One corner of U.S. oil market has already seen negative prices
bloomberg.com
bloomberg.com
This is not oil for energy; reading too much into this is like seeing the price for firewood skyrocket and expecting people to freeze to death this winter.
https://www.independent.co.uk/news/business/news/cold-weathe...
If you've only got $30 left to cover food and electricity (and your heating is all electric), you basically choose between food or heating.
Google seems determined to give me UK stats, instead of US ones. Perhaps in the US you become homeless before you have to make that choice?
Do you understand?
Try checking the accuracy of statements before downvoting, and get out of your pampered, spoilt little lives once in a while and see how normal people actually live.
EDIT: Note, I'm not talking about valuearb here. They had the good sense to ask about it.
This is going to be a disaster for the Canadian petro-provinces. While much of this price collapse has been driven by OPEC, the COVID-depressed gasoline demand is here to stay for at least a few months.
In the oil bust in the first half of the 1980's people would sell their homes for a dollar just to get away from the mortgage because it was completely underwater. I fear we may see those days again in Calgary. I was born there during those days, which I don't remember, but I do recall the stories people told of it while I was growing up.
It's not a great way to run your economy.
>It's not a great way to run your economy.
Sure, but what other way do they have to run their economy? Without monumental government effort to keep prices stable grain (and grain derived products) isn't much better.
Just because you've destroyed the ring, you can't really go back to the Shire, but Alberta's choices in the 21st century are either a return to agriculture, and mass emigration, or a transition to exporting professional services.
[1] Ironically, while the price of oil plummets, the spot price for beef is up 20% since the start of this crisis... Although, the price of beef futures is dropping a bit.
[2] Edit: I'm aware that agriculture employs a small number of people (1.5-2% of the population, but so does oil extraction - only 0.3% of the population directly works in the tar sands - everyone else supports them.) Like any other industry, it has a large supporting industry of suppliers, truckers, etc. It's not nearly as lucrative as oil, but it's a living.
Alberta needs to look to Norway and Dubai for how you diversify away from oil in earnest.
Norway does have one advantage over some other producer countries though in that a lot of the oil business here is on the service side and has customers all over the world so it is less dependent on Norway's own oil producers.
Of course this comes with its own risks, oil demand, currency fluctuations, embargoes, etc.
Another difference is that Norway was already a sophisticated mixed economy before the oil came along and the state had the foresight to keep the bulk of the oil revenue out of the internal economy so that while it contributed, and still contributes, a substantial fraction of GDP it has relatively little effect on inflation in the country.
On the subject of agriculture, that is also quite different from Canada. Norway has relatively little arable land, most of the country is granite upland so farms tend to be small, at least in comparison to prairie what producers, very often family run. We can't grow much wheat because the climate is not congenial so most of the local corn production is rye and barley. The state supports farmers here partly to maintain a degree of self sufficiency in food but also to prevent depopulation of the inner and northern areas; farmers and their families create a demand for schools, mechanics, doctors, dentists, shops, etc. I doubt that any of that will translate into Canadian conditions. And the current right wing government has been reducing the degree of self sufficiency in recent years.
Armchair quarterbacking I know, but the trouble seems to be that when Alberta has any money at all, oil is the most profitable thing to invest in so that's where the money goes. Investing in uncorrelated assets would level out some of those crazy swings.
Then again, most Albertans I worked with kind of liked the crazy swings. As I'm a bluenoser that was during a boom time of course, so I've no idea how they feel about it during the lows.
That's not how mortgages work in the USA — or any other country I've heard of! Usually, the way a mortgage works, is that you owe the lender the money, and the house is the collateral asset. Divesting yourself of the asset usually requires you to pay off the balance of the mortgage on sale.
If the pitch stays in the ground it'll be good for the environment which ultimately is good for people too. Just on longer time horizons.
This is only fair to Alberta, considering how much they’ve contributed to Canada’s GDP over the last two decades.
Is contributing to GDP something you get "credit" for? Or put another way, does someone living in Toronto get any benefit from this increase in GDP?
As someone living in Alberta your comment answers a question we ask each other frequently: Do people outside of Alberta understand the benefit they've enjoyed from energy revenues over the past 20 years?
Your comment suggests NO, but I'm not sure where you are located.
Canada has a massive transfer payment process from "Have" provinces to "Have Not". This is not something as academic as "overall GDP increase" but is BILLIONS of actual dollars that Alberta has contributed during all the good times that were then redistributed to other Canadians, just like people living in Toronto. Not to over-emphasize the point, but I'm talking cold hard cash literally taxed from one province and given to the others, with the Federal government taking their vig during the transfer.
If you're not Canadian it's unlikely you are aware of the direct positive impact this has had on the entire nation. If you are Canadian and unaware of the relative value of transfer payments... well, this accounts for a huge amount of the alienation the Western prairie provinces are feeling.
This is an issue outside of the debate around where our energy comes from. The reality is a huge part of the entire country's expenditures has been financed by oil and gas revenues for a large part of the past 20 years.
So this is....not that big an amount? 4.4% of a fairly small budget relative to the total country.
Further, Alberta has had a large net inflow of young, productive workers from the rest of Canada. If there was no oil, these workers would mostly go work and be productive elsewhere, increasing local tax revenues.
Alberta did contribute wealth to the rest of the country. But Albertans tend to both overestimate this contribution and also ignore that they benefit from young workers trained and educated by provincial budgets elsewhere.
Source for equalization percent: https://en.m.wikipedia.org/wiki/Equalization_payments_in_Can...
(Alberta is not the only province to pay into equalization)
Can you provide examples of equivalent work at the same pay level these young workers would engage in if not for O&G?
Obviously, a COVID-19-triggered recession would not create an employment boom to replace oil jobs.
(FTR: I support the immediate shutdown of the tar sands, but we need a job replacement/retraining strategy...)
The maritime provinces have a very high average age in part because many workers left for alberta. This cuts the tax base.
That was my point. The workers do get a higher wage in Alberta, but most of this benefit is spend within Alberta or taxed there. Good for workers, good for Alberta....but not obviously a win for the rest of Canada.
And again, Alberta didn’t have to pay for 18 years of schooling and child health care for these workers: that was paid by the home province.
The average Albertan's salary is (still) much higher than that of workers from other provinces. Thus, each Albertan pays (on average) more federal income tax than workers from other provinces. Whether a province is "have" or "have not" is based on comparing the average federal income tax collected from that province compared with the national average.
The equalization payments is the income tax that gets partially redistributed - it is not a transfer from Alberta to other provinces.
For a given salary, the average income tax (combined provincial and federal) paid by someone in Quebec (or any other province) is much higher than that paid by someone in Alberta. Add to that the provincial sales tax (not paid by Albertans) ... and you get a situation where people outside of Alberta see Albertans as spoiled rich whiners as they: 1) earn a higher salary and 2) pay less taxes.
Meanwhile, Albertans (with their lower unemployment - still today) see "their" money wasted to these undeserving lazy Easterners ("lazy" = collecting money from EI). Politicians of all stripes contribute to fanning the flames. And, in spite of all this, we are generally considered to be a nice bunch, eh?
People in Quebec also get way more services for that. Like under $10 a day daycare.
I think most Canadians recognize Alberta as a have province from the perspective of transfer payments, but that may change quickly if oil prices stay at this level for long making Albertans net recipients of transfer payments. I'm less sure that most Albertans realize just how badly managed benefits from oil resources have been used in the province. I'm talking Alberta Heritage Savings Trust Fund compared to Norway (Government Pension Fund), or even Alaska (Alaska Permanent Fund). It's bad even when you consider the high price of oil sand extraction, never mind the higher clean-up costs.
Alberta is certainly contributing to the Canadian economy, but the heavy reliance on fossil fuels to do so isn't a long term approach to take and the province seems highly reluctant to pivot to better industries.
Fun fact, Albertan politicians wanted to nuke the tarsands[0] in the 1950's and the plan got way further down the road than it ought to have. They thought it would liquefy the oil and they could just pump it out.
If there will be a silver lining to this pandemic, it will be people realizing how precarious their ongoing existence is. Maybe people will be more willing to drop the entitlement, accept reality and do what needs doing.
1. Even ignoring equalization payments, federal corporate taxes from oil and gas companies and federal income taxes from high salaries they paid their employees have contributed more to federal revenues, which gets spent across the nation, not just in the province it is collected in.
2. For the past few decades, oil prices and the value of Canadian dollar have moved in tandem. It makes sense when you consider that even though oil is not a huge part of Canada's GDP, it is a huge part of its exports. At its peak, high oil prices brought the value of Canadian dollar above US dollar a few years ago (I think it got as high as 1 CAD = 1.3 USD at one point). The current crash sank Canadian dollar to less than 70 cents US. Anyone earning a salary in Canadian dollars enjoyed the higher purchasing power (for imported goods, vacations, and cross-border shopping) in the good times.
Waiting for Saudi oil to go away is magical thinking.
This is why OPEC is doing this. They're trying to put American and Canadian firms out of business. They saw the COVID opportunity, and they seized it.
Right now WTI is $25ish and Brent is almost $28, so adding more to it probably isn't particularly vital at this moment, either in terms of increasing energy independence or in taking advantage of cheap prices.
Same with these oil producers. There might be too much crude sitting on trucks going to an already-full storage facility, and they need to clear space in order to empty trucks, even if production upstream has already shut down.
Immediately after purchasing it, the city started fining and hounding him to get it cleaned up and up to code.
He went in to court at one point and asked the judge why he was getting all these notices when it was already the nicest house on the block.
The judge's answer was something to the effect of "oh, well they can't afford to fix it up."
Ok maybe not so funny, but it's a conversation worth having, isn't it? Doesn't it imply something severe about free market innefficiencies?
That's what's happening here.
...then the long-term monopoly rents being much higher in terms of total revenue is actually good for the environment and maybe good for humanity in absence of something more rational like a carbon tax.
It can act like a Carbon Tax, but with the revenue going to Saudi Arabia or Russia (etc). In other words, non-ideal... But does maybe help electric cars in the very long-term (ignoring the near-term damage to existing electric car makers, and assuming we wouldn't be instituting a carbon tax anyway).
Much better would be a local carbon tax with revenues redistributed to counteract any regressive impact while also funding transition to alternatives.
I don't think anyone on either side really knew with oil how things would go. Hindsight is 20-20, and one of the two camps was going to win with 100% certainty. It's not fully decided yet mind you, peak oil could still happen if people keep increasing demand for it instead of weaning away from fossil fuels. But I don't think that scenario is likely at all.
Really though, this is why I sort of stopped worrying about peak oil about a day after I was first exposed to the idea. It was a very absolutist disastrous sea-change phase-transition sort of scenario, and those are relatively rare in real life. (Well, at some level they are very common: everyone is conceived at some time and dies at another. These details disappear in aggregate.) It's much more common for equilibria that have been stable over decades to continue that stability, even if at slightly different locations. Lots of things are more expensive in our modern times than they used to be; somehow society has survived.
While I agree with your "sound economics" conclusion, I think that tapering demand was not part of the "peak oil" modeling.
The underlying assumptions involve no particular shift to the oil demand curve, whereas with improvements to other energy technologies (renewable energy, but also natural gas) we find that oil demanded per unit output at a fixed oil price appears to decrease with time. (The covid-related demand shock is of course not helping to bolster this curve.)
Why is oil special? Why not peak iron, aluminum, concrete, NaCl, or any or the myriad other things we consume? All of them are in finite quantities, not only oil. Earth has a finite mass after all.
Oil is as renewable as any other renewable resource. It's made from plants.
We're only at risk of running out of cheap crude mined from the earth with a positive net energy return at a low price. We aren't ever at risk of not being able to have oil.
It's an open question whether our access to cheap fossil fuel will outlast our demand for it.
A: Our business is running out of money we can no longer get any loans at any interest rate.
B: False. You're not running out of money or access to loans. You can still get loans as long as you're willing to put down more collateral in cash upfront than the amount you're borrowing.
I think see why you used a throwaway for this insight.
Oil has many uses besides as an energy source. Even in transportation, oil is still useful as an energy transfer system even if it isn't an energy source.
Net-loss energy systems are very useful. Fuel cells and batteries fall into this category. The latter has already begun to function as a replacement good for oil in the automotive industry.
This process of substitution is a cornerstone of cornucopian theory, as described by the famous Simon-Ehrlich wager.
It's not clear demand would evaporate, by the way. Right now we produce oil at a variety of price points - from cheap light crude at a few dollars per bbl to shale oil at ranges from $30-90/bbl. Most folks expect electric cars to undercut oil at higher price points. It's certainly possible we might some day develop technology to obsolete even oil at light crude extraction prices. But it's also possible that we would opt to produce petrol products in a net-negative energy process because petrol is just so damned convenient for energy transportation.
In a sense we already have, as Fischer-Tropsch can produce at around $40/bbl. We see it used today in special cases such as on aircraft carriers to work around logistical complexity. Producing jet fuel from seawater is very handy, if costly in terms of energy consumption.
Oil and oil products are very much renewable. The price points relative to substitution tech will change over time and some day we likely will decide that oil just isn't attractive anymore. Above, I suggested this might happen before we run out of light sweet crude (mostly from Saudi).
I think this is a very reasonable thing to wonder.
We use fossil fuels in fertilizer production because it is cheap. It is not the only alternative, nor are fertilizers required to operate at scale in the first place. Fertilizer increases yield but has nothing to do with our ability to scale an operation.
It's also important to distinguish between energy production and energy transfer. Petrol products are very useful for energy transfer even if they aren't energy producing.
Batteries and fuel cells are other examples of useful net-negative energy transfer systems.
Peak concrete is also sound economics, it just gets less air time because there are more alternatives and fewer affected industries.
Math please?
And remember when people talk about peak oil, they mean oil that is cheap enough to be of economic use.
(Alternatively, private browsing mode might work.)
Bloomberg, NYT, WashPo, the Economist, and other such places need to figure out how to provide value commensurate with the money they charge, or else figure out how to exist in a world where one of "their" readers still visits dozens or hundreds of other such outlets a month.
> Try 3 months for -$105- $6. Cancel anytime.
The 105 is just a joke, and even $2 a month is very high, considering there'd be similar payments to 20+ other such outlets.
However, $100-$500 to each one that I want to read >5 articles per month is not sustainable.
We need one of two models:
Pay maybe $0.20/article, refundable if I don't finish, don't like it (obviously limiting the number of Refund hits/month to prevent abuse)
Pay once for a selection of feeds, say $100/quarter, and pick your favorite 5 out of 50, get unlimited reads from that batch and 10/month from the rest.
I'd happily sign up for either, but no one publication provides sufficient breadth to support at the demanded price level.
Always worth a shot, although some sites actually will go to the extent of not loading the full content past a leader paragraph unless you log in. Which I can at least respect, then I move on, but if you serve me the content then don't expect me to not read it even if it requires altering javascript or removing ads.
Gotta think big picture and geo-political issues. In isolation, its a negative (especially with such low prices right now). But in the great scheme of oil-independence from OPEC / other oil producing companies, there's a benefit.
Prices are crashing because OPEC wants to harm the shale oil industry.
Look, we can either make oil or rely upon foreign oil. Those are the two choices (or some combination of the two).
The more oil the US makes, the more we are harmed by low prices. The less oil the US makes, the more we are harmed by high prices. Obviously balance is the key, but notice that opponent (OPEC) is intelligent and has a large degree of choice in the matter. Whatever the US does, OPEC will adapt and push our weak point.
And yes, I recognize that moving off of oil entirely is a 3rd, independent solution. But that can be done independently of our production of oil. For now, we're a grossly oil-consuming nation, so we have to make due with the present reality of our country.
If you are an oil producer, and a large part of your economy depends on oil production, there is little incentive for cuts on oil usage. This is exactly the pattern we see in the modern US economy.
Saudi Arabia is looking at deficits that are a double-digit percentage of GDP. Russia's budget outlook is not looking hot either. We'll see how long they play chicken with their financial reserves, because those could disappear faster than they think.
1: https://www.energyfunders.com/blog/oil-investing-benefits/