense.


An interesting little thread that seems to be making its way around while we suffer though this cold snap is that somehow Alberta stands to benefit from strife in the Middle East as we are a beacon of security in a world of instability, or something like that. Sure, I guess. I mean if there is a conflagration in the Middle East then prices tend to rise, which of course is good for our producers because they make more money and good for the government because they collect more royalties. But I’m not sure it leads to more economic growth, because chaos in the Middle East isn’t going to build us a pipeline. It’s not going to reduce curtailment. It’s not going to create a crude by rail business. Oil from the Middle East is a different quality than ours. It goes to different markets by different modes of transportation. And while in the long term Canada is a viable alternative, that’s a bit of a pipe-dream (no pun intended). In the meantime, innocent people die and the world takes a step back. And, consistent with what I droned on about above, if prices rise too much and too fast then that takes out one of our comparative advantages, namely cheap and abundant energy. Rising energy prices affect everyone through accelerating inflation, so careful what you wish for. Alberta’s economic success doesn’t rest of rapidly accelerating energy prices due to exogenous factors, we are at our best with a stable pricing and regulatory regime with manageable growth and rising employment. Trumpeting economic growth in Alberta at the expense of war in the Middle East is to me a bit unseemly.


Final word – I see that TC Energy has announced that they will start work on the Keystone XL Pipeline in February which is very cool. I did say in my forecast that I felt this particular project was the most in peril of the three amigos (KXL, Line 3 and TMX) due to the prospects of a Democratic Presidential ticket led by either Elizabeth Warren or Bernie Sanders (and now Mayor Pete too!) who are all now on the record as being anti fossil fuel, anti-fracking and anti-pipeline. So kudos to TC Energy for taking what appears to be a major risk in the face of that. Interesting note when you look at the press release – part of what they are proposing to do is to construct the 1.6 mile section of pipe that crosses the Canada-US border, which as any reader here will know I had previously suggested they do so that the federally approved crossing was a fait-accompli (French for “take that greenie”).


At any rate, short of an FID still, but positive steps nonetheless. Does TC know something the rest of us don’t? At the Forecast Dinner we went to Thursday night, the sentiment was pretty much Trump 2.0 in 2020. I think this pipeline progress is worth monitoring as a leading indicator of investor sentiment as the primary season continues.


And one last – beaking news – the Supreme court just yesterday tossed out BC’s challenge to limit what can be shipped in inter-provincial pipelines that cross the province. This is great news and it has been suggested to me that the delay in getting it up the SCC food chain resulted in a more “federal powers” oriented court leading to the quick and decisive ruling. Cool.


The toolbox is officially empty. The Pierre Elliot Trudeau Memorial Pipeline can continue.


Oh, and I will believe Rona Ambrose is out when Rona Ambrose says she is out.


Final, last, very end for sure. Harry and Meghan want to move to Canada. Sure, whatevs but have they checked the weather? They might be in for a shock. See? The security question solves itself.


That is all. Writer’s block is gone. The narrative has been found.


Stay frosty my friends.


Prices as at January 17, 2020

  • Oil prices are down slightly – WCS gap still larger than we would like
    • Storage posted a slight decrease
    • Production up slightly
    • Natural gas storage above last year; above 5-year avg
  • WTI Crude: $58.70 ($59.04)
  • Western Canada Select: $35.50 ($36.14)
  • AECO Spot: $2.32 ($2.43)
  • NYMEX Gas: $2.004 ($2.20)
  • US/Canadian Dollar: $0.7664 ($0.7655)



  • As at January 10, 2020, US crude oil supplies were at 428.5 million barrels, a decrease of 2.6 million barrels from the previous week and a decrease of 8.6 million barrels above last year.
    • The number of days oil supply in storage is 25.2 compared to 25.0 last year at this time.
    • Production was up for the week at 13.00 million barrels per day. Production last year at the same time was 11.90 million barrels per day.
    • Imports decreased to 6.552 million barrels from 6.730 million barrels per day compared to 7.549 million barrels per day last year.
    • Crude exports from the US rose to 3.481 million barrels per day from 3. 064 million barrels per day last week compared to 2.966 million barrels per day a year ago
    • Canadian exports to the US increased to 3.837 million barrels a day from 3.606 million barrels per day last week
    • Refinery inputs increased during the week to 16.973 million barrels per day
  • As at January 10, 2020, US natural gas in storage was 3,039 billion cubic feet (Bcf), which is 149 BcF above the the 5-year average and about 19% higher than last year’s level, following an implied net withdrawal of 109 Bcf during the report week
    • Overall U.S. natural gas consumption fell by 3% during the report week.
    • Production was flat for the week. Imports from Canada decreased 25% from the week before. Exports to Mexico increased 5% week over week.
    • LNG exports totaled 51 Bcf
  • As of January 17, 2020 the onshore Canadian rig count was up 42 at 242 (AB – 170; BC – 17; SK – 52; MB – 3; Other – 0). Rig count for the same period last year was 172.
  • US Onshore Oil rig count at January 17, 2020 is at 673, up 14 from the week prior.
    • Peak rig count was October 10, 2014 at 1,609
  • Natural gas rigs drilling in the United States is up 1 at 120.
    • 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 decreased 1 to 21.
    • Offshore peak rig count at January 1, 2015 was 55

US split of Oil vs Gas rigs is 85%/15%, in Canada the split is 62%/38%


Trump Watch: Impeachment proceeds to the Senate! – President adds celeb defense attorneys

Kenney Watch (new!)Off to Ottawa – equalization rebate fight!

Trudeau Watch (for balance): Back from vacation (Costa Rica); Royal’s security; Flight PS752

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