S. A. Shelley: Assuming that Canada is not yet fiscally bankrupt, this Venezuelan gambit will bankrupt Canada in the longer term.

One of the things (among many) that Canadian Federal Politicians don’t understand is the value of heavy oil. Heavy oil is used as feedstock for a wide variety of products: Diesel and jet fuel are common products, but heavy oil is more plentiful and can be refined into more products. It’s the heavy stuff that Texas gulf coast refineries thrive on and which have made the United States a global powerhouse in refined products supply. This is something called value added which most Canadian politicians, especially the Liberal kind, can’t understand: It’s fine to be a bulk producer of a commodity, but it’s better to be a bulk refiner.

We noted in a previous blog that Canadian heavy oil exports are almost entirely to the United States to the Gulf coast refineries. I then argued that Canadian oil sales could be in danger if the United States and Venezuela ever got back together on common grounds and Venezuelan crude exports to the United States resumed. I wrote in 2019:

“American refiners along the Gulf Coast have been happy to buy cheap Canadian oil to blend for products, especially in the wake of oil production failures in Venezuela, but now comes another scary part for Canada….If Venezuela falls, then the new regime in Venezuela will be quick to ramp up production…. There are pipeline constraints and protesters along the route from Canada to the U.S. refiners, but there are no such blockages on the sea between Venezuela and the Gulf of Mexico.” (See OWOE: Canada and Energy: Part 2 – The Bad)

By golly, with one stunning move, followed by an outright admission by the current administration, America is back to accessing Venezuelan oil. Yes, it will take a few years to rebuild Venezuela’s oil infrastructure and industry which has atrophied due to socialist dogma and gross corruption. But it will be far quicker to do that, build a few tankers and start importing Venezuelan heavy crude north across the Gulf than it will be for Canada to build pipelines and push Canadian heavy crude south.

Canada hosed itself with years of socialist dogma coupled with corruption and Canada continues along that path to poverty. I don’t generally give free advice to Wall Street types, but I will this time: Invest south, not north.

However, I do occasionally caution Washington and here is my latest: It would only take someone to shut down Enbridge Line 5 and to stop power flow from Labrador to Quebec to crack Canada to pieces. All the hype by the Canadian politicians about Canada being an industrial powerhouse hangs on the cheap fuel coming through Line 5. All the hype by politicians about Quebec being a safe hydroelectric power supplier to New England depends on steady electricity flows from Labrador. If these pipelines and transmission lines stop, Ontario grinds to a halt, Quebec goes bust and New England goes dark.

Canadian politicians love to extoll the virtues of a service and research economy, while forgetting that people need to eat, work and have warm, safe places to sleep. The Western provinces provide that and would be good catch for State 51. The Maritime provinces could probably become states 52, 53 and 54, with Newfoundland rounding it out to 54 1/2.

The only long game in Canada is to sell out to China. In America, the long game for energy is just beginning. Shut Down Line 5, see what happens to Canada.

S. A. Shelley: For many years, OWOE writers have advocated for a North American Energy Alliance (NAEA) to ensure robust energy supplies at reasonable costs and with minimal geopolitical risk. This idea has started to catch. Some commentators have recognized that “Energy is the lifeblood of all nations, but it has become a weapon in the hands of Russia and Iran.” (Diane Francis: How to turn Canada into an energy superpower). While other analysts have commented that the U.S. and Canada are being economically defeated by China and thus should focus on developing a unified economic response, including energy to overcome the challenge from China (Canada at Economic War: Being Outplayed by Beijing).

S. A. Shelley: This week (June 10 to 12) I attended the Global Energy Show (GES) in Calgary, Alberta, Canada. There are a few things that surprised me about GES. First, that the Canadians have the gall to call it the Global Energy Show.  But then again there were more exhibitors at GES than there were at OTC (Offshore Technology Conference) in Houston last month. Secondly, that there were many Canadian politicians of all ilk speaking at the show: It’s been years since any politician of any note gave a keynote speech at OTC. Finally, that it is possible to book a dogsled with Uber in Canada. Though I had a short commute to the show from my place of stay, I did not fancy pushing through the deep snow and was very pleased that Uber Dogsled is available locally.

S. A. Shelley: Over the last couple of months there has been a lot of discussion about tariffs. The Trump administration is keen to apply tariffs on Mexico and Canada, and a host of other nations (except maybe China?). In terms of the percentage of GDP that international trade contributes to their economies, it is obvious that the US can sustain a trade war quite well compared to other nations or regions (Fig. 1).

S. A. Shelley: After the fall of the Berlin Wall, the global trade order allowed for unprecedented bounties of consumer goods to flow to more and more people while lifting hundreds of millions out of poverty.  But it also allowed the political class of the West to become self-deceived and inured to the continued dangers to our way of life.  I’m not a Marxist, but I will definitely agree that society has been a constant struggle for power across all spectrums since antiquity. Consequently, in the west we built institutions around law, order and good governance to assuage that struggle, while in the East they went the authoritarian route to hammer that struggle into remission. But while Western politicians splurged on largesse for the masses, the more authoritarian ones did not forget to splurge on defense. We did and we will pay dearly for it shortly.

S. A. Shelley: At OWOE, we have repeatedly advocated for a North American Energy Alliance of some kind to ensure cheap and robust energy supplies at reasonable costs and with minimal geopolitical risk. In some forms, it already exists when you consider how the Northeast is supplied by cheap Newfoundland hydropower via Quebec (after a huge markup), or how the overwhelming majority of Alberta Oil is shipped to the Gulf refineries.

Guest blog by S. A. Shelley: As is usual every spring, many large entities ranging from super major oil producers to large Wall Street firms and global organizations release annual energy statistics, reports and forecasts about the world’s energy state. Invariably discussed are subjects like energy mix, demand or supply projections. Often these entities will venture into discussing oil prices and associated forecasts. All those entities have big research budgets and teams of analysts, statisticians and economists pouring over mountains of data. However, even with all those highly paid personnel, and I suspect some added AI, those big entities are at best equal to the analysis undertaken by OWOE staffers, but more often than not, much worse. Apparently, nobody can beat curiosity, whisky and voodoo.