If Calgarians are looking for an answer to that question, they could do a lot worse than look to Detroit by Max Fawcett · for CBC News, Sept 11, 2019
Another day, another divestment.
On Aug. 14, the Financial Post reported that Koch Industries (yes, that Koch Industries) was selling its collection of oilsands leases to a subsidiary of Paramount Resources for an undisclosed sum of money.
To some, like BNN’s Amanda Lang, this was more bad news for an already battered energy sector.
“The symbolism of yet another multinational player abandoning Canada is very bad,” she said during her daily television hit.
… But those people were probably thinking the same thing about Jason Kenney and the UCP earlier this year, and despite cutting corporate taxes and declaring war against the industry’s enemies, both foreign and domestic, the energy sector has continued to bleed jobs and capital. The shares of publicly-traded companies, meanwhile, are trading at multi-year lows — far lower than where they were at before April’s election.
This isn’t Kenney’s fault, mind you.
Instead, it’s a reflection of the fact that there’s nothing any Canadian politician can do to arrest the technological, economic, and environmental changes that are reshaping the oil and gas industry’s future. [aka, nothing can change the industry’s greed]
Tectonic shifts
… In a city where praying for another oil boom and promising not to piss it away is practically a rite of passage, what happens if God doesn’t have any more booms left to give?
Looking to Detroit
If Calgarians are looking for an answer, they could do a lot worse than asking someone who’s spent the last few decades in Detroit.
In 1980, Detroit had the second-highest median income per capita for workers under 35 in the country (nearby Flint, Mich., was number one). Today, those incomes have dropped by nearly $15,000 a year. And while it probably seems strange to compare the two cities, Calgary and Detroit have more in common than it might appear.
Both are defined by one dominant industry whose economic reach extends beyond its own supply chains and into the vitality of the city’s restaurants, bars, boutiques and housing market. Both have resisted efforts to diversify away from those industries and expand the scope of their economies. And while Calgary’s stock in trade hasn’t been disrupted in the way or to the degree that Detroit’s was in the 1980s, we’re all still in the early innings of a game that’s yet to fully play itself out.
For Detroit, the disruptive change came in the form of increased competition from Japanese and German automakers and, somewhat ironically, a spike in the price of oil in the late 1970s. And despite increasingly desperate efforts to subsidize and support the city’s auto industry, the slide continued more or less uninterrupted until it bottomed out during the 2008 recession.
For Calgary, and Alberta, the disruptive forces at work are twofold: the technology that’s unlocked billions of barrels in the shales of Texas, New Mexico, and Pennsylvania, and the ever-improving economics of lower-carbon sources of energy like wind and solar. Together, they’re transforming the global energy landscape — and turning what used to be a competitive advantage, Alberta’s massive oil reserves, into a potential albatross.
… As Wood Mackenzie, one of the biggest energy research and consultancy firms in the world, noted in 2017, “Although oil demand grows to 2035 on aggregate, it is minimal compared with what we have seen over the past 20 years. The prospect of peak oil demand is very real.”
This doesn’t mean Alberta’s oil and gas industry is doomed, or that it needs to start shutting in production any time soon. Ironically, the very nature of the shale plays that makes them so attractive — their ability to bring on production quickly from new wells — also creates an opening for non-shale operators.
A different kind of roller-coaster
Unlike the oilsands or conventional wells, whose production declines at a relatively gentle pace, shale wells are like a roller-coaster at an amusement park — a huge peak followed by a stomach-churning descent. Alberta can and will play a role in filling the gap they naturally create — a gap that will get much bigger as prices come down and fewer new shale wells are drilled.
“We can’t try to live in the past and hope for more boom times,” says Blake Shaffer, an economist with the University of Calgary and a former energy trader. …
But, he says, that scope will be informed by how quickly Alberta’s oil and gas companies can drive down their costs — and their GHG emissions. And they’d better do it quickly, given that we’re in the midst of a(nother) seismic shift in the global auto industry that will start hitting the demand for oil soon.
“I see the electric vehicle transition being far more rapid and far more widespread than I think even optimistic forecasts are calling for right now. And that’s substantial,” Shaffer says.
Indeed, as Fortune noted in a recent story, “EV sales are shooting up beyond many supposed experts’ wildest predictions.”
And while petrochemical-driven demand is expected to continue growing, it won’t be nearly enough to offset the growing impact of electric vehicles on transportation, which accounts for approximately 70 per cent of the overall appetite for oil.
“That’s where the curve is going to bend,” Shaffer says. “I think we’re going to see it in Europe, we’re going to start to see it in the Americas, and we’re going to start to see that sooner than we think in China.”
And Shaffer is clear: when it comes to that curve bending, it’s only a matter of when, not if.
Transition looms
“Eventually, a transition is going to be required,” Shaffer says, “and we can do it in an orderly fashion or we can do it in a forced fashion. Preparing ourselves is prudent, simply from a risk management perspective.”
It’s this preparation that helps explain much of the so-called “capital flight” that’s happened over the last four years, as American and international oil companies sell their Alberta assets to Canadian owned and controlled companies like Suncor and Canadian Natural Resources.
Depending on oil prices and the quality of the acreage, an average shale well takes anywhere from 12 to 24 months to pay out — that is, generate revenue equivalent to its costs plus a return on the investment. An oilsands project, by comparison, can take upwards of a decade.
If you’re a multinational company that’s uncertain about the long-term demand picture for oil, you’re going to start hedging out some of that risk.
“Just from a business point of view,” Shaffer says, “you want to reduce your exposure to being locked into long-life assets that may or may not be valuable. Having more flexibility with the shorter-life assets makes a lot of sense.”
This is the reality that many Calgarians have yet to fully reckon with, the one where the recent pain and suffering is being meted out by global supply and demand realities rather than the person sitting in the prime minister’s office (or, as some of the more conspiratorial whisperings would have it, his former principal secretary and longtime friend.)
And while it’s understandable that people want to go back to the days when the market traded on the basis of long-term scarcity rather than surplus, they’re not coming back.
Neither, just as importantly, are the days when the industry was significantly more labour-intensive than it is today. Companies are replacing workers with technology everywhere they can, from the drilling rig site to the head office, and there is nothing — not a new prime minister, nor any sort of short-term geopolitical disruption in the Middle East — that can change that.
(This is the first of a two-part series examining the challenges facing Calgary’s oil and gas sector. Tomorrow, Part 2: Adjusting to a new reality.)
EQT cuts about 200 positions from retooled organization by Anya Litvak, Sept 10, 2019, Pittsburgh Post-Gazette
Nearly 200 employees of EQT Corp. were cut from “Team EQT” on Tuesday as part of an effort to “transform EQT into a modern, technology-driven and efficient natural gas producer.” …
EQT Corp. lays off 196 people, slashing workforce by nearly 25% by Natasha Lindstrom, TRIB, Sep 10, 2019
EQT Corp. is laying off 196 employees, nearly one-quarter of its workforce, the Downtown Pittsburgh-based natural gas producer announced Tuesday. Company officials attributed the decision to a broader restructuring plan to “create a more efficient and nimbler organization.”
Slashing the 196 positions will save about $50 million in annual costs, according to EQT.
Pennsylvania permitting plummets as natural gas producers pull back by Bill Holland, Sept 9, 2019, S&P Global Platts
Still under pressure from investors to throttle back spending in the face of low natural gas prices, Pennsylvania shale gas drillers pulled 23% fewer permits for new wells in August compared with 2018 and 14% fewer permits compared with July.
The single biggest drop-off in activity occurred in Greene County in the gas- and liquids-rich portion of the Marcellus Shale south of Pittsburgh. Neighboring Westmoreland County saw an uptick in activity-driven super major Chevron’s 11 permits in the county southeast of Pittsburgh.
Another global oil and gas producer, Spain’s Repsol, joined with National Fuel Gas drilling unit Seneca Resources to almost triple the number of August permits year over year in northeastern Tioga County, presumably to take advantage of the increase in outbound pipeline capacity spurred by Williams.
The decline in permitting activity statewide is directly reflected in the falling rig count in the Appalachian shales and low nationwide gas prices from huge supplies of gas coming onto the market, analysts said. Activity is expected to slacken throughout the second half of this year. …