Do you rip off your shingles before finding out if new ones are available? It’s painful to watch those that do

By Terry Etam – Boe Report

So, the energy crisis has finally arrived. I am mulling this over from my underground bunker, my ‘home office’ on one side and flats of dried pasta/canned goods/instant coffee/baked beans on the other (speaking of the beans, hmm, there’s no proper ventilation – I did not think this through very well). While, like most serious students of energy, I’d expected its arrival sometime, but scrolling through the energy news flow, I must admit I had no idea it would unfold quite like this.

To anyone that pays attention to the energy world with any objectivity (i.e., not searching for villains), it was obvious that the world would one day run into a hydrocarbon supply crunch. This didn’t have anything to do with a rapid energy transition; it had to do with a massive black hole in global upstream capital expenditures. The world’s oil consumption needs, particularly new growth in demand, had been met by huge international projects that took half a decade or more to get off the ground. Think of Brazilian sub-salt development, or even new Middle Eastern fields (simplistic commentators love to point to the Middle East as having super-low-cost fields, however even Saudi Arabia’s latest big-field development was expensive offshore oil (the Manifa offshore oil field, which kicked off in 2006, required 27 constructed islands connected by a 41-km causeway – not cheap stuff)).

The US shale boom masked that problem quite well for a while, capturing the attention of the global media spectacularly. While US shale growth was indeed huge, context is important – US shale fields added ~8 million b/d to a global production base of 80-90 million b/d, and that base had natural declines of probably more than 5 percent after the price meltdown that began in 2014 (when maintenance and exploration capex slowed significantly).  US shale largely did a good job of offsetting those global declines for a few years, but not much more.

In 2019, global oil consumption passed 100 million b/d. At about the same time, two cataclysmic events hit the hydrocarbon world. First, in late 2019, global climate hysteria reached new levels; children marched through the streets demanding and end to fossil fuel usage; governments panicked and signed on; and the ‘divest fossil fuels’ movement took off. Together, these developments, which were petroleum anti-developments, further cratered the world’s ability to provide the hydrocarbons the world cannot live without (more on that in a second).

Then of course Covid struck, shrinking hydrocarbon demand for the simple reason that everyone was sitting at home on the couch for a year. The same activists that made fossil fuel divestment a rallying cry for the befuddled masses convinced the world’s governments that Covid provided a glorious opportunity to ‘build back better’ or accelerate the energy transition. Because few truly understand energy, they all signed on, because politicians do not like having children yelling at them in public.

So anyway, I’d always thought that the world would gradually come to the realization that weaning itself off hydrocarbons was much harder than most thought, and that the pace of both renewable development and hydrocarbon bashing would slow as reality sunk in. 

Wow, was I wrong.

It hardly needs pointing out what is happening, but I’ll do it anyway in case you are wise enough to avoid the energy news. Don’t get me wrong, energy news is critical, but has become dominated by views that display a stunning level of energy ignorance.

Those views have convinced the world that we no longer need hydrocarbons, that renewables plus batteries can handle the load, and that the energy transition is happening so rapidly that leaving a dollar invested in oil/gas reserves is a super-risky strategy because the assets will become ‘stranded’ as the world demand rapidly evaporates. Low oil prices during peak-Covid were offered as proof that ‘oil is dead’, as Canadian Green party leader Elizabeth May smugly barked out.

Turns out reality is somewhat different, to put it mildly. That global full-court-press to minimize hydrocarbon investment is coming back with a vengeance. Demand has roared back as economies shake off Covid, and prices have started to rise as demand exceeds supply. In every other commodity price boom, rising prices signalled the market to provide more supply, and producers happily obliged because ample cash flow is a mighty fine thing.

The thing with oil and gas though is that fields deplete, and new production means new infrastructure – new wells, new pipelines, new processing facilities, etc. And that’s where the trouble really starts. Nothing is easier in the protest world than obstructing new infrastructure development. There is a veritable catalogue of options: direct protests, PR campaigns, regulatory delay tactics, lawsuits, a friendly media to stir up opposition, and on and on. Three or four idiots dangling from a bridge in Vancouver held up marine traffic so badly a few years ago that Vancouver Island nearly ran out of fuel. The media covered every burp from the dangling protesters, but paid no attention to possible fuel shortages.

Threatened fuel shortages have in the past few years been met with a yawn from the media. A few years ago when Canadian railways were blocked by protesters, Quebec nearly ran out of propane, which would have been cauchemardesque, to put it mildly, yet the media was far more interested in the feelings of the protesters, and, incomprehensibly, the RCMP stood by and watched the fools blockade critical fuel supplies because the cops were afraid to make a scene. (I hope that is what they were afraid of. Lord help us if they really were intimidated by tiny bunches of unemployed and un-calloused socialists.)

The opposite is usually true: a warning of fuel shortages, particularly of hydrocarbon shortages, has been met with a wall of sound, a unified cry from the climate industry of ‘fossil fuel shill’ or ‘climate change denier’ or worse; an indignant primal scream that renewables are all we need and that apologists of the status quo will kill us all, and the planet to boot (not one ‘save the planet’ person has ever explained exactly how the planet would be ‘not saved’ if CO2 emissions continue – would it explode? Would it stop spinning, throw us all off, and turn into a fireball or something? Don’t dare ask though, you will be branded ‘anti-science’.)

The hydrocarbon industry, the providers of the fuel that keep 8 billion people alive, were therefore powerless to point out how critical fuel supplies were, having been outplayed in social media six ways from Sunday. So the industry battened down the hatches, trying to figure out what to do next. It had no history of public engagement; governments and citizens always clamoured for more and more of their products. To become public enemy number one in a few short years is a bit alienating.

Global clarity came in the form of the inevitable reconciliation between a capital starved industry and a world clamouring for more. While it was inevitable, the speed of the impacts has been ferocious. Six months ago, it was business as usual for a world recovering from a pandemic, and charging towards a green future with the electric motor’s throttle pushed right to the carpet.

In Canada, Trudeau boiled over with enthusiasm during a climate conference, pushing Canada’s emissions-cut-targets from a wildly difficult 30 percent cut by 2030 to a drunk’s boast of ‘at least 40 per cent’. Biden rose to the occasion also, seeing Trudeau’s flexing and raising him – sure Justin, you say you can lift the back end of a car, well, just watch me, I’m going to flip it right over and I’m as old as Jerusalem.

Fast forward to October, and Europe is planning to roll out…fossil fuel subsidies for consumers. I kid you not. The very economic lever that drove activists apoplectic is now a newly forming EU policy because China, India, Europe, and soon other jurisdictions are bidding the price of coal and natural gas through the roof, hitting all time highs. Oil is past $80 for the first time in 7 years. Entire industries are slashing output of everything from metals to food to fertilizer due to fuel costs and/or shortages. Biden is backing down from massive climate spending pledges because he can’t even get his own Democrats to support the initiatives.

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