Was actually just going to ask you about the current oil situation. I certainly don't have a strong knowledge base here, but have been discussing a lot of politics with a family member, and would like a better understanding of this issue. Here's the argument:
- Oil is a major natural resource for Canada and needs to be expanded because it will generate more wealth for the country - economy needs a boost. Trudeau and the Libs have been hampering this, largely for environmental reasons, and there are too many regulations. We're pretty good on carbon and the environment already compared to most countries, and the positives outweigh the negatives. I have made the argument that we are weaning off oil as quickly as possible because the climate issue is so important (he does believe in climate change), so it doesn't make sense to do anything that will take decades, but I think in the short term everything should be on the table now. The entire equation has changed with Trump, and we need to be economic ninjas for at least 4 years.
- Also there's an argument that after the invasion of Ukraine, Trudeau made a huge mistake by not selling oil to Europe who were "begging" us for it, and had to buy from the Middle East instead.
- They need more pipelines. I argue Trudeau did give them one but it's not enough and cost way too much because of environmental regulations.
I know the ability to refine our crude is limited, so what are the best options here? How hard is it to ship oil to Europe (or Japan)? Does it make economic sense? What can we do better?
From a strategic point of view, Carney offering an olive branch to the oil industry would help lower the temperature in Alberta and boost the economy. Giving him a better chance of getting elected as well.
Obviously she's not going to get everything on her list. But from a centrist point of view and realistic about the current economic situation, what (if anything) does it make sense to offer?
Try to get them a pipeline? How long will that take, and is it feasible? What about upping the production cap?
- Oil regulations are largely necessary. Trust me, as a former safety professional for a pipeline contractor, pipelines leak and spill...a lot. Oil sands product specifically is harder on pipelines than sweet crude and they run through pristine wilderness, over rivers that supply drinking water to communities, etc. With that said, there is no such thing as a short term oil infrastructure project when your supply is as ridiculously landlocked as the oil sands are. Pipelines take years to build, even if you streamlines the regulatory process because fuck clean water. I can explain that process in more detail as to why they take so fucking long, but just trust me, they do and it's not "environmental regulations" as the driving factor in that.
- Europe is a bad oil partner for us. Even if we scrap our environmental regs, they won't scrap theirs and they take our emissions into account into their purchasing. They lack the specialty refinery capacity to handle our heavy products and we would need to like....6-7x our eastward pipeline capacity (300K bpd currently) to make them our way out of this. For us to refine enough to do that for them, we're talking about 7-8 years and 40B dollars to build enough refinery capacity to bring those extra 1.5-2M bpd online. The Middle East (and Africa) are much better O&G partners for Europe in the short to medium term.
Best option is a holistic approach. A bit of everything. Back of the napkin without really understanding the minutae of each project?
Double the capacity of transmountain if possible (currently 970K bpd) would be most important imo, because Asia is our most realistic energy pivot away from the US, not Europe. Japan, China, SK, Indonesia, all huge and hungry markets. It's 1000's of km's closer to tidewater than going east, the right of ways already exist, in theory some of the environmental assessments can be grandfathered, and the political hurdles are probably significantly lesser than getting 5-6 provinces working together, including Quebec.
Add capacity to the east, an additional 600-800K bpd that doesn't go through the US is fine, but finish the pipe right to Irving in New Brunswick. If we sprinkle a couple refineries around the country (Alberta, Ontario, Irving expansions out east, etc) to be able to finish another ~1 million bpd we're probably in good shape. This would give us an energy picture of 4.3M bpd production with capacity of move just under 2M west, 1M east, and as much as we want south as needed....which would still be necessary politically because here's the thing that no one is saying right now in all of this, but it's a drum I've been beating on here for weeks: The US can't uncouple from us any easier than we can uncouple from them. We've spent 40 years integrating our oil industries together and they're as fucked as we are. We have a needle to thread here where we need to reduce dependence on the US, while at the same time being able to serve their energy needs because they're the ones without the alternatives at the end of the day.
- There are a half dozen refineries in the midwest that are set up to finish our heavy product, we are their sole supply (or nearly sole supply) of product to finish. If we stopped shipping to those refineries, they close, simple as that. There is no alternate supply for them that would necessitate those facilities staying active.
- Similarly, they have a ton of capacity in Houston set up to refine our product that used to be able to pivot between our product or Venezuelan product (which is also very heavy...and sorry, "heavy" is an industry term for a high sulphur content which needs more processing in specialized processing units that aren't common at most refineries...it doesn't actually weigh more, just higher in sulphur) and given that the Venezuelan industry is crippled due to hilarious lack of investment for a generation and brain drain, there isn't anything to pivot away to anymore.
- We.Are.Cheaper.By.Alot. Western Canadian Select is selling at 54.26 a barrel today. Slap a 25% tariff on that and you're paying 67.82 a barrel plus $3-4 pipeline rental fee per barrel. The cost of alternatives? Mexican basket is 64.02...oh, but also subject to 25% tariff....so 80 dollars a barrel plus shipping. Opec basket is 73 a barrel but then add the cost of shipping (roughly $5-7 a barrel) and you're at 78-80 bucks again....if there's no tariff on opec oil.
So what do you do? You just buy as much of the cheaper WCS as you can and pass the tariff on to your customers downstream. Simple economics is on our side here.
