David Yager is a long-time oilpatch writer and executive. Yager’s copy is provided free of charge by the Canadian Energy Centre Ltd.
Liquified natural gas plant in Russia’s far east, Shell Sakhalin-2. Canada has not completed any similar plants yet, and efforts on the East Coast have either been stalled or killed. Shell
Since Russia invaded Ukraine in late February, global energy markets have been turned upside down.
Oil prices have skyrocketed. This will increase the price of everything everywhere for everyone, just as it has in the past.
The biggest international humanitarian challenge that nobody is even talking about is food prices.
Events of 50 years ago, following the OPEC embargo of oil supplies to western countries in 1973, serve as a sobering history lesson that must not be forgotten. The economic recession, double digit interest rates and runaway inflation of the 1970s was caused by high oil prices. It took years to recover. In inflation-corrected dollars, oil hit US$139 a barrel during the Iranian revolution of 1979.
It happened again in 2007/08 when oil reached its all-time high of US$145 a barrel. Not only did this contribute to the global financial collapse of 2008/09, it caused world food prices to spike to unaffordable levels. The Arab Spring of 2010 was precipitated by millions who could not afford food. They took the risk of rioting to avoid starvation.
Also impacted is the price of natural gas in Europe. Although fortunately winter is winding down, reducing the threat of freezing to death, European natural gas prices are the equivalent of US$500 oil. Dutch front month gas futures for April are a staggering US$72 per million btu, nearly 20 times higher than gas in western Canada.
As opponents of fossil fuels recite the usual mantra about how the oil, gas and coal shortage can be best solved by more wind and solar power, they never mention food. The price of food was destined to rise this year because of higher fertilizer and transportation costs. Russia and Ukraine supply 30 per cent of the world’s wheat. Ukrainian farmers who should soon be planting are instead focusing on staying alive.
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The world price of wheat has already spiked to levels not seen since 2007/08. More renewable electricity from turbines and silicon panels is useless in increasing the food supply and making essentials of life like plastics, petrochemicals and transportation fuel for the existing car, truck, train, ship and aircraft fleets more affordable.
By March 7, Vladmir Putin was threatening to reduce natural gas flows to Europe where nitrogen fertilizer plants have already shut down because of high feedstock prices. Grain shipments from southern ports on the Baltic Sea are blocked because of the military conflict.
The combination of exploding oil, gas and food prices later this year have the potential to throw the world into an unprecedented period of economic chaos. A global recession – possibly depression – is assured. Having central banks print more money so people can buy things that aren’t available will only exacerbate rising inflation rates.
There has been great handwringing in Canada about how we must support Ukraine and punish Russia. Prime Minster Trudeau is in Europe right now, doing his usual sincere expressions of deep concern. The colours of the Ukrainian flag appear everywhere. Aid packages and support programs are growing. Military and support equipment is being shipped.
But what we’re not talking about seriously is what the world really needs. More oil and gas. As soon as possible.
The energy spikes and subsequent economic crises of 1979 and 2008 were not solved by speeches, economic sanctions, flag waving or recycled platitudes about accelerating the energy transition with more interruptible electricity.
The oil shortages were reversed by OECD countries going to work producing more oil and gas from Europe’s North Sea, America’s North Slope of Alaska, Canada’s oil sands and the massive light tight shale reservoirs of the continental United States.
The most embarrassing aspect for Canada is that no western country in the western world has greater undeveloped reserves of oil and gas and has done more to ensure it is not developed or cannot get to market.
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European countries are pivoting fast. Under a Green Party coalition, Germany will build LNG import terminals and stockpile coal. France has committed to more nuclear reactors to reduce dependence on Russian gas for electricity. The UK, host of the Glasgow COP 26 climate conference in November, is being pressured to rethink its ban on hydraulic fracturing.
Even the United States is lobbying for more oil from Saudi Arabia, Iran and Venezuela, countries with appalling human rights records. President Biden is increasingly attacked for cancelling the Keystone XL pipeline over a year ago. As he should be.
Canada must show leadership at multiple levels. This is about humanity, not the next election or past commitments. Here’s what must happen.
- The environmental organizations that have turned climate change alarmism into an industry should take the rest of the year off. Do us all a favour. Demonstrate the deep humanity you purport to represent and research what problems ordinary people all over the world are having today. Donors to these groups should reroute their funds to the Ukraine support initiative of their choice.
- The federal government must immediately acknowledge the world needs more oil and gas as quickly as possible. To achieve this Ottawa must revisit its energy policy playbook and reverse or suspend all the plans, programs, regulations and initiatives that prevent or delay increasing oil and gas production. The industry has plenty of cash so the plan to reduce emissions need not be abandoned. But saying in public that the solution for Europe and the world is more renewable energy combined with Canadian emission cuts is embarrassing given current events.
- The provinces that are obstructing access to tidewater or oil and gas development must change their positions. In Quebec this means dropping its ridiculous policy to ban oil and gas development and continued obstruction of pipeline construction and LNG export terminals. In British Columbia it means removing all obstacles to completing the Trans Mountain and Coastal GasLink pipelines and accelerating the resolution of the First Nations legal dispute that has stopped licensing and drilling in northeast British Columbia.
- Debt and equity capital markets, which have made starving the fossil fuel sector for capital a badge of honour, are now on the wrong side of the right thing. The ESG investment movement is founded on the principle of “stakeholder capitalism,” where corporations are supposed to consider the greater needs of society in behaviour and decisions, not just profits. Right now food and energy for the world is at the top of the list of moral imperatives. The Canadian banks that have profited greatly from Canada’s oil and gas industry, but signed on with Mark Carney’s COP 26’s theatrics, look ridiculous given current events.
- The boards of cash-rich oil and gas producers are going to have to look in the mirror, and the bank vault, and start spending some money. As oil prices rise and more cash pours in, their extreme prosperity at the expense of others will be impossible to explain away. You can count on the return of allegations of “obscene profits” when Q1 results are published. If producers don’t put their cash back into the economy and at least pretend they are trying to solve this global problem, there will be growing pressure for governments to grab it instead. There are lots of obstacles, but the actions in points 1, 2, 3 and 4 will make it much easier to get back to work.
I desperately wish to be branded as an alarmist for claiming the sky is falling on the global economy, and humiliated for daring to ask for the five key stakeholders listed above to reverse their positions.
But as this commentary is written, unless Russia withdraws from Ukraine immediately, the situation is going to be worse before it gets better.
Quit embarrassing ourselves on the world stage, Canada.
Let’s do the right thing at the right time, which is right now.
David Yager is an oil service executive, oil writer and energy policy commentators and analyst. He is currently president and CEO of Winterhawk Casing Expansion Services which is commercializing a new way of mitigating methane emissions from surface casing vent flows. He is author of From Miracle to Menace – Alberta, A Carbon Story. More at www.miracletomenace.ca.
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