[Surrealplaces]

Kind of a rah, rah article, but it makes some good points. I think many of us have been seeing some of these signs for a while now.

Yedlin: Calgary is starting something exciting — and it's turning heads everywhere

Calgary has always been a city that’s been good at starting something. As we come out of seven lean years brought on by a collapse in oil prices followed by the COV…

calgaryherald.com

 

[Zoom]

I can feel a change in Calgary over the past 1-2 years. A lot of people are done grieving over the loss of the oil and gas industry, and are ready to move on.
Not that the oil and gas industry is completely done, but most people are accepting that the industry is in decline and the golden days are gone for good.
I would say like half the population has already accepted the end of oil and gas in have moved on and the other half know it’s in decline but are hanging in there for another 5-10 years until retirement.

 

[JonnyCanuck]

The oil and gas industry is in decline only because there are no significant expansion projects underway or planned. Expansion is what drove the demand for jobs and obviously more office space. Thanks to government and the ESG crowd, expansion (and the financing of) is out of favour in this country. I guess that puts the industry in decline but it wouldn't be if we were producing more oil & gas and had means of getting it to market. At the moment, Europe would take everything we could send them. The price of oil & gas indicates there is a supply shortage globally and there will continue to be until a significant transition to renewables can me made. I have not seen a transition plan from fossil fuels to renewables for Canada, never mind the rest of the world.

 

[darwink]

The only capacity problem today are liquefied gases. For LPG/propane couldn't find any spare bullet cars, or capacity at a ocean tanker terminal when a client was willing to pay any price for delivered supply to europe. No 20 foot containerized bullets either, nor ocean going rail carrier to serve as a stop gap.

The lack of spot capacity reinforced in my mind the necessity for regulators to require 10-20% spot capacity in projects. Doesn't work when only a small number of projects are required to be that way though.

I don't know how the world will fix these markets.

So much money has been lost that the appetite for risk is near non-existent. Which has cost us (the western world) greatly on the resiliency front.

 

[DougB]

The only capacity problem today are liquefied gases. For LPG/propane couldn't find any spare bullet cars, or capacity at a ocean tanker terminal when a client was willing to pay any price for delivered supply to europe. No 20 foot containerized bullets either, nor ocean going rail carrier to serve as a stop gap.

The lack of spot capacity reinforced in my mind the necessity for regulators to require 10-20% spot capacity in projects. Doesn't work when only a small number of projects are required to be that way though.

I don't know how the world will fix these markets.

So much money has been lost that the appetite for risk is near non-existent. Which has cost us (the western world) greatly on the resiliency front.

ESG has dramatically increased the cost of capital for producers and shippers such that debt repayment, dividend payouts and share buybacks make more sense than does investment in incremental capacity. The market will fix itself by reallocating capital away from ESG and into energy. New investment won't occur until the equity prices increase substantially. The naivety of supply side climate activism is that in only makes investors in existing assets wealthier by choking off new supply.

 

[DougB]

I can feel a change in Calgary over the past 1-2 years. A lot of people are done grieving over the loss of the oil and gas industry, and are ready to move on.
Not that the oil and gas industry is completely done, but most people are accepting that the industry is in decline and the golden days are gone for good.
I would say like half the population has already accepted the end of oil and gas in have moved on and the other half know it’s in decline but are hanging in there for another 5-10 years until retirement.

The excitement has little to do with getting over the loss of oil and gas. Much of Canada is broken to the point that home ownership and retirement of personal debt is impossible due to inflated home values and extremely high taxes. Calgary offers a possibility of actually getting ahead.

 

[darwink]

ESG has dramatically increased the cost of capital for producers and shippers such that debt repayment, dividend payouts and share buybacks make more sense than does investment in incremental capacity. The market will fix itself by reallocating capital away from ESG and into energy. New investment won't occur until the equity prices increase substantially. The naivety of supply side climate activism is that in only makes investors in existing assets wealthier by choking off new supply.

Convienently forgetting the massive losses due to the supply glut. ESG is just one factor.

 

[Atticus]

The excitement has little to do with getting over the loss of oil and gas. Much of Canada is broken to the point that home ownership and retirement of personal debt is impossible due to inflated home values and extremely high taxes. Calgary offers a possibility of actually getting ahead.

It's not that people are excited to see O&G in decline, but there is a feeling of excitement that Calgary is moving in the right direction. Part of that moving in the right direction is accepting that O&G won't be the booming force it used to be. It's not going away anytime soon, but people are starting to see Calgary's future without it.

 

[DougB]

Convienently forgetting the massive losses due to the supply glut. ESG is just one factor.

Sure investors have long memories after years of losses, however ESG is the main reason for high cost of capital. Regardless, return of capital will win out over incremental capital investment for the short to medium term. Greed is the most genuine human emotion so eventually the market will fix itself.

 

[Habanero]

Sure investors have long memories after years of losses, however ESG is the main reason for high cost of capital. Regardless, return of capital will win out over incremental capital investment for the short to medium term. Greed is the most genuine human emotion so eventually the market will fix itself.

Is ESG the main reason for high costs or is it just inflation in general?

 

[DougB]

Is ESG the main reason for high costs or is it just inflation in general?

Chicken or egg. ESG activism, which over emphasized the "E" while selectively ignoring the "S", contributed to the spike in energy costs which in turn spiked inflation which in turn spiked energy costs. Climate change activism targeted supply rather than demand because oil companies make more obvious villains than do SUV driving soccer moms and delivery service dependent Millennials. The ensuing regulatory challenges and capital flight starved new investment. This left the energy market susceptible to unforeseen supply disruptions, such as Russian-Ukrainian war, and higher than forecast demand, such as the post COVID push towards increased suburbanizstion and higher demand for goods. The energy market was particularly dependent on Russian gas due to Europe's poorly thought out move to renewables. As intermittent sources with capacity factors less than 30%, wind and solar are actually gas fired. Normally higher energy prices would spur a demand response. This time, that isn't happening so high energy prices will likley persist for years. Sure other factors such as excessive monetary stimulus (central banks expanding the money supply) and fiscal stimulus (governments running deficits) also contribute. Perhaps the biggest factor is a loss of institutional and societal memory of the risks around inflation. Citizens, governments and institutions seem to have forgotten how difficult it was to exit the inflationary spiral of the late 60's through early 80's.

 

[darwink]

Doug assumes that because of ESG the cost of financing is higher.

I think he has it backwards. It isn’t ESG in and of itself which raises the cost. It is risk. Risk that while prices are high today that prices won’t be sustained for long enough to cover obligations. That is where lessons from the supply glut come in: a learning that despite the need for energy, that there is no protection from a market which can seem to exist only at two equilibriums: shortages and high prices, or over supply and low prices.

We invented technology that enabled production abundance—it isn’t even the first time the oil market ate its own in this way: the late 80s were the same.

Add in the risk that technology is not only a supply side risk but a demand side risk over the long term via electrification/fuel switching.

You don’t even have to factor in green house gas emissions to cast doom and gloom over the long term oil market.

The argument from Doug ignores: who was going to pay for all the extra supply which wasn’t needed over the last 7 years? Wall Street said no because once they are burnt 2 or 3 times they learn their lesson. So who? Instead of pure dollars and cents, Doug looks for a different enemy—when it was market forces all along.

Alberta has been sucked into this trap twice: believing some evil is denying financing instead of market forces. $330 million a year flushed down the drain for the North West Refinery. More than a billion on Keystone XL.