The Conference Board of Canada (CBoC) recently issued a publication called Canadian Industrial Outlook: Gas Extraction. You can read the whole report at CBoC’s website, if you feel like forking out 900 bucks. I didn’t. The accompanying news release that summarized the report was enough to keep my wallet in my pants. To the army of economists that toiled on it: you can do better. And if you can’t, then at least don’t issue “news” releases full of outdated messages that may be a lot of things but certainly aren’t news.
I wouldn’t have cared about the report if I hadn’t seen its gloomy title blighting my news page, with the lament “Canada’s Natural Gas Industry Faces Declining Market Share,” which got spun out to en even more fanciful “Canadian Natural Gas Producers in for more losses as U.S. Competition Ramps up” in some other news publication.
That’s not news. It’s a halfhearted commentary that paints one side of an old story, leaving an impression that does nothing but perpetuate some stereotypes that the business is doomed. It may be doomed, the future will tell, but if it is no clues will be found in this report. The “outlook” is based on a mix of ancient data points and trends that form the conclusion, while the latest events in the industry that are truly important are acknowledged as afterthoughts, with terse comments that the report does not consider them.
The core of the news release supports the maudlin title with a few key facts: US natural gas production increased by 40 percent in the past decade. Canadian production stagnated, therefore the US imported less Canadian gas. Above average temperatures last year helped drive inventories to record levels.
That’s all well and good, if one wants to title a report “A History of how Canada’s Natural Gas Industry got in such a miserable state” But as an outlook it’s like saying it might rain because the fields are so wet.
What should be focused on are the current developments about to reshape the industry, rather than simply pointing out that the report ignores them. It’s as though the authors spent 9 months analyzing historical data and 10 minutes reading the paper to see what was coming down the pipe. Hence, a 2 second nod to the growing US natural gas export business, and a mention of TransCanada’s recent success in securing new long-term contracts. These two facts are lumped under the heading “It’s not all bad news for Canada’s industry.” To muddle things further, later in the news release there are the comments that “Key to this deal is that Western Canadian gas may manage to hold on to, and possibly increase, its market share…in the northern U.S.”, but the outlook doesn’t include the impact of this deal. What kind of an outlook makes one claim in a headline, offers information in the story that contradicts that headline, then says it didn’t even bother to include the information in its analysis?
Here’s the arc they missed. Yes, Canadian exports to the US have declined as plentiful shale gas came on stream. Yes, the industry was beaten into a stupor by sub $2 gas in early 2016. As an outlook however, things look quite bright indeed, for a number of reasons.
It is lazy speculation to claim that US demand has stagnated for the foreseeable future (particularly when later in the news release the authors note that “…prices are expected to recover, as rising U.S. exports and increased domestic industrial demand help push prices higher”). I’m sure the stagnant-demand claim references some projection from somewhere, and I might have been able to tell you where if I were rich enough to flush $900 down the toilet, but any chart I’ve seen shows natural gas demand growing, and the rate could easily accelerate as the world moves to greener energy sources. Even if the US under Trump doesn’t care, the rest of the world is interested in burning less oil and more natural gas.
Which leads to the next point that is glibly mentioned but is actually extremely important – that US natural gas exports are single-handedly changing the face of the market. This includes LNG exports, of which there are numerous terminals either built or under construction, and direct pipeline shipments to Mexico. This is a huge factor, not a footnote in a doom-laden forecast. Any US exports will absolutely help clear the US market of excess gas because it is an extremely interconnected market.
One might ask if this all really matters, or if it’s just nit picking. Who cares if a report like this is the equivalent of boiled tofu, no one got hurt. That’s one view, a pacifist view that, say, The Dude from The Big Lebowski might adopt. Personally, I would view it more like Walter when asked to pay $900 for it (“Just because we’re bereaved doesn’t mean we’re saps!”). My sense of justice is wounded. But more significantly, the industry suffers when junk like this floats around.
Consider what these reports do to perceptions in other parts of the country that are prone to reading government publications and believing them. The natural gas industry needs a continuous influx of bright people to keep producing the natural gas that keeps us all from freezing in winter. Suppose you’re a young person in Moncton looking for work and contemplating a move out west to find something. This headline comes across the google and the enterprising young person who may have contemplated moving out west says ah, screw it, and fills out a job application for Petland. We both lose. Same as if potential investors or businessmen take the report at face value, and choose to pursue business elsewhere. Those decisions collectively make it harder for those of us in the business to keep you all from freezing to death.
To compound the problem, it is a common phenomenon now that people get the news from news headlines, because the data flow is too massive to take it all in. Billions of questionable bloggers litter the universe, sources of information have exploded, and we rely on headlines to keep up with the flow. The flip side of this is that any headline that appears to be from a reputable source gains credibility. A government report seems more reputable than that of a vested-interest opinion piece. So then a silly headline like the one on the CBoC report leaves an impression in people’s minds that may not be true, and they might find out it’s not true if they took the time to read the article, or heaven forbid cough up $900 for the original. Neither is likely. Readers simply note that the author is the government itself, whose grey soul promises no hyperbole whatsoever, just cold hard facts.
Stuff like this does matter. It does very little to advance education on the subject, it confuses history with the present, and for something labeled an “outlook” its key messages bear a suspicious resemblance to a “review”, because that’s where much of the conclusions came from. Someone somewhere is likely to reach a negative and erroneous conclusion about the industry, and no one will step up to offer a useful and needed counterpoint.
Except the BOE Report, of course.
Read more insightful analysis from Terry Etam here