Stephen Harper's Oily Comeuppance

A Saudi prince once said that the Stone Age didn't end because man ran out of stones.  The Age of Oil may be headed for the same fate.  A Goldman Sachs outlook suggests the price of crude oil will hover around $45 a barrel for the next year or so and could even hit $20.

That's not good news for self-styled 'energy superpowers,' i.e. Canada.  Richard Fantin of Canadian Trends has an insightful report of what's in store for his province, Alberta, and it makes for grim reading.

Remember when then Liberal leader, Michael Ignatieff, proclaimed Athabasca the "beating heart of the Canadian economy for the 21st century"? Remember, "Iggy"? Oh, you would rather forget? I see.

That's the problem with betting the farm on the idea of flogging the world's highest-carbon and costliest oil.  It's like eating too many of those Pringles with Olestra. Something bad is bound to happen in your pants.

Poor Stephen Harper. He's devoted his entire premiership to Canada's Alberta's bituminous bounty. He rode roughshod over every possible obstacle, sweeping aside fisheries, navigation and marine habitat regulations; transforming Canada's National Energy Board into a blatantly kangaroo tribunal; even harnessing the state police and security agencies into service of Big Oil, all on the taxpayer's dime.

They knew it was a race and that time might not be on their side. Harper even brought in a repeat offender jailbird to be his envoy to the Oil Patch, brought the guy right into the PMO (which, judging by recent revelations, must have felt like a second home to Bruce Carson).

At one point Harper's then natural resources minister, Joe "Leatherback" Oliver, let slip the urgency of getting bitumen to "tidewater" and into the holds of supertankers. Oliver, perhaps imprudently, noted that if these pipelines weren't brought online and soon, Canada was at risk of bitumen becoming a "stranded asset."

The world is moving toward carbon pricing (no, it's not the idea of the opposition leaders) and even Harper is going to be hard pressed not to follow suit.  It could be a "perfect storm" - low oil prices, high-cost/high-carbon oil, carbon taxes.  As Richard Fantin noted, the squeeze is already causing Big Oil to 'cut corners' on its operations and that usually translates into shoddy maintenance, monitoring and, eventually, more oil spills.

If we're to have any hope of avoiding the worst climate change outcome, runaway global warming, the world is going to have to decarbonize very soon. The first fossil fuels to be abandoned will be the high-cost and the high-carbon. Coal, while relatively cheap, is very high-carbon and there's no shortage of US coal companies going bankrupt these days.  Bitumen, while not as high-carbon as coal, is the highest carbon fossil oil and, unlike coal, it's also costly to produce.

Harper gambled everything on bitumen, including Canada's reputation abroad. He and his government have brainwashed Canadians into believing the Tar Sands are indispensable to our economy whereas bitumen revenues really only represent 2% of Canada's GDP.  Two per cent doesn't sound like much but it's Heaven and Earth to the province of Alberta where royalties are treated as general revenue to fund essential services.

Albertans have a term for it. During boom times they "piss it all away" and when boom turns to bust in the oil patch the province dives headlong into recession. They've institutionalized a bubble economy. If you organized your household finances that way people, especially your creditors, would heap scorn and derision on you. In no time you would find yourself in a very ugly place.

There's more than schadenfreude to this. I don't live in Alberta. I live in British Columbia, coastal British Columbia.  Out here the collapse in world oil prices may be enough to halt Stephen Harper's pipeline/supertanker obsession. Let us pray.

What's a Single Issue Prime Minister to Do?

These are not good times for Canada's petro-prime minister.  Harper's Holy Grail, Canadian energy superpowerdom, has sprung a leak.  Even The Globe & Mail, says bitumen no longer makes any economic sense.

If $40 a barrel still seems a ways off, consider that the benchmark price for oil sands crude is already trading in that price range. What’s more, if production from high-cost sources isn’t withdrawn from an oversupplied market, oil prices may soon be trading even lower.

The first thing Canadians should recognize about the new world order for oil prices is that – contrary to what we’re being told by our federal government – the economy is no longer in dire need of any new pipelines. For that matter, it can live without the new rail terminals being built to move oil as well. Yesterday’s transportation bottlenecks aren’t relevant in today’s marketplace.

At current prices there won’t be any massive expansion of oil sands production because those projects, which would produce some of the world’s most expensive crude, no longer make economic sense.

The recent spate of project cancellations by global oil giants – Total’s Joslyn mine, Shell’s at Pierre River, and Statoil’s Corner oil sands venture – is only the beginning. As oil prices grind lower, we can expect to hear about tens of billions of dollars of proposed spending that will be cancelled or indefinitely postponed.

...If plunging oil prices are writing a boom-to-bust story in provinces such as Alberta, Saskatchewan and Newfoundland, the narrative will be much different in other parts of the country.

Ontario’s long-depressed economy is already beginning to find a second wind, recently leading the country in economic growth. And the engine is just beginning to rev up. As the largest oil-consuming province in the country, lower oil prices put more money back into the pockets of Ontarians, while also juicing the buying power of its most important trading partner. Ontario’s trade leverage with the U.S. is set to become even more meaningful as the Canadian dollar continues to slide along with the country’s rapidly fading oil prospects.

Just as the oil sands boom turned Canada’s currency into a petrodollar, pushing it above parity with the greenback, the loonie is already tumbling in the wake of lower oil prices. And it shouldn’t expect any help from the Bank of Canada, which continues to signal that it’s willing to live with a much lower exchange rate in the face of a strengthening U.S. dollar.

A loonie at 75 cents means GM and Ford may once again consider Ontario an attractive place to make cars and trucks. Even if they don’t, you can bet others will. With the loonie’s value falling to three quarters of where it was only a few years ago, we’ll start seeing Ontario, as well as other regions of the country, start to regain some of the hundreds of thousands of manufacturing jobs that were lost in the last decade amid a severely overvalued currency.

Yes, kids, that was the very conservative Globe & Mail admitting that Eastern Canada has for years been afflicted by the Athabasca-borne "Dutch Disease."  Harper, Oliver, Flaherty and the rest of the parliamentary clown car have expended massive energy in denying it but Alberta's wealth (the money they've long since 'pissed away') has hurt Canada's manufacturing sector and the hundreds of thousands of workers that lost their jobs.