Substituting stupidity for policy bites back
Biden and Trudeau will feel the brunt of their own foolishness as lower energy output crushes economic well-being worldwide
It is an old saying - what goes around comes around. Democrats in United States and Liberals in Canada bought into the specious “climate change” nonsense holus bolus and didn’t pause to do any basic arithmetic on how important oil & gas are to world economic growth and development of third world economies. Caught up in the political benefit of crying wolf over climate they attacked an industry that not only Canada and United States depend on but also is vital to the whole world’s well-being. About 80% of the world’s energy consumption comes from coal, oil & gas and the alternatives of nuclear and so-called “renewables” don’t have a hope in hell of displacing fossil fuels any time soon. Efforts to suppress oil output merely drive up energy prices and exacerbate energy shortages at the expense of developing economies, relegating millions to more decades of poverty and delayed economic development.
For a short couple of decades, the United States “shale revolution” started by entrepreneurs like Aubrey McLendan and Harold Hamm pointed to the potential for energy self-sufficiency in North America and freedom from dictates emanating from the Middle East sheiks who controlled much of the world’s oil supplies. Both Hamm and McLendan became wealthy but McLendan committed suicide when it was clear that excess debt and tanking natural gas prices made Chesapeake Energy unsustainable. Hamm has a net worth of about US$50 billion today and McLendan is pushing up daisies after ramming his SUV into a bridge.
For a year or two, United States became the world’s largest oil supplier with production peaking at somewhere around 17 million barrels a day and Canada became a major supplier at about 4 million barrels a day, enough to satisfy the full requirements of North American consumers. That didn’t last very long. Left wing climate nutters like Biden and Trudeau did everything possible to curb North American energy self-sufficiency and ship billions of economic value to India and China who are wise enough to keep using coal, oil & gas at record levels and not persuaded by the socialist U.N. that there is any “climate crisis” of any kind.
The opportunity for self-suffiency came and went with Biden’s election and Trudeau’s rise to power in Canada. North American oil output has likely seen its best days. Shale production everywhere but the Permian basis peaked in 2020 and is in decline. Growth in the Permian basin is flat-lining. Demand keeps growing.
Source: Bloomberg.com
With Biden and Trudeau attacking the industry and well-productivity stalled, the mantra of “drill baby drill” has become “return cash to shareholders and keep balance sheets devoid of debt”.
Capital spending on oil & gas production has entered free-fall and U.S. oil production is falling while world demand keeps rising.
Dividends and stock buybacks are up while rig counts are down. Investors like Aubrey McLendan and many others lost fortunes during the shale boom as every dime of cash flow found its way down well holes while taxes and royalties from their work kept the U.S. treasury afloat so Biden could squander the largesse on “progressive” give-aways. But energy investors are starting to see daylight. Rig operators are watching from the sidelines.
Quick to declare climate victory, Democrats bask in the short term sunlight of lower natural gas prices oblivious to the reality that low prices compel less drilling and lead to severe shortages in short order. U.S. natural gas producers are failing and others are shutting in wells. Tumbling cash flows lead to lower capital expenditures. As free cash flow falls, capital outlays will be cut long before either dividends or stock buybacks cease. Biden’s pleas to the industry to increase production fall on deaf ears after his promises to put and end to the oil & gas industry and outright attacks on King coal.
Europe is now struggling to find supplies of oil as Russian supplies fall away under the weight of sanctions and Russian geopolitics. Two million barrels a day of Russian supplies will be hard to replace.
Begging Biden for help won’t help Europe as U.S. ability to support Europe comes under supply pressure domestically and domestically produced oil is pumped to domestic refiners and begins to refill the badly depleted Strategic Petroleum Reserve Biden squandered in his effort to buy some relief from the inflation his reckless spending helped cause. Canada’s lack of pipelines to deep water put Canada in no position to assist, a legacy of the 2015 election of Justin Trudeau and his overt anti-pipeline policies and Impact Assessment Act, often labeled the “no-more-pipelines act”.
Climate alarmists like to grasp at straws and pretend there are alternatives to fossil fuels, promoting crap like “biofuels” which have zero chance of making any material difference. There is just not enough kitchen waste to turn into energy to matter in global markets. The billions Biden has committed to “climate change” will create waste of a different kind and make the energy shortage worse at all levels. Trudeau’s pathetic efforts to match Biden’s stupidity won’t ameliorate the coming crisis.
Europe’s warm winter staved of economic calamity and turned shortages into glut for natural gas letting leaders like Rishi Sunak and Olaf Scholz pick up a few points in the polls as if they had done anything to prevent the shortages. Natural gas storage levels in Europe are already at levels sufficient to get through the winter of 2023. Politics lives on short term talking points and voters will likely keep these climate nutters in office a while longer, but the natural gas glut simply compels a greater shortage on the other side as natural decline and inadquate capital spending drive output lower. The winter of 2024 could be the crisis point.
For oil & gas investors, the political environment is attractive. Imagine having leaders stupid enough to legislate shortages of the commodity you are betting on and short-sighted enough to have no plans to deal with the extreme shortages they have legislated. I am thankful there are so many leaders devoid of any understanding of the laws of physics and deluded enough to believe CO2 causes global warming. Their nonsensical policies virtually assure me more years of exceptional returns on my energy portoflio. Energy investments have made me, a poor kid from Moose Creek, Ontario growing up in abject poverty, a rich man. It seems likely that will continue for years to come.
It's enough to charge JT and Biden with 'crimes against humanity' ... North Americans are slowly being pushed into poverty
Mr. Blair, it is just incredible, how productive you are. Can you perhaps write about your daily routine in one of your next articles? I wonder how you do it, to keep yourself in such a great mental a (hopefully) physical state. Perhaps some secret diet, excercise or young wife ;)