[potatopizzafan]

Yes it is different. Most of those oil & gas jobs are not coming back to downtown even if the price of oil stays between $70-$100 per barrel, for these reasons.
1. Many of the jobs were to support new oil sands projects either in the implementation or planning stage. For the completed projects, those jobs are gone. There are no major projects being planned so those hires will not happen
2. O&G producers, drillers and service companies have been merging or in a few cases going out of business altogether. For the surviving companies, they have got leaner. That is a net loss of jobs likely never coming back.
3. The pandemic and the work from home phenomenon has raised the question ... 'Just how much downtown office space does or will a company need?'

A recovery in oil & gas will not be the saviour of downtown, or the solution to the high vacancy rates.

1. My understanding is that many of the large producers have put some projects on the "backburner" due to lack of pipeline capacity and low prices, I imagine they will looking at firing up those projects if we see prices stay high and new pipelines come online, no?
2. Sure many companies have gone out of business, but with rising demand and oil prices, will that not encourage new companies to pop up? especially in the service and drilling sector. My spouse is involved in the drilling side and they have seen a massive increase in sales in the last few months. If there is money to be made, people are going to take advantage of it
3. I agree with this point, although IMO filling the towers isn't that important, as long as there is an increase of jobs. Calgary simply has too much office space so the high vacancy rate doesn't really concern me. The unemployment rate does.

 

[darwink]

1. My understanding is that many of the large producers have put some projects on the "backburner" due to lack of pipeline capacity and low prices, I imagine they will looking at firing up those projects if we see prices stay high and new pipelines come online, no?
2. Sure many companies have gone out of business, but with rising demand and oil prices, will that not encourage new companies to pop up? especially in the service and drilling sector. My spouse is involved in the drilling side and they have seen a massive increase in sales in the last few months. If there is money to be made, people are going to take advantage of it
3. I agree with this point, although IMO filling the towers isn't that important, as long as there is an increase of jobs. Calgary simply has too much office space so the high vacancy rate doesn't really concern me. The unemployment rate does.

1. Your understanding is wrong. They will also categorically not be able to raise debt for oil sands projects which look like ones from the last cycle.
2. Where will new companies get their capital? The financiers have lost so much money on USA shale they don't want to invest on an up when the technology means it will inevitably be followed by 4 years of down, plus they are looking out for climate risk.
3. Unemployment won't be solved by oil and gas. Here is Texas oil and gas employment, where they have no market access issues:

If you think market access will bring back employment levels of the boom, or that a lack of it stopped the boom, I gotta ask, why did Texas stop booming and why hasn't Texas recovered?

 

[potatopizzafan]

That chart

1. Your understanding is wrong. They will also categorically not be able to raise debt for oil sands projects which look like ones from the last cycle.
2. Where will new companies get their capital? The financiers have lost so much money on USA shale they don't want to invest on an up when the technology means it will inevitably be followed by 4 years of down, plus they are looking out for climate risk.
3. Unemployment won't be solved by oil and gas. Here is Texas oil and gas employment, where they have no market access issues:
View attachment 306350

If you think market access will bring back employment levels of the boom, or that a lack of it stopped the boom, I gotta ask, why did Texas stop booming and why hasn't Texas recovered?

Thanks for the explanation, i'm really just trying to learn more so i understand the state of the industry better.

That chart seems to follow the price of oil. So I would say Texas stopped booming because the price crashed, Will be interesting to see what it looks like with higher oil prices.

Also, all your points tell me that there is massive underinvestment in oil development since the crash in 2014. doesn't that mean prices are going to skyrocket? Hopefully, i have a lot of Suncor stock

 

[darwink]

If multi-stage fracking hadn’t been invented you’d probably be right. But it has, and we can’t undo that.

 

[Nimbus]

Film and TV appears to be picking up steam in the Calgary area this year, a good diversification:

https://twitter.com/x/status/1372533876539731970

 

[JonnyCanuck]

That chart

Thanks for the explanation, i'm really just trying to learn more so i understand the state of the industry better.

That chart seems to follow the price of oil. So I would say Texas stopped booming because the price crashed, Will be interesting to see what it looks like with higher oil prices.

Also, all your points tell me that there is massive underinvestment in oil development since the crash in 2014. doesn't that mean prices are going to skyrocket? Hopefully, i have a lot of Suncor stock

I have a lot of Suncor stock too as well as Vermillion and Whitecap. However we really do need to tamp down expectations of another oil boom. The reason oil prices have got to where they are in a short period of time, are threefold:
1. OPEC has voluntarily cut back on production because of higher reserves. This could be temporary and there is no certainty it will last. Remember a year ago when Russia and Saudi Arabia decided to 'have at it'. Oil prices plummeted.
2. Largely because of what happened a year ago, the U.S shale oil production either shut down or was severely curtailed. It has not been ramped back up. If it does, we could see oil fall back below $50/barrel easily.
3. The market is anticipating demand for oil to spike once the restrictions and fears around the pandemic are relieved.

Even if and when demand does spike, there are ample sources of oil that can produced in shorter periods of time than it takes to build a new oilsands project. Darwink is right. There will not be the partners or investment dollars available to support new projects like there were in the past.

 

[heightjunkie]

If multi-stage fracking hadn’t been invented you’d probably be right. But it has, and we can’t undo that.

If only eh- it would be just amazing if that cat had never been let out of the bag. We would have like 8 more keystone XLs lol.

 

[CBBarnett]

A key piece that the Texas graph reminds me of is it's a two-step process. The first, is summarized nicely by @JonnyCanuck and @darwink: challenges with demand, competition from US fracking, and financing are key problems all in shadow of a global trend of a rapidly falling price of green tech/electrification of everything increasing competition from substitution.

The second is obviously related to the first, but in my mind is more important to the city and the province - jobs. All the wealth the oil energy industry's previous booms generated in this province was amplified largely because the industry was so inefficient. We had 10 companies, with 10 engineers, in 10 shiny office towers. 10 mega-projects competing for labour, all occurring at the same time. Pumped up demand for everything and spread the wealth farther and wider than it would have if the industry was more consolidated, like it is in most places. Crazy high prices and forecasts, combined with low competition led to a perfect storm of weath creation.

To rely on an O&G sector rebound to solve our economic problems is not feasible because we need both the first and second points to cut our way: prolonged high prices/good financing/steady demand/low competition + the local effects of job creation. I see a scenario for modest, boring levels of growth but I don't see any scenario where that's true on both counts like the old days. The cat is out of the bag on too many fronts: shale technology, electrification and green energy, automation and consolidation closer to home.

 

[potatopizzafan]

If multi-stage fracking hadn’t been invented you’d probably be right. But it has, and we can’t undo that.

you mentioned that financers have lost a bunch of money on shale and are reluctant to to invest in oil sands, why would they bet on shale again? where are the shale companies going to get the financing from?

 

[darwink]

If only eh- it would be just amazing if that cat had never been let out of the bag. We would have like 8 more keystone XLs lol.

Oil sands 8 million! Crazy to think about - what were we smoking? We assumed that no one else would innovate.

Without multistage fracking Alberta is so different. It only makes sense to burn natural gas for electricity baseload for cogen. So Alberta in a oil sands 8 million world with 10+ per GJ natural gas makes money on exporting a boatload of electricity too. Alberta also would have likely had 4-8 nuclear reactors close to coming online. Alberta would likely have passed BC population wise. Alberta would likely be closing in on $30 billion a year in provincial revenue from natural resources. Let alone the corporate taxes closing in on $10 billion a year.

Of course in that world, there are probably even stronger pushes for solar and wind and electrification in our demand markets.

 

[darwink]

you mentioned that financers have lost a bunch of money on shale and are reluctant to to invest in oil sands, why would they bet on shale again? where are the shale companies going to get the financing from?

Scale is the issue. Companies can use their ongoing cashflow and small networks of locals to finance a few shale wells. If that happens 100 times and people make money within 4 months, then it happens 1000 times. The big companies aren't the market problem. It is small companies raising $10 million bucks. Or the small companies making enough on the current up to double down and drill some more.

For the oil sands, it is a 20 year payback period investment that takes 10 years to build, so you have to be really comfortable with macro trends. The macro trend is if prices get high enough, there will be enough drilling in a very short period that will collapse the market again because a select few can get really rich by being really lucky in their timing and others will chase them. So if your oil sands project requires $60 WTI and a 2% growth to keep up with inflation over 30 years to break even, can you assume that? The money markets say no.

 

[darwink]

A key piece that the Texas graph reminds me of is it's a two-step process. The first, is summarized nicely by @JonnyCanuck and @darwink: challenges with demand, competition from US fracking, and financing are key problems all in shadow of a global trend of a rapidly falling price of green tech/electrification of everything increasing competition from substitution.

The second is obviously related to the first, but in my mind is more important to the city and the province - jobs. All the wealth the oil energy industry's previous booms generated in this province was amplified largely because the industry was so inefficient. We had 10 companies, with 10 engineers, in 10 shiny office towers. 10 mega-projects competing for labour, all occurring at the same time. Pumped up demand for everything and spread the wealth farther and wider than it would have if the industry was more consolidated, like it is in most places. Crazy high prices and forecasts, combined with low competition led to a perfect storm of weath creation.

To rely on an O&G sector rebound to solve our economic problems is not feasible because we need both the first and second points to cut our way: prolonged high prices/good financing/steady demand/low competition + the local effects of job creation. I see a scenario for modest, boring levels of growth but I don't see any scenario where that's true on both counts like the old days. The cat is out of the bag on too many fronts: shale technology, electrification and green energy, automation and consolidation closer to home.

It is a good point you make - the boom led/reinforced in a lot of Albertans the belief that market wages on an open market without unions means wage increases. It was easy to find an open job, so people just left places with bad pay and bad conditions. In reality, across most of the western world, these conditions are incredibly abnormal.

The belief that sectors that experienced employment conditions like this is normal has really undermined Alberta's politics. That that type of competition no longer exists in oil field services and construction has led some to believe the entire economy has collapsed, when truth be told it was just the world around them.

It is going to be tough over the next 20 years. Will former workers who could quit in the morning before the safety meeting and have another job by lunch continue to believe that the natural state of the labour market is the boom and everything else is just a hell scape and the rest of the economy should therefor suffer with them too? Or will former workers pivot and see that their employers captured all of the productivity growth over the past 7 years and start to wonder why their wages dropped in 2015 and never came back when their employersis making more revenue than ever.

It is also very interesting on the entrepreneurs side. It was so easy to start a business, expand and make money, when the economy was so over capacity you could just dictate your prices to be above your costs. Many of the boom era entrepreneurs thought they were very good business people when it turns out the business environment was just very good around them.

Coming to the realization that the image you built of yourself (either as a worker or an entreprenuer) was wrong helps to drive our crazy politics these days - because people fight it, which is only natural. Everyone else is responsible, and we seek enemies and others to blame. In reality no one is responsible. The economy innovated to reduce a price and make money, and it changed the path of Alberta forever.

 

[heightjunkie]

Oil sands 8 million! Crazy to think about - what were we smoking? We assumed that no one else would innovate.

Without multistage fracking Alberta is so different. It only makes sense to burn natural gas for electricity baseload for cogen. So Alberta in a oil sands 8 million world with 10+ per GJ natural gas makes money on exporting a boatload of electricity too. Alberta also would have likely had 4-8 nuclear reactors close to coming online. Alberta would likely have passed BC population wise. Alberta would likely be closing in on $30 billion a year in provincial revenue from natural resources. Let alone the corporate taxes closing in on $10 billion a year.

Of course in that world, there are probably even stronger pushes for solar and wind and electrification in our demand markets.

*cries*

Though it would be nice if we would do something like investing in nuclear energy (+ therefore nuclear science, opening potential areas for research and expansion in the future). Alas.

 

[UrbanWarrior]

The government is investing in nuclear technology research. Alberta is one of four provinces involved in the Small Modular Reactor program, and it is proposed that oil sands projects will be powered by SMRs, as well as remote northern communities I believe.

 

[Mountain Man]

Using nuclear to power oil extraction just seems so backwards!