Despite the fact that energy is essentially pipes and wires and petroleum and heating ducts, the whole scene has become ridiculously emotional. Never in history has the word ‘pipeline’ brought rooms of people to purple-faced shouting matches. It’s worse than sports arguments, for crying out loud.
Therefore, it is sometimes helpful to observe with objectivity, to step back and dispassionately analyze as Sherlock Holmes would. Don’t get emotionally invested. As a good example, consider this Vancouver Island whodunit forwarded by a friend. Nanaimo RCMP investigated an explosion/significant injury at a residential backyard, arriving to find that one of a group of men had poured gunpowder onto a fire to ‘see what the reaction would be.’ According to the news story, “Mounties believe that alcohol was a contributing factor in the incident.” Ya think? Being good detectives, the cops hit the yard like bloodhounds, and eventually cracked the case wide open: “RCMP say they noticed an illegal still for brewing alcohol in the backyard, which will now be dismantled.”
Objectivity can be much harder with the energy scene, which has become completely emotional. Some are passionately waiting for glory days to return, and some want the industry dead. The latter is winning, policy-wise – an army of commentators conflates ‘we have to do something right away’ with ‘we can do something right away’ – as in, an energy transition. It is exhausting pointing out example after example of why this will take time, why pushing forward is great but there are realities that cannot be evaded (at a series of meetings ‘designed to make progress on climate change’, India’s energy minister for power spelled things out fairly clearly: ‘[Net zero by] “2060 sounds good, but it is just that, it sounds good,” Raj Kumar Singh told a meeting organised by the International Energy Agency (IEA). “I would call it, and I’m sorry to say this, but it is just a pie in the sky.” ‘ He went on, “…you [India] have 800 million people who don’t have access to electricity. You can’t say that they have to go to net zero, they have the right to develop, they want to build skyscrapers and have a higher standard of living, you can’t stop it.”
As for the other elephant in the room – well, it never even made it to the room; China simply chose not to attend. Combined, their 3 billion citizens will dictate the world’s emissions, and they have a right to our standard of living, and he’s right – you can’t stop it.
It’s not just these realities that benefit from objectivity though; the arc of the western Canadian petroleum sector has to be looked at in a cold hard manner as well. For those in the camp awaiting the return of the ‘good old days’, well, many aspects just aren’t coming back. Sorry, but it’s true.
The modern oil patch was shaped by a few big geopolitical brush strokes. At the turn of this century, oil prices (and natural gas too) began an unprecedented rise that supercharged global hydrocarbon development. In 1999, oil prices were around $10-15/barrel, numbers that had been fairly common for the two decades preceding. Within 8 years, they spiked to an incredible $140 per barrel. Natural gas did similarly, exploding from the $2/GJ range in the 1990s to more than $12 in 2008.
These price increases engendered a boom not seen for decades. In 1990, fewer than 6,000 wells were drilled in western Canada; in 2005 there were over 25,000. The activity was across the western Canadian Sedimentary Basin; firms like Encana drilled hundreds of coal bed methane wells in southern Alberta, and a rogue-drilling elephant named Renaissance Energy steamrolled across western Canada drilling wells like one of those aerators does to your lawn. The royalty trust phenomenon brought in billions in capital. Oil sands development went through the roof in an uncontrolled manner, leaving Fort McMurray near bankruptcy because the city could not afford the infrastructure required by the town’s growth. Rig crews were working everywhere, and recruiters scoured Canada and elsewhere to meet the labour demands of the industry.
In 2014, global oil prices crashed, and natural gas followed suit, due to the rapid success of the US shale industry. While that has turned into an economic fiasco of its own, the impact has been and will be, long-lasting. The US is now a significant exporter of both oil and natural gas.
Here in Canada, things have recovered somewhat, at least in terms of production. The Montney/Duvernay plays have seen a lot of activity and volume growth, which has helped production remain at very high levels. The oil sands continue to chug along with little growth but also with no declines.
The sad fact is that these two regions now largely form the backbone of future development, and forward price curves indicate that only these will see any development (the oil sands will see none, save for various small-ish phase developments of existing projects – activists have checkmated any other material developments).
That points to the sad conclusion: a booming oil patch like many have known is unlikely to return. But that doesn’t mean things are that gloomy; it just means that the next boom might look quite different.
First of all, the hydrocarbon sector is going to be around for a long time. Developing countries are going to see to that – they are ramping up demand for every type of energy, and hydrocarbons will remain front and center for many decades. Attempts to starve the industry of capital are laughable; any student of business would know that money will flow to any industry that is profitable. (Despite the facts that not a single person anywhere needs tobacco, and that the health consequences are well documented, and have been for decades, the top ten tobacco companies in 2020 had revenues of over $400 billion. Imbeciles will gleefully point out that I’m comparing tobacco to hydrocarbons because they conflate the world’s fuel system with a weird hobby. I can’t help them, and neither can you. Let them comment away.)
What will be different in the industry’s recovery is that the legendary resilience and adaptability will surface in entirely new ways. We are seeing it already, which is remarkable because the change of focus and direction for a multi-trillion dollar industry in a few short years is an incredible accomplishment.
There are two prongs to the progress. First, industry is doing some housecleaning – fixing problems and leaks and weak points that it is fair to say could have been taken more seriously years ago. Methane emissions, for example, or flaring waste gas. These issues are increasingly and rightly seen as being no longer acceptable, and huge strides are being made to clean up the problems. Whole new subindustries are being formed to tackle these problems, and others, and they will succeed.
Second is the political force to do something about carbon dioxide emissions. Though activists hate the idea of carbon capture and storage, because it might allow the industry’s survival, every serious institution recognizes that CCS must be part of emissions reduction strategies to meet the UN’s emissions targets that countries have sworn to pursue. We are seeing swarms of companies and organizations attacking the problem, and CCS is going to be a very big business before too long.
The attention to the hydrogen industry is even more spectacular. Hydrogen has the potential to be a dominant, clean fuel, and it has the advantage of compatibility with much of our energy system. Hydrogen can be added to natural gas streams and combusted in homes, and that is happening already. Hydrogen strategies have a massive advantage over schemes like renewables and storage, because they can become very significant synergistically with the world’s energy system, instead of trying to replace it.
Out of these big industries will be many sub-industries, which may well propel the next wave of energy prosperity. There will be demand for equipment fabrication, for transport, for hot shot services, for all sorts of ancillary businesses that will arise where hydrocarbon-based ones may fall by the wayside.
At first glance, the doomsayers that want the hydrocarbon industry dead can be quite disheartening. They do, after all, control the limbs of many policymakers and media pundits. But a closer look shows the future to be much brighter than one would think by listening to them. The hydrocarbon industry has survived many booms and busts, and that resilience is in the DNA. So don’t get too upset by media madness and false prophets and paid sh*t-disturbing commenters. Better days are ahead.
There is help available to understand how we ended in this crazy energy debate. Get the whole story in “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks for the support.