Folks can search the blog for oil and pricing to better understand where I am coming from in this bit of idle chattering; I won't go through all of it again.
But if one wants to connect the dots for a perfect storm, it's not difficult
- the Canadian economy and the strength of the loonie is directly related to the Canadian oil industry
- Canada's oil industry, for all practical purposes: heavy oil from the oil sands
- there is a glut of oil on the market
- Keystone XL 1.0 was killed
- Canadian pipelines to the west coast are inadequate to make up the slack caused by demise of KXL1
- US east coast terminals prefer Bakken oil, light and sweet
- more and more talk of global recession (half of EU already in recession); China slowing down
- Canadian oil sands oil is most expensive of all oil sources to produce -- by a significant margin
If the Canadian oil industry flounders/founders, folks will look at the three points in bold above. Had the global economy been growing and had there been a better demand-supply imbalance in favor of the oil industry, killing of the KXL1 would not have mattered. It would have been a speed bump. But with the other two (a global recession and a glut of oil), killing the KXL1 resulted in the perfect storm for the Canadian oil industry.
I can think of only one thing that could make things worse for the Canadian oil industry: a meteor hitting Alberta. (Actually I can think of one thing worse, but as it is, I already get enough "hate mail.")
I'm not a currency trader, but if...
Disclaimer: this is not an investment site. This is not a recommendation to buy, sell, or hold loonies.
By the way, I wonder if as regards the Bakken, the Canadian oil sands is not the canary in the coal mine?
Wouldn't it be hilarious if congress mandated keystone approval and transcanada's response is thanks but no thanks because we just figured out we can't $100 to get to Houston ?
ReplyDeleteStarting to look like Obama is doing TransCanada a favor by keeping them from building a pipeline that can't be used at a profit.
And yes, if crude continues to go down for whatever reason, Bakken producers will feel pressure and then .........
Timing is everything...
DeleteWould one thing worse be Obama becoming their leader? It would be good for us!
DeleteWould one thing worse be Obama becoming their leader? It would be good for us!
DeleteYes! Have a great Memorial Day weekend.
DeleteTrans Canada's Keystone XL pipeline would be a 7 billion dollar plus project. I doubt they would make a decision to build or not on the price of a barrel of oil. Remember Trans Canada is not a producer, they are a transporter so the price of a barrel of oil is not of great importance to them.
DeleteVery bad decision not to approve the pipeline by our jobs killing President.
There are two schools of thought surfacing in the last few weeks.
DeleteBoone Pickens feels that the price of oil will trend higher over the long term; he feels that producers will be hard pressed to keep up with demand (91 million bbls oil per day, global demand). I've always held a similar view.
However, RBN Energy reports increasing talk that oil prices going forward (at least for the next several years) is bearish. That's hard for me to accept, but these guys have more knowledge and understanding of the oil industry than I do.
I'm suggesting that if the price of oil dropped to the point that it made the Canadian oil sands less viable, the current takeaway capacity might be sufficient, especially with the other pipeline expansion projects already announced (Kinder Morgan expanding the Trans Mountain Pipeline, for example).
In the big scheme of things, I have strong feelings one way or the other regarding the Keystone XL with regard to takeaway capacity; I do have strong feelings about all the fathers and husbands that could be employed putting it in the ground, and I care about the message this sends coming out of Washington.
What ????? So TransCanada doesn't care about the price of crude?
DeleteHow does that work? Low crude price means producers will not commit to long term guaranteed business to use pipeline services. Unless TransCanada can lock up commitments, they will not build. It's that simple.
I think folks are talking "past each other." I think CRC means that the temporary volatility in the price of oil won't affect TransCanada's plan, as long as the long term trend is for Canadian oil sands to keep producing.
DeleteOn the other hand, if the long term trend for the price of oil is now down, to the point that it significantly impacts Canadian oil sands producers, then TransCanada may have to re-think this.
I think we think the price of oil long term will rise; there are others now suggesting otherwise. Which makes a $7 billion project all the more risky.
That Trans Mountain Pipeline/Kinder Morgan announcement was not trivial.
Trans Canada has the commitments. They wouldn't do a 7 billion project without them.
DeleteI hope you are not a anti pipeline person.
No, I'm not an anti pipeline (or anti anything) person.
DeleteIt is simple business economics. Tar sands oil is at the threshold of being sustainable/profitable. Transcanada has a break-even price given capital cost, interest rates, price of crude (which drives demand for it's services) and a whole host of other variables. All I am saying is that the Transcanada XL project isn't viable in a low crude price environment. It doesn't matter how many workers it would/could employ or what permits it has or does not have.
I think we will agree to disagree and move on.
DeleteI can't wait to see what Monday brings.