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Oil, Canada's Greatest Export of The 21st Century



 

May 25 2020 – Winnipeg, MB - Canada has the Worlds third largest proven petroleum reserves behind only Venezuela and Saudi Arabia.  Canada is currently both the fourth largest producer and the fourth largest exporter of petroleum in the world.  Ninety six percent of Canada’s 168.5 billion barrels of proven oil reserves is heavy oil.  Canada is thought to have possible heavy oil reserves in the Trillions of barrels.  Canada due to its political stability has the Worlds most secure source of heavy crude known as Western Canada Select.  What Canada currently requires is pipelines which will enable it to deliver its oil to market in the safest most cost effective manner.

 

Between the turn of this century and until recently the demand for oil had risen by over 10% and projections for future consumption were on a constant incline.  Prior to the onset of the Covid 19 pandemic, world oil production was slightly greater than the demand of 100 million barrels per day.  However all of that changed with the onset of Covid 19, coupled with the flooding of the market by Saudi Arabia due to their conflict with Russia.  We have now seen a temporary demand drop of approximately 30% and it is unclear when demand will return to normal.  

 

On April 20, 2020 the world experienced something that had never happened before.  On that date the price of a barrel of West Texas Intermediate crude went from $17.73 to -$37.63 per barrel.  Futures Traders were caught offside and unable to trade out of their options for the May contract.  There were no buyers!  If you wanted to unload your contract you had to pay someone to take your oil and as physical storage was scarce the market had no where to go but down.

 

The carnage has left our Canadian bench mark Western Canada Select trading recently as low as $2.00 to $23.00 UD$ today.   However, fear not, demand will rebound and Canada’s time will only continue to glow brighter as the century moves forward.

 

The world is evolving away from the internal combustion engine, currently the dominate form of transportation the world over.  Electric vehicles will become the new norm as manufacturers are able to increase the distance between charges and institute other modifications currently under research and development.  Infrastructure will have to be improved to a much greater degree than electric car manufacturers currently discuss.  An electric car’s charging system requires 70 amps of service in order to charge the electric car battery. In most locales in Canada, many homes built prior to the mid 1970s will require upgrades.  Many older homes have only 100 amp service and in some cases only 60.  When the time comes that most vehicles are propelled by electricity, community transformers will also have to be upsized in order to deal with the increase in load in each neighbourhood.

 

It is light crude, notably Saudi Arabian Light and West Texas Intermediate which will become out of favour as the world shifts away from jet and the internal combustion engines.  Light oil is the principal source of oil refined into gasoline and jet fuel.  The market for light oil will continue to diminish as the increase of air and land vehicle traffic turns to electric.

 

Conversely heavy oil such as Western Canada Select has a much wider market.  While it can be upgraded to allow for refinement into gasoline, due to the molecular makeup of heavy oil, with its greater numbers of long chain carbon molecules, it is the feedstock used for the manufacture of thousands of consumer products.  The following is a small list of products derived from petroleum:

 

Ballpoint pens, ink, floor wax, upholstery, sweaters, boats, insecticides, bicycle tires, sports car bodies, nail polish, fishing lures, dresses, tires, golf bags, perfumes, dishwasher parts, tool boxes, shoe polish, shampoo, wheels, paint rollers, shower curtains, guitar strings, luggage, aspirin, safety glasses, antifreeze, toothbrushes, combs, ice chests, sun glasses, tents, detergents, paint brushes, CDs & DVDs, balloons, crayons, parachutes, telephones, cameras, dishes, pillows, enamel, bandages, artificial limbs, anaesthetics, artificial turf, dentures, folding doors, hair curlers, golf balls, cold cream, refrigerators, movie film, toothpaste, soft contact lenses, shoes, water pipes, hand lotion, roller skates, surf boards, trash bags, candles, tennis rackets, rubber cement, toilet seats, skis, cortisone, deodorant, carpet.    

 

Because heavy oil is so utterly predictable, stable and responds precisely the same way every time, companies are not looking to replace it as a feedstock.

 

What Canada needs now and what will be required into the future are pipelines.  Pipelines provide the ability for Canada to get its oil to market in a safe and sustainable manner.  Canada is a unique country that has the capability of exporting its oil and gas to the North, South, East and West.  However efforts to get this valuable resource to market have been stymied by political and environmental forces intent on keeping our country from being allowed to market its resources.  

 

Today, people have allowed the catastrophic 2013 train crash, which killed 47 people in the town of Lac – Megantic, Quebec, to escape from their memory.  That terrible event would not have happened if we were shipping our oil to markets through the safe dependable means of a pipeline.  Our Eastern brothers and sisters in Quebec should be embracing the Energy East line of TransCanada Corp, now known as TC Energy Corp.  However, their application was withdrawn due to the impractical, unreasonable decision of Quebec’s leaders, who object to new pipelines in their province.  Instead the Quebec and New Brunswick refineries, import their oil from Saudi Arabia, Venezuela and elsewhere.

 

In the West we are struggling to get pipelines built to tidewater.  The constant government interference, objections and disobedience of others has to stop, if we Canadians are going to have the prosperity that our oil industry can provide.  The Trans Mountain and Coastal Gas pipelines must be built.  For far too long we have been held hostage by a minority of special interest groups, many of them from the USA, which will go to whatever limits to destroy our countries prosperity.  

 

To the South the never ending interference from one group after another has again caused the Keystone XL Pipeline to be delayed.  On April 15, 2020    Montana Chief District Judge Brian Morris, ruled more work needed to be done on permits required for two river crossings. Now, news out of Washington “that if elected in November, Democratic hopeful Joe Biden vows that he will rip up U.S. President Donald Trump’s approvals for the Keystone XL pipeline”.  This eight billion dollar project has been needlessly held up for more than a decade.  Revenge for TC Energy will come once the pipeline is completed and recourse from the provisions of the now replaced NAFTA Free Trade Agreement will be relied upon for the damages that TC Energy has endured.

 

What Canada must be considering is a Manitoba pipeline to the northern Port of Churchill and a Northwest Passage route from Alberta, north to the Beaufort Sea.  Pipelines in the northern hemisphere are not new, neither is the task insurmountable.   Russia has been transporting oil and gas through above ground pipelines in the Arctic Circle for decades.  The Alaska pipeline, which is constructed above ground, was completed in 1977. Engineers faced a wide range of difficulties stemming mainly from extreme cold and difficult terrain.  Special construction techniques had to be developed due to the difficulties caused by permafrost.  

 

Today, the Covid 19 financial crisis is now unfolding and to what extent we can only imagine.  It will cause Canada to endear a deficit like never before.  How will we overcome that debt, which must be repaid?  It will take decades and Alberta Oil once again, will be one of the economic engines driving the recovery and all of the have not provinces, Quebec included, will be eagerly looking for Alberta’s continuation of transfer payments.  

 

Canadians need to disregard the unfounded ranting from the likes of Ms. May and Mr. Legault, with all their negativity towards the oil industry.  Canadians need to come together and bend a little where necessary to see the common good achieved, through the construction of pipelines North, South, East and West.  Be a proud Canadian!

 

Donald Benson

Nordic Group of Companies