Category Archives: Oil & Gas

North America Energy Alliance, Round 2

Guest blog by S. A. Shelley: At OWOE we try to be objective in our analysis and evaluations of energy matters. But we can’t always be emotionless, or in my case, I can’t always refrain from smacking my forehead when politicians do questionable things: I’ve been near comatose for the last few weeks on account of the politicians.

In 2017, we looked at and forecast possible outcomes for US energy independence, including oil and gas production (see OWOE: Can the US Become Energy Self-sufficient?). We looked at four possible outcomes, as in the following figure, based upon high / low consumption versus high / low production.

Fig. 1 – US Oil Production Outcome Matrix (2017)

At the time I voodoo guessed that it was more likely that the U.S. would be moving into a high consumption and low production case, resulting in big oil deficits. I think we’re in danger of moving into that condition sooner than later.

According to a US EIA estimate at the beginning of this year, US oil production will fall this year before rebounding next year to  a maximum of 12 million barrels per day. Subsequent reports suggest that the EIA prediction was pretty good. Furthermore, there are now industry wide concerns of all big oil companies underinvesting in new production (see Market Insights, Natural Gas Intel). Thus, it is very likely that the US won’t achieve the 17 million bbls / day production required in the high production case indicated in Figure 1, and could in fact start seeing production fall to the low case of just 7 million bbls / day in a few years. In contrast, the US is already approaching demand of over 20 million bbls day, which is the 2017 high consumption limit. These two factors put the US in the in the high consumption and low production quadrant, which is not good.

Under production (supply), coupled with somewhat steady demand, results in rising oil prices. It takes years for US E&P firms to find and bring on stream new production. So instead of waiting for or encouraging US businesses to find new oil resources, the US President asks OPEC to increase supply. That one really hurt my head. It was an especially egregious policy initiative in light of the fact that the current US administration has stopped most new oil projects in Alaska, Texas, Louisiana (see ABC News and CNBC) and of course, pipelines.*

Up north, in Canada, there are billions and billions of barrels of oil that can supply the American market. It would just take a bit of pipeline expansion. But no, instead of supporting a near trading partner with historically similar democratic values, the US president would rather send more US dollars to hostile states: Make no mistake, most OPEC states are not US allies or friends.

But there may be hope for America. Both big Canadian railroad companies are in a takeover war for Kansas City Southern. This is not a railroad battle, this is a battle to transport oil in the near future. As oil pipelines are being stopped, rail is becoming a major means of transporting oil.

The problem for America is that it will need a lot oil during the green transition, and America is no longer in a position to supply all its needs domestically. Oil by rail is a temporary solution at best. It really is time to think about a North American Energy Alliance (see OWOE: Time for a New Energy Policy) and forget those way-off hostile lands. Make the deal with the neo-communists up north, because then we can keep a close eye on them for much lower cost and less blood. Building an energy alliance of some form with friendly states will be necessary to keep America from running out of oil, because green technology cannot replace oil fast enough to keep the woke progressives happy. It still is, unfortunately, a trade-off between keeping energy and the economy going, or collapsing society and the economy until green technology catches up to the energy demands of a modern society. As written previously, green is better, but overnight green is impossible (see OWOE: Wishful Thinking vs Reality). 

Vive l’Alberta Libre!

*  Really, shut down Line 5. People are focused on the “perceived dangers” of a not yet built pipeline, Keystone XL, while ignoring the real danger of an existing pipeline, Line 5 in Michigan.

Canada plans to invade the US (again)

Guest Blog by S. A. Shelley: Pipeline politics have come to dominate energy discussions domestically and internationally. Probably the most well-known of these are the Nordstream 2 Pipeline in the Baltic to bring Russian Gas to Germany and of course the Keystone XL Pipeline which would have brought more Canadian Heavy Oil to American Refineries. Believe it or not, pipelines can bring benefits. For Nordstream 2 it will bring Russia a new vassal state. Keystone XL, had billions in money set aside to utilize renewable power and hire unionized workers; It would have been the world’s first “net-zero” pipeline and probably the world’s first equity built pipeline. Unfortunately, for both pipelines the tactical thinking won out over the strategic benefit.

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The Simple Answer: Oil Demand is Declining and Natural Gas Demand is Increasing

Guest Blog by S. A. Shelley: Since 2016, OWOE staff have been watching energy markets change as new technologies and phenomenon entered society, or as old problems and business practices ossified. While 2020 was a wild year that laid bare the ineffectiveness of most major governments to handle crisis, it also exposed some of the fallacies upon which western societies are built: Namely the need for business executives to fly around the world for meetings, the need for hordes of people to commute to digital jobs, and of course the lack of economic robustness in most realms. For certain, the pandemic surge and economic drop of 2020 that cut travel, commuting and similar highly energy intense activities resulted in a major drop in oil demand (Reuters, US BLS), and a noticeable drop in CO2 emissions along with a corresponding improvement in overall air quality in many urban settings. But, and here’s the real issue, as the pandemic ends, energy demand is increasing again.

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A Look-back at 2020

By OWOE Staff: Happy 2021 dear readers and supporters of OWOE. As everyone is aware, 2020 was a most unfortunate series of events, beginning with the release of a virulent pathogen from China which resulted in a wide range of foreseeable acute and long range economic, social and energy consequences. Thus, OWOE staff are working hard to analyze these consequences to provide meaningful insight about energy matters going forward. We plan a variety of interesting updates to our core energy information, tools and blogs this year and perhaps even a contest involving energy self-sufficiency at the local level. Many of the changes happening in the world of energy are the cumulative results of individual changes in consumption resulting from economic turmoil compounded by inept government policies and continuing industry business practices.

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Oil Supply – If Everyone Produces, Everyone Goes Bust Part 2

Guest blog by S. A. Shelley: In Part 1 of this blog on Oil Supply, l examined the supply-demand history of oil over the past decade, which has set the stage for the dramatic changes in the industry that are just beginning. In this blog I’ll explore some of the likely consequences and will venture to predict some of the dramatic events to come and some of the likely irreversible impacts recent events will have on the world oil industry.

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Oil Supply – If Everyone Produces, Everyone Goes Bust – Part 1

Guest blog by S. A. Shelley: A few years back, I wrote that at some point in the future (now-ish) oil produces may need to resort to providing incentives for ICE buyers, or undertake more extreme measures to ensure sufficient oil demand. Well, oil producers have not yet undertaken either of those steps and, as noted in a recent blog, we’ve now hit peak oil demand. So producers were resorting to the next best means of balancing the supply-demand equation by curtailing supply in order to support oil prices. At best this was a short term solution to a growing long term problem. Now with the beginning of the oil supply war, we see that curtailing supply has failed completely, and, as predicted in my February 2, 2019 blog, somebody has decided to produce the hell out of its reserves while there still is a market for oil. This will not be a short war; it will be long and drawn out, and the eventual winners will not be who everyone now thinks they will be. In Part 1 of my blog on this topic, I’ll examine the supply-demand history of oil over the past decade, which has set the stage for the dramatic changes in the industry that are just beginning. In the upcoming Part 2 I’ll explore the likely consequences.

Continue reading Oil Supply – If Everyone Produces, Everyone Goes Bust – Part 1

The World is at Peak Demand

Guest blog by SA Shelley: (Note from your OWOE editor: This demand blog was written a few weeks before the oil supply war started. The oil supply war and corresponding drop in oil prices will be discussed in an oil supply blog in a few weeks. However, the author firmly believes that COVID-19 and a likely economic recession are short term demand shocks. Long term demand decline resulting from shifts in technology and consumer behavior, key issues addressed in this blog, is inevitable.)

The world has hit peak oil demand. I wrote it, I’m standing by it, and no apologies to anyone for this.

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Who is hiding all the oil?

Guest blog by SA Shelley: I try to avoid writing about oil too often for three reasons: 1) the oil markets are well observed by more than enough highly paid analysts, 2) the changes in energy technology and distribution are more interesting (and still largely misunderstood by highly paid analysts) and 3) I try to build anticipation for my oil industry supply and demand blog in January of each year. But because of some recent peculiarities that have arisen in the oil markets, a short blog about oil now seems warranted.

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Canada and Energy: Part 2 – The Bad

Guest blog by S. A. Shelley In the previous blog about energy in Canada, I presented evidence that Canada has abundance of energy, ranging from hydrocarbon to existing renewable energy supplies. In essence, Canada has similar potential to Norway and even at a larger scale. Norway, like Canada, has been a prolific producer of oil and gas and continues to be so, but Norway is already in a position to be able to transition fully to renewable energy and has undertaken steps in that direction and to curtail fossil fuel consumption (see Independent.co.uk, and Fortune.com).

But where Norway has long term vision and broad social and political consensus, Canada has acrimony, mismanagement and corruption.

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Canada and Energy: Part 1 – The Good

Guest blog by S. A. Shelley If there is a poster child in the world for energy wealth, it’s Canada. Folks are dumbfounded by what the Europeans are achieving with renewable energy and decarbonizing, folks quake at the vast untapped oil and gas reserves of Russia, and folks are stunned at how technology and finance combined to bring about the prolific U.S. tight oil and gas production which is upheaving world energy markets. Wow, eh?

Instead, folks should be looking at Canada, that half frozen land of log drivers, curlers and exporter of Hollywood A-listers, and be awestruck by the energy resources that have somehow fallen under the Dominion of Canada.

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