Writing about energy year after year, relentlessly – and particularly through the last post-2014 oil price meltdown and global schoolchildren-bearing-nasty-signs onslaught – has an effect on the psyche not unlike locking one’s self in a dark basement with nothing for entertainment but a 24/7 live stream of professional wrestling.
At first, the bombastic “speeches” would be funny and whimsically idiotic. Then you learn the characters and sink into it. Finally, you get subsumed into their world and learn whom to love and whom to loathe. One could remain in that state for an indefinite time, but it would all come crashing down in a second if one of the main characters grabbed the mic and explained how none of it was real, that they were all big choreographed oafs, and that you were kind of nuts for being so entertained.
Inherently everyone knows that, but no one wants to hear them say it. And no one would say it to them, because they’d invite you into the ring, and no matter how fake the show was, a three-hundred-pound bodybuilder-type would have no difficulty throwing any of us up in the air like an orange and asking sharply if we still wanted to call it fake.
This analogy has turned out to be shockingly close to the crazed act of monitoring the oil situation. On a global scale, OPEC has for decades been a cast of characters not unlike pro wrestlers, and their weekly utterances were also bombastic and melodramatic and entertaining. We had an idea it was mostly theatre, but no one wanted to taunt them to find out.
Nevertheless, dedicated oil market observers tuned in regularly to what they had to say. One does indeed turn into a weirdo, reading newsfeeds endlessly and scrutinizing the utterances of these key players. I have a 15-year database of their policy shifts and bluster and finesse and reassurances, a fact which if nothing else should make you feel good about what you’ve been up to for a decade and a half.
For a very long time, OPEC has managed the oil market and oil prices. They have threatened numerous times to flood the market, and sometimes have done so, though the actual volumetric changes paled in comparison to the threatened levels. OPEC’s leaders figured out that their talk was what mattered most, and by the time anyone got around to analyzing the actual production data months later, we’d all have moved on to something else.
One underlying principle and bedrock of these communiques was that OPEC always insisted it was there for the market as a balancing force. They always stood ready to cut production if and when needed, and they always stood ready to flood the market with their spare capacity if prices got too high. (“Spare capacity” being a nebulous concept that no one ever seemed to spend any time investigating as to what it actually meant. Saudi Arabia, the kingpin of the group, has forever maintained that they have millions of barrels per day of spare capacity, yet their rig count bobbles around from, for example, 125 active rigs in December 2016 (110 onshore/15 off) to 60 rigs in March 2021 (51 onshore/9 off).
Is their definition of spare capacity any different than, say, CNRL having 50,000 drilling locations but choosing to drill only 200? Are the rest of those locations “spare capacity”?)
Something remarkable happened the other week though, a frank mic-drop the likes of which we haven’t seen before. OPEC’s president bluntly told the world that there was not enough oil due to a lack of investment, and that neither OPEC nor non-OPEC could do anything about it. It was a startling comment given that just days before another senior OPEC figure had commented that oil prices were too high – a comment that in past was inevitably followed by an OPEC plan to get prices back down again.
This about-face is remarkable, and very ominous indeed. The world is facing an energy supply crunch that may be catastrophic in a way that the world has not seen for a very long time. This time around, the shortage isn’t just oil; natural gas is a scarce commodity also.
We aren’t seeing big shortfalls of either here in North America; both oil and natural gas are relatively plentiful. But the rest of the world is hurting for both, and indeed even on the oil side President Biden has been encouraging global producers to crank out more. He’s also been making the rounds to try to source more natural gas for Europe should Putin decide to turn that big European Natural Gas Delivery valve to the closed position.
The plight of North Americans facing higher gasoline and home heating bills pales in comparison to what other parts of the world are facing. In Pakistan, in one province alone, three hundred CNG (compressed natural gas) fuelling stations have been closed since December because no fuel was available. In that province, 2.7 million rickshaws, taxis, and flying coaches (whatever that is) have been parked due to lack of availability of CNG. Passengers and students are paying the price, in a population that has little of anything.
And the transportation problem is just the first order problem, it gets deeper and more painful. “The condition of low pressure was that our daily children have been forced to go to school without breakfast. Domestic women were facing severe difficulties in everything from providing milk to infants to preparing food in the kitchen,” a Pakistani article stated.
In Africa, Nigeria is suffering gasoline shortages because external suppliers of gasoline have stopped supplying the country (though Nigeria is a huge producer, it relies on imported fuel significantly) in developments that a government official called “completely unavoidable” and that they did not see coming. A taxi driver in Abuja, Nigerial’s capital, tells of sleeping 14 hours in line to get gasoline so as to able to work, and of daily earnings falling from $17 per day to $5, if there is gasoline at all. Correspondingly, fares have more than doubled, which is a considerable inconvenience for a country that lives somewhat dissimilarly to, say, NYC residents.
Even the affluent citizens of western Europe are feeling the sting of an energy shortage, although EU governments are wise enough to be introducing fossil fuel subsidies as fast as their little legislative legs will allow them. They aren’t really interested in the irony of that, but they are interested in preventing people from rioting in the streets.
Compounding Europe’s woes are, of course, the latest moves by Putin, and the EU’s feeble ability to react. The first master stroke: Germany declared Nordstream 2 dead. Recall from a few sentences ago that Europe is dramatically short of natural gas anyway, and with other considerable Russian supply at risk – Putin has in past not been shy at all to turn off the taps, even in the dead of winter – Europe is going to be forced into the open market to find gas that no one seems able to provide. (Russia helpfully pointed out that Europe’s gas prices could be expected to double – should that happen, all previous records of imaginary fossil fuel subsidy levels will be smashed by real ones.)
While our well-fed carcasses have not seen the same shortages of massive utility costs (with the exception of gasoline prices which are getting pretty unfriendly), we are going to see some very significant second-order costs. Sky-high natural gas prices are cutting into production of various critical materials including metals and fertilizer production.
That means that things we might want to buy won’t be available because the metals aren’t available to construct them with, and the food we are so fond of may not be available at a reasonable price if there isn’t enough of it harvested. (And these shortages show up in utterly bizarre ways – my brother, who works in the logging industry in Saskatchewan, told me about a shortage of a certain type of lubricating oil because the stickers to label the containers are not available, so the oil cannot be distributed. That’s the kind of weird crap that no spreadsheet model will ever be able to capture (which is the ultimate hidden nail in the whole renewables-will-solve-everything coffin, but that’s another story).)
A few things of note out of this situation. First, we are in for some upcoming hardships as these hydrocarbon shortages leave their mark here, there, and everywhere, though the hardships we face pale in comparison to what those in developing countries will face. Though the media doesn’t care to talk about it (as with the Pakistani story above) the resulting humanitarian crisis could be too painful for words.
Secondly, the hydrocarbon industry, which has been vilified for years, with strangle marks around its neck and US presidents threatening to throw leaders in jail for the act of producing hydrocarbons, is soon going to be recognized as the most critical industry in the world. I’m not kidding.
Everything we have and do, all our activities, all our technology, all our food, all our travel, all our leisure this side of walking is brought to you via cheap reliable energy, which means hydrocarbons. Those very sentences, exposed to the harsh environment of social media, would elicit the braying of a thousand donkeys at a volume you cannot imagine, yet it remains true. Governments around the world are starting to prove this out, even if they don’t say so loudly and explicitly.
Japan has backed away from COP 26 promises that are not even old yet, promising to do whatever it takes to ensure energy security. Europe is about to do the same, with strong pressure to label natural gas as green. Coal consumption is through the roof. The 4-5 billion people of the developing world do not need to have the discussion at all; they are painfully aware of the value of hydrocarbons.
A year or two ago, those braying donkeys were assuring us oil was dead, that the price was about to collapse, that any money put into fossil fuels was doomed as were the ‘stranded assets’ the money was flowing into. Nothing could be further from the truth. There will be no public accountability for this nonsense in the mainstream news; those commentators are to the energy scene what moths are to a lightbulb.
The world is in desperate need of hydrocarbons, and stand tall if you are involved in providing them. It really is a life-and-death situation.
How did we get in such an energy quagmire? Find out how, and how to get out – pick up “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks for the support.
Read more insightful analysis from Terry Etam here, or email Terry here. PS: Dear email correspondents, the email flow is wonderful and welcome, but am having trouble keeping up. Apologies if comments/questions go unanswered; they are not ignored.