Drill, baby, drill: Trump promises energy dominance, but lower energy prices
The last time, that didn’t work out so well for Saskatchewan oil and gas. The depths of the seven year oil downturn which devastated the Saskatchewan oil and gas industry included all four of the Trump years the last time around. While oil low prices benefited consumers and large portions of the economy, they also had a significant impact on Saskatchewan oil companies and particularly oilfield service companies. Activity levels, vendor rates, employment and employee remuneration were all deeply affected by the low energy price policies.
This is NOT an endorsement of Biden by any means, but simply a reflection on what did happen during the last Trump presidency.
Looks like certain sectors of the Canadian economy will have to learn how to compete (or ask for government subsidies)
Oil becomes profitable when the price of oil becomes high enough to cover the costs of extraction.
If more easily and cheaply extracted sources become available in sufficient quantities, the price drops low enough that it will no cover extraction costs. When this happens, the capital shifts to those easily extracted resources.
The growth and profitability of some sources of oil, particularly in Canada, was the result of artificial restrictions on cheaper and more readily available sources distorting the market. If those restrictions are lifted, the market will be flooded again with cheaper oil, causing prices to fall.
This is how Trump will end the war in Ukraine. Oil, gas, and other petroleum related commodities are more than half of Russian exports. If the price drops significantly, this will absolutely crush their economy. It is a lever to put pressure on Russia.
It will, unfortunately, hurt other countries, too.
The industry has to cover total costs to remain viable in the long run, not just variable costs.
And a lot of the industry faded as a result. Oil shows in Weyburn and Lloydminster used to sell out of booth space. Now, they’re down by a third or more compared to 10 years ago.
Doesn’t take much to make commodity prices head for the floor.
Trump gets the US putting out another 2 million barrels a day on to the world market, then every buyer of oil grinds every day for a lower price. Pretty soon producers don’t want to be stuck with unsold oil( not that they can store much ). So they decide that selling today’s lower price oil is way mo bettah then being stuck with tomorrow’s even lower price oil.
And thus oil goes to $40.
Russian oil is high cost production oil. Say $30 a barrel. Saudi, Gulf States, say $8.
Russia will collapse socially at $50. Their foreign reserves are almost exhausted. The true free market price of Roubles, right now, is probably 300 to $1.
With oil at $50? Say goodnight.
This is why I can’t stand the conspiracy theorists who claimed Trump was a Russian asset, he was literally running their economy into the ground with his energy policies.
Back in 1992, I had an engineering internship at CANMET. One of the staff engineers showed me a folder once and said “we’ve got a way of getting of oil out the tar sands but it’s pointless unless oil gets above $50 a barrel” and then threw the folder back in a drawer. I got out of chemical engineering a year later because there were no jobs.
Yet in 2023 the US produced more oil than every other country, ever.
Despite the government, not because of it.
And did you hear about the Wuhan Flu thingy and how governments everywhere shut down everything in 2020…
Go grab some gears.
“Yet in 2023 the US produced more oil than every other country, ever.”
The idiot Joe Biden decided to drain the Strategic Petroleum Reserve of 180 million barrels, but only managed to refill it with 32 million barrels.
Here’s what ‘learning to compete’ meant: from Nov 2014 to spring, 2017, the vast majority of Saskatchewan oilfield companies saw their employment payrolls drop by half. And total remuneration also dropped by about half for those who remained. So total payroll going into the community dropped by about three quarters. Now, some, but not all, of those pay rates have eventually returned, but not all by a long shot. And vendor rates, what oilfield services charge oil companies, largely STILL have not returned to 2014 levels, despite substantial inflation during that time. The number of drilling rigs working in February 2014 was around 110. Now, we’re lucky to top out around 50. And yet we still produce roughly the same amount of oil. Most oilfield service companies barely survive those 7 years, 4 of which were under Trump. And the destruction of capital was immense.
So many think Trump is good for oil – maybe in the US, where production rose tremendously, but not for this little thing called profits and wages. That may be an unpopular statement, but it’s absolutely true. I reported on all of this during that time through hundreds of stories.
It seems you are saying many SK oil plays are fundamentally not economic . They will, sadly, disappear.
As refining and storage capacity appeared to bottleneck petroleum during the Trump years, I always wonder if some deregulation to build pipelines to eastern and foreign markets could help. Including greater refining and storage capability. Possibly some legislation or tariffs to ensure that eastern Canada considers buying Canadian products first before foreign markets.
Nah, too hard.
How much of the reduced rig count is due to directional drilling?
Directional drilling is commonplace on every well. The advent of large multilaterals is a recent thing, within the last year.
The price of oil is already pretty low right now. This is probably just a piece of raw meat being thrown out there. Trump will likely open up federal land to more drilling but not sure how that would affect the price.
Also, if profits and wages are lower because of lower oil prices then profits and wages are lower in the US as well.
Unlike Russia, US is a diversified economy. Low oil costs helps the entire US economy.
it has to. it absolutely friggin has to.
l once read an analysis the economy prospered with high oil prices. BULL
maybe one or 2 sectors, but cheap energy is vital to prosperity regardless of the exact form. we are accustomed to hydrocarbon based energy.
well folks, if the wheels still turn with cheap oil, use it and make money to afford the later higher prices etc.
l cant believe it, an ‘economist’ or ‘market expert’ claiming high prices were a good thing.
I agree with your assessment of what learning to compete means. Disclosure, I grew up in an oil patch in Western Manitoba and own investments in oil producers. Not all of Trumps policies will be good for Canadian companies/workers.
I agree with this: “Not all of Trumps policies will be good for Canadian companies/workers.” but they don’t have to be, as he shouldn’t care about Canada.
Now write it like this: “Not all of Trudeau’s policies will be good for Canadian companies/workers.” and you have a leader that should care more about the impacts across his own nation with policies he implements, and yet he doesn’t care.
Sad really, going to get it good and hard either way apparently!
“I agree with this: “Not all of Trumps policies will be good for Canadian companies/workers.” but they don’t have to be, as he shouldn’t care about Canada.”
Exactly right. Canadians tend to forget that for some reason.
Well the real picture will change when the Liberal/NDP regime in Ottawa is kicked into the ditch so far they won’t find their way out for 50 years. Trump hates Trudeau (like most in Western Canada) and so the picture may change fairly significantly.
Don’t forget what other political figure took over in Canada in 2015.
Blame should lie with him as well.
Oh, there is plenty of blame there. Any success in the oilpatch since 2015 had been in spite of Trudeau, not because of him. But Trudeau does not have impact on global prices – US presidents absolutely do. And Trump did.
“ in spite of Trudeau “: Did Trudeau increase these firms cost structure? How did he affect the drillers costs? If so, what was the magnitude. Enviros main tactic is to add a thousand small costs that eventually make every level of resource production unprofitable, whether you’re talking about timber, mining, refining, exploration, etc.
The carbon tax is just one example. While individual people get rebates, businesses certainly don’t. I know of one dirt moving company that could employ several additional people at $70,000 a year for what they pay in carbon tax, alone.
And then there’s the cancellation of Teck Frontier oilsands mine and Energy East pipeline, DIRECTLY attributed to the federal government policies. So there’s that.
Has anyone done analysis what removing these would do for profitability?
The industry needs to inform the people at large.
Increased paperwork for well, pretty much everything, increased environment costs. I have a very well paid nephew who does lease rehab. Very expensive and totally unnecessary.
So does OPEC and Russia.
Government is always the damn problem.
Alberta depends a lot on oil and gas royalty revenues (an understatement). I’ve been trying to find out, without success, the Alberta Governments plan B for revenue when the price of oil goes down. Given the two goofs in Ottawa who oppose greater production and security of markets, things could look pretty bleak for Canadians. Even the ones who vote Liberal/NDP.
Not just Alberta, but the entire nation. PM dipshit obviously has no plan to replace Canada’s greatest economic engine. Perhaps Quebec’s dairy producers will send equalization payments to AB and SK. And I laughed and I laughed and I laughed.
Yank here. What Biden did was to stop the drilling mania (cutting costs for producers) and allowing them to let the price rise (raising revenue). None of that was due to “Green”. And now Exxon’s stock is up 300% or more.
He also blew up that pipeline and sold the Europeans lots of NatGas that they suddenly needed.
Not a “Green” bone in his body.
Don’t worry Brian … you can always ask Russia and Saudi Arabia to cut back their production. Canada can always “partner” with conflict oil.
I’m sorry … but you’re saying the EXACT same thing that Venezuela said during the Trump Admin. That Trump was flooding the market with cheap oil and was ruining the Socialist oil-based economy. Come to think of it … Canada has pretty much become a Northern Venezuela … only MORE Communist/Fascist than Socialist.
@Kenji
100% – Trump strangled the socialist globalist regime to the north and kept it’s WEF petty dictator in check.
The Monroe Doctrine exists for this very reason.
The Saudis have continually cut back production in recent years to prop up prices and revenues. They realized their 2014 opening of the floodgates not only hurt their competitors, but their own revenues as well. How much more they will cut, I don’t know.
And I don’t care if I’m saying what they said or not, or what you think of them. I am speaking with absolute certainty what happened from the Saskatchewan perspective.
So Brian … you must be REALLY pissed-off at Biden for dumping our strategic oil reserve into the marketplace to drive gasoline prices down before the election?
And Brian … you DO know that high oil prices are the single largest driver of runaway inflation? So you are in favor of a cost of living so high that your improved Sask. oil industry wages are still inadequate to provide a decent living standard?
The entire purpose of the SPR is to have a supply in case of war. Indeed, its all stored in salt caverns such that, even if nuked and all the surface infrastructure were destroyed, you could plop a drilling rig a mile or two over and directionally drill into it and still have full access to every drop of it.
Using the SPR to fiddle with market prices borders on insanity.
Yes. Yes it does. But as Hillary Clinton is reported as saying after Bill was elected … it’s OUR military now … so who needs a strategic reserve?
Don’t forget about pipelines. With new, pro-oil admins in both countries, it will be time to approve more pipelines, unlike the regressive regimes of Trugroper and Demented Joe.
You’ll never see Keystone XL revived. I doubt you’ll ever see another greenfield cross border pipeline again, after what TransCanada went through. Hell, they changed their name to TC Energy as a result! They were scarred for life from that experience. The best you can hope for is Enbridge replacing one of its oldest pipelines with a larger, newer one, as they did with the decrepit Line 3. Note, Line 1 and 2 were not replaced. The coating used on Line 3 turned out to be a disaster and a maintenance issue for decades, leading to its eventual replacement.
The solution is new entry to the pipeline business. It can happen, particularly if it becomes a sure thing on the US side.
trump may open up the half built pipeline Xiden cancelled in the first week
That ship has sunk. Too late in the day to see the Phoenix rise from the dead.
Ohhhhhhhhhhhh Mommmmaaaaaaa … not across the sacred indigenous burial sites!!!??? How could you!?
OTOH … perhaps that’s the ONLY way we will ever actually excavate the GPR “anomalies”?
Self-inflicted communist overhead costs drive up the price of anything Canada produces to uncompetitive levels.
Perhaps PP will throw a big tariff on foreign oil, to prop up domestic production while punishing all Canadians except the oilcos.
Perhaps even ban foreign imports altogether, and implement a Canadian Oil Commission to match the Canadian Dairy Commission.
Who cares about Canadian consumers? Pffft!
High Interest Rates aren’t going away over night and the anti-oil market isn’t going away either. Nobody wants to carry excessive debt and “drill baby drill” takes debt to grow production. Plus the cheap oil’s done. Permian unconventionals are costing $10MM a pop, if they’re lucky. NOBODY will be looking to flood the market and undermine their own balance sheet. Maybe some development could be done to offset whatever production’s restricted in Iran and Venezuela BUT there’s also Russian, Iraqi, UAE, Brazil, Ghana, etc. to worry about. The KSA wants oil at least where it is right now and probably so does Russia. So I can see this house of cards going on at $80 WTI for a while yet, which is actually cheap for oil. $60 WTI or lower will be the end of a lot of oil companies. It’s a big difference from the 2% interest rates & still early days on Permian unconventional development. Throw in a lot more regs & restrictions, new Permian wells have become much gassier more expensive to operate, growing gas egress bottlenecks & oversupplied gas market, held up approvals on LNG facilities, etc. Reality’s changed quite a bit since Trump. Actually if Covid hadn’t hit, even with no Ukraine invasion, oil was tightening up and things were looking good for H2 of 2020…but then the floor dropped out. That still doesn’t change the fact that oil demand is at record levels and exploration investment is still in the tank. I can’t see $1.86 a gallon again even if Trump demands it.
Yes – for the industry to thrive it needs reliable access to markets – which means that the current Canadian government “no more pipeline” policy needs a radical rethink.
The price of crude is about $75 per barrel US. The last two years, it ranges between about $70-120 per barrel.
For much of Trump’s presidency, it was about $50-60 per barrel.
Opening up more oil will drive the price down again.
Cheap energy – oil, gas, electricity – helps economic growth.
Economic growth increases the need for energy.
Energy production that increases efficiency (reduces costs) becomes more profitable.
Governments that print money, over-regulate and/or criminalize mother nature’s energy, make everything worse for everyone not a parasite.
Affordable energy is the bedrock of fiscal responsibility.. Without it we are in inflationary free fall.. Canada has no business pretending its California.. Trudeau needs to go..