Tag Archives: oil

Will Saskatchewan Fall into Recession?

Will Saskatchewan experience a recession because of falling oil prices?

The Conference Board of Canada predicts this drop will cause Alberta to slip into a recession by the end of the year. Jeff Rubin, the author of “The End of Growth” and former chief economist of CIBC World Markets believes the dip in the sector could affect Saskatchewan as well, though not as seriously.

“I don’t expect Saskatchewan or Newfoundland to be as adversely affected as Alberta,” Rubin said.

“But it’s going to impact the economy, it’s going to impact tax revenues. Governments are going to be challenged in the sense that if they don’t challenge spending, they’ll see their deficits go off side.”

It could also affect property prices.

The Conference Board of Canada predicts that Alberta will slip into a recession before the end of the year. Rubin echoes that warning. He said Alberta could experience its worst recession since the late 1980s.

At the end of the day, Saskatchewan will be okay because we have what the world needs.  It may not be as great as it was in 2009 but we will be okay.  That being said, we are so reliant on commodity prices that these kind of dips are going to impact us forever with no way out.  In that way the new Saskatchewan under Brad Wall isn’t a lot different than the old Saskatchewan under Grant Devine or Roy Romanow.  Like the rest of the world, the global economy will always have a big impact on us for good or for bad.

Cam Broten has said before that he wants more eggs in more baskets.  I think we all do in Saskatchewan but man is it hard to do.  I posted before about Alberta’s struggles in diversifying their economy and the same thing has happened here.  I agree with diversification but we are a province of a million people and there are going to be times that the world economy conspires against us and makes it really hard.  This is one of those times.

Learning to love big oil

Don’t criticize me for posting this, I am from Alberta after all. 

The drivers of the trucks are here for the same reason I am: the boom in drilling for oil and natural gas. The vast, dry lands south of Vernal hold about half of the state’s active rigs and present a veritable smorgasbord of opportunities for energy extraction: shale aplenty, fracking for both oil and natural gas, and even the state’s very own poised-to-open tar sands. Uintah County has been Utah’s main oil producer for more than 70 years. As far back as 1918, National Geographic extolled the area’s potential: “Campers and hunters in building fires against pieces of the rock had been surprised to find that they ignited, that they contain oil.” In other words, what is happening here is no nouveau drilling dalliance, no young sweetheart in first flush, freshly wooed, like the Bakken Field in North Dakota, but an on-again, off-again affair that has been going on for decades.

It is that affair that interests me, with all the salacious details of how Big Oil sidles up to a town, flirts with it, and wins it over. Not to mention what happens if — or, more accurately, when — the wooer decides to ditch the wooed.

In Vernal, population 9,000, evidence of earlier wooing abounds. A quick ride around town reveals Big Oil’s equivalent of a dozen roses or a box of candy. There are shiny new schools and municipal buildings and ballparks. The Western Park Convention Center, covering 32 acres, is one of the largest buildings of its kind in the West. Not every town hosts a golf tournament called Petroleum Days or throws a music festival — like last summer’s weekend-long Country Explosion — co-sponsored by a maker of centrifuges and mud/gas separators. Then there’s the Uintah Basin Applied Technology College, a beautiful sandstone building with the streamlined look of a brand-new upscale airport.

On my first visit to Vernal, in the heat of July, I peeked in on a class called Well Control, where a movie was being shown that, unlike the grainy safety films of my youth, had the production values of a Spielberg movie. There were models of oil derricks in the lobby, with the name Anadarko, the giant Texas oil company that is one of the area’s main employers, prominently displayed. In this case, Anadarko’s particular bouquet was a $1.5 million gift for construction and faculty endowment.

It was a short drive over to the rec center, a looming spectacle of oaken beams and concrete and great sheets of glass that revealed within Olympic-size pools and running tracks and climbing walls and squash courts. It looked as if Frank Lloyd Wright and Frank Shorter had gotten together to build their dream house. This building points to one of the less obvious ways the town has been wooed. While Anadarko alone paid $14 million in county property taxes last year, the total income for Vernal and Uintah County from oil and gas far exceeds this number, as a result of sales tax, production taxes, mining royalties, and lease payments on federal land. In other words, the building is not a gift outright but the metaphoric equivalent of Big Oil saying, “Here, honey, go buy yourself something nice.”

It starts out well

“When I first came here in the seventies, it was a beautiful place,” Herm said. “A lazy Main Street lined with cottonwoods. The old booms had faded, and the two top businesses in town were agriculture and tourism. People came to see the dinosaur quarry at the park. People came to float on the river.”

He held out his large hands, palms up. “And what are we left with now?”

Certainly not tourism. A tourist would be hard pressed to find a hotel room in Vernal. In fact, while oil jobs and the services that support them have been rising, the numbers of people employed in agriculture and recreation have fallen dramatically.

And then there were the busts. Herm remembers the last one. Storage lockers of people’s possessions being auctioned off. Houses foreclosed. He is not against drilling, he told me, but what is lacking is perspective and long-term thinking. The problem is exemplified by the archetypal Vernal high school student who drops out, lured by the chance to make money working in the oil fields, and buys a house, a big truck, some ATVs.

“What happens if that job goes away?” Herm asked. “He is left with no education, many debts.” In fact, at the public meeting where Herm questioned the oil orthodoxy, a boy just like that stood up and said, “If we don’t keep drilling, how will I pay for everything?”

Herm wasn’t trying to drive oil out of town. He was merely suggesting that Vernal proceed with some restraint and consider investing in the future. For that he was greeted with fury, even death threats.

Over the past 40 years Herm had seen Big Oil bring its gifts, and its gifts were shiny. But he had also seen oil and chemicals foaming and floating down the Green River. He had seen rising crime, prostitution, spousal abuse, and a culture defined by the twentysomething males who come to work the oil fields. (Utah has a higher incidence of rape than the national average, and Vernal has a much higher rate than the state as a whole.) Air quality has dramatically worsened; last winter’s ozone levels in the county rivaled those of Los Angeles.

All this has made Herm a little less giddy than most about Vernal’s prospects.

“I’ve been through it before,” he said. “They come into your neighborhood. They change your neighborhood. Then they move away. And we’re left to pick up the pieces and pay the bills.”

The party does always end but it’s going to be going on for a while, even in towns like Vernal.  Yet even in Alberta, the party may not end, it may be occasionally interrupted. 

T. Boone Pickens: Let’s transform energy — with natural gas

The US consumes 25% of the world’s oil — but as energy tycoon T. Boone Pickens points out onstage, the country has no energy policy to prepare for the inevitable. Is alternative energy our bridge to an oil-free future? After losing $150 million investing in wind energy, Pickens suggests it isn’t, not yet. What might get us there? Natural gas.

David Frum: Trudeau was a disaster for Canada

Frum goes to town on the legacy of Pierre Trudeau.

Pierre Trudeau took office at a moment when commodity prices were rising worldwide. Good policymakers recognize that commodity prices fall as well as rise. Yet between 1969 and 1979 – through two majority governments and one minority – Trudeau tripled federal spending.

In 1981-82, Canada plunged into recession, the worst since World War II. Trudeau’s already big deficits exploded to a point that Canada’s lenders worried about default.

Trudeau’s Conservative successor Brian Mulroney balanced Canada’s operating budget after 1984. But to squeeze out Trudeau-era inflation, the Bank of Canada had raised real interest rates very high. Mulroney could not keep up with the debt payments. The debt compounded, the deficits grew, the Bank hiked rates again – and Canada toppled into an even worse recession in 1992. Trudeau’s next successors, Liberals this time, squeezed even tighter, raising taxes, and leaving Canadians through the 1990s working harder and harder with no real increase in their standard of living.

Do Canadians understand how many of their difficulties of the 1990s originated in the 1970s? They should.

To repay Trudeau’s debt, federal governments reduced transfers to provinces. Provinces restrained spending. And these restraints had real consequences for real people: more months in pain for heart patients, more months of immobility for patients awaiting hip replacements.

If Canada’s health system delivers better results today than 15 years ago, it’s not because it operates more efficiently. Canada’s health system delivers better results because the reduction of Trudeau’s debt burden has freed more funds for healthcare spending.

Pierre Trudeau was a spending fool. He believed in a state-led economy, and the longer he lasted in office, the more statist he became. The Foreign Investment Review Agency was succeeded by Petro-Canada. Petro-Canada was succeeded by wage and price controls. Wage and price controls were succeeded by the single worst economic decision of Canada’s 20th century: the National Energy Program.

The NEP tried to fix two different prices of oil, one inside Canada, one outside.  The NEP expropriated foreign oil interests without compensation. The NEP sought to shoulder aside the historic role of the provinces as the owner and manager of natural resources.

Most other Western countries redirected themselves toward more fiscal restraint after 1979. Counting on abundant revenues from oil, the Trudeau government kept spending. Other Western governments began to worry more about attracting international investment. Canada repelled investors with arbitrary confiscations. Other Western governments recovered from the stagflation of the 1970s by turning toward freer markets. Under the National Energy Policy, Canada was up-regulating as the US, Britain, and West Germany deregulated. All of these mistakes together contributed to the extreme severity of the 1982 recession. Every one of them was Pierre Trudeau’s fault.

While I disagree with Frum that Trudeau was one of the worst prime ministers of our time, I will agree that his economic legacy has impacted the country for over a decade.  Frum’s is an interesting take.

BP to drill in the Arctic

I know environmental groups are upset but with BP’s recent safety record, why worry?  Oh right.

The Arctic is to become the "new environmental battleground", campaigners warned yesterday after BP announced plans to drill in one of the last great unspoilt wildernesses on earth.

Greenpeace and the World Wide Fund for Nature (WWF) have vowed to confront BP’s American boss, Bob Dudley, over the agreement with the Russian state-owned oil giant Rosneft to explore the Kara Sea, north of Siberia. The British energy firm was branded the world’s "environmental villain number one" by Friends of the Earth (FoE) yesterday in response to its move to exploit potential oil reserves in the remote waters.

Environmentalists are dismayed that BP, which announced the deal on Friday night, has decided to set up rigs in an area of great biodiversity and treacherous weather conditions. The region is one of the few remaining havens left for a number of endangered species, including polar bears, walruses and beluga whales. And while the waters of the Kara Sea are relatively unexplored, they are known to house key fish species such as halibut, capelin and Arctic cod.

Worst Case Scenario for the Gulf Oil Leak

Over at Science Blogs

Contrary to what most of us would think as logical to stop the oil mess, actually opening up the gushing well and making it gush more became direction BP took after confirming that there was a leak. In fact if you note their actions, that should become clear. They have shifted from stopping or restricting the gusher to opening it up and catching it. This only makes sense if they want to relieve pressure at the leak hidden down below the seabed…..and that sort of leak is one of the most dangerous and potentially damaging kind of leak there could be. It is also inaccessible which compounds our problems. There is no way to stop that leak from above, all they can do is relieve the pressure on it and the only way to do that right now is to open up the nozzle above and gush more oil into the gulf and hopefully catch it, which they have done, they just neglected to tell us why, gee thanks.

A down hole leak is dangerous and damaging for several reasons.

There will be erosion throughout the entire beat up, beat on and beat down remainder of the "system" including that inaccessible leak. The same erosion I spoke about in the first post is still present and has never stopped, cannot be stopped, is impossible to stop and will always be present in and acting on anything that is left which has crude oil "Product" rushing through it. There are abrasives still present, swirling flow will create hot spots of wear and this erosion is relentless and will always be present until eventually it wears away enough material to break it’s way out. It will slowly eat the bop away especially at the now pinched off riser head and it will flow more and more. Perhaps BP can outrun or keep up with that out flow with various suckage methods for a period of time, but eventually the well will win that race, just how long that race will be?…no one really knows….However now?…there are other problems that a down hole leak will and must produce that will compound this already bad situation.

This down hole leak will undermine the foundation of the seabed in and around the well area. It also weakens the only thing holding up the massive Blow Out Preventer’s immense bulk of 450 tons. In fact?…we are beginning to the results of the well’s total integrity beginning to fail due to the undermining being caused by the leaking well bore.

Geopolitical Peak Oil

The New York Times on how the energy giants are being squeezed out of an already tight market.

Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.

And much of their production is in mature regions that are declining, like the North Sea.

The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies.

Of course there is still some oil out there…

“There is still a lot of oil to develop out there, which is why we don’t call this geological peak oil, especially in places like Venezuela, Russia, Iran and Iraq,” said Arjun Murti, an energy analyst at Goldman Sachs. “What we have now is geopolitical peak oil.”

As you can see the problem is that three (or four) of the four regions are not all that friendly with the west.