It’s amazing what people don’t know about energy, considering its omnipresent facets. I once met a guy from Quebec.…whoa, have to limerick that.
I once met a guy from Quebec
Who got here and said what the heck
The grass is not brown
From oil spills all ‘round
They’ve been shoving bull____ down our neck
OK I’ll stick to my day job. But it’s true; when this guy, an intelligent and educated businessman, moved out here on a work transfer, he was astonished that everything was so green and unpolluted, and that there weren’t oil spills and pumpjacks covering the landscape. I’ve heard from a Torontonian who thought that oil percolated up as soon as a hole was punched in the ground. Show the average citizen a piece of actual reservoir rock and they’ll be astonished.
The information deficit isn’t limited to the general public that doesn’t care about energy until the bill arrives. Online, I recently saw an active natural gas trader who asked incredulously via tweet why rig counts were dropping over the past few weeks but production was not.
The frustrating part, which is a great opportunity as well, is the incredible depth of data available to anyone interested. Yes, YouTube documents everything from how to fix a thirty-year old lawnmower to how a microprocessor works, but if you want to know the full details about that microprocessor, you’ll soon hit walls of privacy.
Not so in the energy sector. Consider a random sample from the past few days.
Last week, the US rig count dropped by 15 as documented faithfully every week by Baker Hughes. For free. Oh look, 14 of those where horizontal, one vertical. Oklahoma dropped 3, Texas 6. The records go back decades.
As another example, a few weeks ago, the BOE Report ran an excellent article about Headwater Exploration’s April production, gathered using public data tool BOE Intel. As the article put it, “Thanks to the excellent amount of public data out there, we no longer have to wait until quarterly reporting season to find out how production is trending for producers in Western Canada.” These estimates can easily be reconciled with a company’s public release of production data at quarter end, as the article indicates.
A few months ago, TC Energy had a significant oil spill in Kansas that released an estimated 14,000 barrels. In April, TC Energy issued a report that was picked up by the news, which reported that the leak “was primarily due to a progressive fatigue crack, which originated during the construction of the pipeline.”
Should you be curious enough, you could go to a site called Frac Focus and find out stuff of value only to super-nerds. You can learn that Chesapeake Energy’s A&M 104HC well used Northern White frac sand in a concentration of 18.73168% by mass. It gets better – next you can find out how the well did; head over to another site that tracks state production (marcellusgas.org) and find out that that well produced 1,141,856 mcf in January 2023 over 23 days (quite the well).
I mention these dizzying statistics because they are a stark reminder that, as in many other things, our perspective is attuned to the openness of our society, and our data quality. We have armies of people that comb through these statistics – reporting, analyzing, utilizing.
Contrast the above with the brouhaha created by OPEC+ on a non-stop basis.
The widely read site OilPrice.com, in an article by the very capable market commentator Irina Slav, asked a pertinent question recently: “Is Russia Really Cutting Oil Production?” The question relates to Russia’s pledge earlier this year to cut production by 500,000 b/d as part of its OPEC+ commitments.
It’s quite an important question; a swing of plus-or-minus 500,000 b/d would have a serious effect on global oil prices, and governments are hyper-sensitive to oil prices. The US drained their Strategic Petroleum Reserve in a bid to push down oil prices during election season, not a particularly lofty or wise path given that those barrels are, you know, strategic reserves.
The observations in the article seem startling compared to the granular detail we are accustomed to: “It appears that there is no space for suggesting that Russia can produce less but export more, perhaps because there is uncertainty about its local demand and storage capacity to do so. Whether this is the case or not remains unclear because of the limited availability of production information… It might be advisable for those curious about how much oil Russia is producing to wait for the end of the refinery maintenance season and see if export patterns change.”
You read that correctly; the world doesn’t really know how much oil one of the world’s largest producers actually produces. What do we know about the country’s emissions, spills, you name it?
Want to know the metering difference or flared gas volume or propane sales of any operating natural gas plant in Alberta, by month? Here you go, you’re welcome.
The fact that oil market experts pose such a question at all shows the vast gulf in the quality of information available for a given commodity, depending on where the trading/activity is taking place.
On this past weekend, Saudi Arabia and OPEC+ met for several days, trying to hammer out a game plan for how to manage production levels so as to achieve their price targets in a market that may or may not be in a global recession or about to enter one or about to exit one (no one knows for sure). OPEC+ came out of the meetings holding hands and smiling and pledging a short term cut that no one expected and a longer term continuation of a cut that everyone did expect, all the while leaving the entire process shrouded in mystery. As oil market analyst extraordinaire Rory Johnston put it on Twitter: “No one knows what it means but it’s provocative.”
It’s hard to tell if this all matters, and if it does, what are the consequences of opacity?
In some ways, the lack of precision doesn’t matter. We get by with a lot of imprecision in markets. That’s why markets sometimes flail wildly when quarterly results are announced. True, oil life would be easier if Russia just openly told the truth, but there are other ways to confirm estimates over a period of time, because eventually whatever Russia provides to, or withdraws from, international markets can be traced by some publicly available yardstick, like the Tanker Traffic website.
But in other ways, the lack of quality data can have very big repercussions. Say, for example, that Russia said it would reduce production by half a million barrels a day, and the world believes it. Prices adjust to the diminished supply, traders place bets, oil refineries adjust purchasing plans, etc. A lot of activity is predicated on those expectations. As mentioned earlier, the US drained their strategic petroleum reserve even though the world was not in any sense physically short of oil, because they knew what news of the release would do. And it worked. Gasoline prices fell, the election went quite well, and then on to the next point of chaos.
Since we don’t know for months whether Russia is lying or not (just using Russia as an example here, the same can happen anywhere for any vital commodity), the consequences can be huge if the data turned out to be inaccurate. Then, once the truth is known, we get even wilder swings in the price of the commodity, which then becomes even more unsettling.
Furthermore, it is an inescapable conclusion that the public reporting of such data pushes all participants towards better standards, better performance, better operations.
The insatiable information machine here in the West is remarkably adept at incorporating the latest, tiniest detail into forward price projections. It’s still a guess, because anything can happen in the world a few months hence to throw everything off, but the ability to see the smallest details can only help markets operate more efficiently (no, this isn’t an endorsement of Efficient Markets Theory, just a comment that more accurate information can only help market participants make better decisions).
Perhaps most pertinently for the oil and gas industry is this: The industry, here in the West, is monitored, measured, and reported to an incredibly sophisticated degree.
The guy that landed in Alberta from Quebec had a vision in his head of an oil-devastated wasteland wherever the stuff was produced. Here on the inside, this is how it goes: “Any spill or release that goes off-lease that has caused, is causing, or may cause an adverse effect, must immediately be reported to Alberta Environment.”
Things aren’t perfect; there is always room for improvement. The mainstream narrative for the industry is overwhelmingly bad, but maybe part of the reason why is that we don’t talk about these things enough. North America’s energy reporting standards would change the world if adopted globally.
Energy conversations should be positive and, most of all, grounded in reality. Life depends on it. Find out more in “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com. Thanks!
Read more insightful analysis from Terry Etam here, or email Terry here.