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Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.
Welcome to episode 397 of the Energy Talks podcast. I'm energy journalist, Markham Hislop. I was delighted to read an excellent analysis of the oil trade between Canada and the United States titled the coevolution of Canada US Oil Industry and possible implications of Donald Trump's reelection by Joe Callan and Rory Johnson. And Rory I follow on social media have done for quite a while. The point of the paper is that the two countries rely on a deeply integrated system of supply and infrastructure but they are not equals.
Markham:And if president-elect Trump wants to make life for difficult for Canada, but principally Alberta, he certainly can. The counterargument is that putting tariffs on can Canadian oil exports to the US only raises costs for American refineries and ultimately consumers. And Trump has promised the opposite, that he will cut gasoline prices in half. Which will it be? Does Trump represent risk or opportunity for Canada?
Markham:To discuss this question, I'm joined by Joe Kellan. So welcome to Energy Talks, Joe.
Joe:Yeah. Thank you so much for having me, Markham. It's, really nice to be on this side of the, of the podcast interview rather than on the other side. It's it's a real mix up, but yeah.
Markham:Give us a little plug for your for your podcast.
Joe:For sure. For sure. So, I'm I'm Joe Callan. So I'm the, manager of the Energy Security Forum at the Canadian Global Affairs Institute, and, we have our own podcast called Energy Security Cubed, and that you can find that on the CJI Podcast Network on any of the major, podcast apps where we, of course, talk about, energy through an international lens. So looking, of course, at can Canadian Energy, what its role is internationally, but also at various other energy issues.
Joe:For example, something like the dark tanker fleet that is currently operating around the world. We had quite a few episodes on, Russian natural gas into Europe, and, of course, things like critical minerals in China, and we've done quite a bit on electricity as well. So we cover the whole gamut on that.
Markham:I have to say, Joe, you have the second best title I've ever seen. And so you were being modest earlier when you call, because your full title is energy security analyst and energy security forum manager at the Canadian Global Affairs Institute. The only one who has a better title is Kevin Byrne, the, energy economist I've been interviewing forever, who works for S&P Global. I think his is about twice as long as yours.
Joe:Yeah. Yeah. No. I'm a big fan of Kevin as well. Of course, I was on the phone with him just yesterday.
Joe:We're working on a few things together. So, yeah, big shout out to Kevin as well. He's one of our fellows too. So, great to great to hear him mentioned as well as Rory. Really recommend people look up, Rory on social media, of course, and also his commodity context newsletter.
Markham:Yes. Yes. I'm a subscriber. Okay. So let's talk about the context, in this because most of Canadian oil is exported south.
Markham:I think Canada produces around is it 4,000,000 total or 5? Because Alberta produces 4, 3 and a half of bitumen and, 500,000 of conventional, and then you've got some in Saskatchewan and Newfoundland. So I guess it is 55,000,000 altogether, isn't it?
Joe:Yeah. I think it's 5,000,000, and I think around a 1,000,000 barrels per day is consumed within Canada of Canadian oil. So then you export close to 4,000,000 barrels per day to the United States.
Markham:The point that you make, and I think this is something we don't talk enough about, is that the sis maybe getting into the sixties seventies, the industry and the two governments very deliberately built a continental energy system. It was it was designed from the beginning, we kind of got it in the left ear a few times because a lot of the refineries are in the US instead of across the border in Canada. But nevertheless, those were the decisions that were made then, and, Western Canadian oil flows into the Midwest and down to the US Gulf Coast, a little bit to California. And I think I laugh when I hear people railing about foreign oil when US oil into Canada makes up about 75 percent of our imports. It's not Saudi Arabia, it's not some other, it's it's it's US oil.
Markham:So it it goes both ways, though it isn't equal, and it's one probably doesn't mess with that system because you do a a lot of damage to refinery companies and contracts and long long, term relationships.
Joe:No. No. You wouldn't want to, let's just say that the North American energy security relationship, I like to think of it, you know, there's the 3 Amigos, of course, Canada, United States, and Mexico. So, Canada and the United States very much integrated across the border there. And this is actually a relatively recent phenomenon where Canada has become the dominant source of foreign crude oil to the United States and the United States become the dominant source of foreign crude oil to Canada.
Joe:Because, where you had the shale revolution, suddenly the United States didn't need very much light oil at all. So United States does, of course, have light oil refineries. Even refineries set up for producing for consuming heavy oil, They'll also use light oil for various, requirements throughout the process. But it was around, 2015 that both Canada and United States, right during the shale revolution, that we both became each other's dominant, crude oil foreign source of foreign crude oil.
Markham:Your point that Canada is now the, world's leading producer of heavy crude sour oil, I wanna put a little context around that. So the global refining capacity of, heavy crude is 10,010,000 barrels a day. 5,500,000 barrels a day of that is in the United States. And, again, much of it in the Midwest, a little bit more than that that in, in Houston and in that that that area, and then about a little bit in California because they've had thermal oil there for a long time. Mhmm.
Markham:That's essentially the market. We dominate that market. I mean, there's no question. And our competitors, and this is an interesting point because I've always thought there was room for growth. If there was room for growth, it was pushing Mexico, Brazil, Colombia, Venezuela out of the market.
Markham:And if and if there was any, argument in favour of Keystone XL, from the Canadian side that was it. Is is an opportunity to out compete those those producers. Mhmm. And what that and the other point that you make in the, paper, is that the, you need in order to do heavy crude, you have to add cokers. And cokers, the and all of these, the refineries that can do heavy crude have invested.
Markham:Now you say tens of 1,000,000,000. That was interesting because Kevin told me it costs about a $1,000,000,000 to add a coker and and upgrade the kit, he calls it, on a refinery. So I hadn't expected it to be that much. Was it in total? Like, tens of 1,000,000,000?
Joe:Well, on that number, that that comes more from Rory's side of the picture. He's he's he's more on the, on the analytics side, but I wouldn't be surprised because it's, and, refining isn't like, I my my my gamut, my area of expertise is about a mile wide, an inch deep. I like to say that because I need to cover critical minerals, electricity, global crude oil trade, of course. But where it comes to the total cost of that, I believe that there's more units you need to, for example, desulfurization units, various other components that you need to mix and, transition this heavy very heavy crude oil into the sort of light products that, are actually useful for, transportation fuels and various other things. So it's not just the coking units.
Joe:It's, many other parts of the process here. But, yes, the those sorts of things do they they cost enormous amount of money. The exact amount that's been spent down the states, I'm not sure of. But, when you have spent that much money on them, ideally, you're able to continue having a supply of relatively cheap, heavy sour crude.
Markham:Yeah. This is a point that's often lost on people who argue that eventually the the US light sweet will just push the Canadian, heavy out of the US market Mhmm. Because then you'd have, you know, these refineries that would have all this equipment expensive equipment just sitting around, not generating revenue. So it's far better from their point of view to continue buying the cheaper Canadian heavy crude and and, and using their equipment as to the highest capacity possible. So the the and the other point that you make in the paper and this is you you did a really good job of laying out the context, is that, the the shale oil, the tight oil, the unconventional oil is very light and very sweet, then which makes it highly valuable to export.
Markham:And so while Canadian crude has come into the US market, which is very large to begin with, I think it's, you know, like 18 or 19,000,000 barrels a day. So it's a very large market, but that has allowed the Permian Basin in particular because it's in Texas and it's easy to get it to the to, to Tidewater, to export in other, in other markets and then make a top dollar on those on those exports. And now, in fact, that light sweet crude under underpins the Brent price, I understand.
Joe:Yes. Yeah. It's it's I think it's the largest component actually of the, you know, the Brent price index now. So, it's and this is a really recent development as well where U. S.
Joe:Light sweet crude has become one of the dominant sources of European crude oil imports. For example, the largest, other than, I believe, other than Canada, the largest destination for American crude oil exports is now the Netherlands, the port of Rotterdam, specifically. And so, United States has in many ways displaced Russian crew there since the war in Ukraine.
Markham:Before we, came on the air, we were having a little chuckle, an ironic chuckle, at at president Trump's choices for cabinet. You know, we've got a a wrestle a pro wrestling executive. We've got doctor Oz. We've we've got a couple of Fox News, you know, talking heads. We've got I mean, good lord almighty.
Markham:If you're gonna make a, you know, a a clown cabinet, that would be it. Now the interesting thing is the guy he chose for for for energy is not like that. He's very, very pro oil, anti climate change, all of that, granted, but he's no dummy. And he's he's been running Liberty Energy for a long time. It's a, kind of a fracking and service oil field services company.
Markham:Chris Wright, if there's any hope that Canada will be spared tariffs and the relationship will continue, it's gotta be that that Wright will bring at least some sense of normalcy and and, sensibility to the job.
Joe:Yeah. Chris Wright is definitely more on the technocratic rather than the populous side of things, where it comes to Department of Energy pick, And I think that, that will ideally have someone close to Trump who's willing to talk about these things more pragmatic sense. But I'd like to also highlight that, where it comes to oil and gas, the treatment of oil and gas in the United States, I think the choice for secretary of the interior is a bit more tells us a little bit more about what the plans are where it comes to things like, trying to get some regulatory reform for, not only pipelines, but also, let's say, like, power lines and all the various other components that you need for our future energy systems. So, the choice of Doug Burgum, I think, is a is also he's much more on the technocratic side, not not really one of those people that you're gonna put up to do a stump speech somewhere to rile up a crowd of Trump supporters, but more more on the side of pragmatically getting things done. Of course, all of these people are sincere Republicans very much the the typical conservative free market sorts.
Joe:So we're it will be a major shift from the Biden administration, for sure. But I'm I'm I'm happy that both of those picks we're not getting another version of Matt Gaetz in either of those roles thank thankfully.
Markham:Listeners probably don't know this, and you certainly don't know this, but I spent a couple of years working 5 years in the oil patch and 2 of them down in Midland, Texas. The Midland Odessa down in the Permian Basin back in, 03, 04, before it really got got chuggy. But when you say, conservative republicans, I know where of you speak. I used to have lunch with many of them, and, we you as you can imagine, there were some spirited discussions, around that around those tables. But you mentioned pipelines, and I think this is an area we might actually disagree on because I'm on the record as saying there will never be another Canadian pipeline that crosses a border, not an intra provincial border, nor a an international border, and I'll tell you why I think that.
Markham:Back in 2016, 2017, there was a lot of talk, you know, some of the, like, Energy East got cancelled in 2017 and, there was a lot of talk about Keystone XL was in trouble, prior to that had been cancelled, and Enbridge put out a press release and they in an off handed way they mentioned yes we have another 500,000 barrels a day of shipping capacity that we're considering maybe we'll bring online, And it was debottlenecking and they were going to use some, some, friction reducing chemicals so that they could put more oil in the in the pipelines. And, well, by God, didn't they do that? I mean, that's exactly what they've done over the last 7 or 8 to 9 years and it's, the pipeline capacity now, especially with trans mountain expansion, at least can handle what's being produced now and probably will for the for the, till the end of the decade. So I don't and TC Energy has said they want nothing to do with Keystone XL. They're done.
Markham:They're they're just not gonna doesn't matter if president Trump reapproves the permit. They ain't doing it because they're tired of being political football.
Joe:Yeah. I mean, TC, they're even they've even split off Southbow Resources to for their, liquids pipelines business. So, you know, if we're gonna have a resumption of that, you'd have to convince I suppose you have to convince the, the, management of Southbow Corporation to convince their shareholders that this is a good idea, and that would be a tough sell considering how much of a political football the Keystone XL pipeline became. All of the troubles in Nebraska, in particular on the Ogallala reservoir, those would all be issues that would be revived. And let's just say that the all of the capital cost of that pipe that's effectively, I think, most of that pipeline has been rusted away, the actual steel for the pipe.
Joe:So you'd be starting essentially from square 1. So I don't I don't see that back on the table.
Markham:We should make a point here, because I don't think Jason Kenney, pre former Alberta premier Jason Kenney, should be ever let off the hook for this. He and a couple of months before Joe Biden, was elected, he decided that he would invest $1,500,000,000 of Alberta taxpayers money in Keystone XL knowing full well that there was a better than 50% chance that Biden would be elected and and then would would cancel the pipeline because Biden made no secret of his desire that you know, or his intent to do that. Mhmm. And that's what happened. And so, you know, TC Energy shareholders got the benefit of $1,500,000,000 and to Alberta taxpayers got it in the left ear.
Markham:But he did some other stuff that I that I'm incensed about. I was incensed when he did it, and I am still incensed. One of them is he canceled the previous government's rail by oil contract, at a cost of 2 and a half $1,000,000,000, which is just money, you know, you may as well burn that money. And then here's the one that really get, get grinds my gears. He canceled the partial upgrading program.
Markham:So what is partial upgrading? When you have heavy crude, that comes out of the oil sand you have to dilute it with diluent or light hydrocarbon to 25 or 30 percent and there's no value in that. And so if you could if you could somehow get that gooey peanut buttery, mixture from, north of Fort McMurray into a to to flow in a pipeline without the 20 you get 25 or 30% of your pipeline capacity back. And there is there were, in 2016, when the program was announced, there were 10 Canadian companies with technology who were doing, pipe upgrading. And there was a couple $1,000,000,000, that were put on the table to to, commercialize the technology and scale it up.
Markham:And there was tons of demand, and the oil sands companies were on board. And one of the first things Kenny did when he came in in 2019 was cancel that program. And that was just a crying shame. It was an opportunity to make better use of the pipe that's already there, develop Canadian technology and Canadian companies, and it was just a wasted opportunity. When you add all of those things up, that's a monumental miss, mishandling of this file, in my opinion.
Markham:So, I suppose you could put partial upgrading back on the table, but I don't see it. There's very little talk of it these days. So
Joe:But I'd like to just to just to step in for a second here. And, of course, there's there's been many Alberta governments with different ideas about how to how to handle energy policy, and, they've all had their successes, and there's also been many failures along the way. I I completely agree with that. But, I'd also like to highlight, what what you what you were talking about where it comes to, the Biden administration and how the Biden administration, made it very clear that they were against the Keystone XL pipeline. And I think this illustrates one of the important points of the paper, which is, Canada's dependence on the US for a source of demand for oil and the political risks that are involved there.
Joe:Because as as energy becomes more more of a political football in the States than it has ever been in the past, we have concerns about climate change, of course, local economic development, local environmental concerns. These all come into play here in the United States. And because Canada is so dependent, on that for a source demand, that becomes an issue. And let's be frank that it isn't only the Republicans that create these sort of risks for Canada. The Biden administration, that was not a very friendly thing for the Biden administration to do to cancel that pipeline after so much work had already been done on it north border here.
Joe:And after so much government time and effort, so much government money had been put on the line here, and of course, you know, we can debate about the the about the logic and the intelligence of putting so much government of Alberta money on the line there. I'm certainly a critic of that as well, but, where it comes to the decisions made south of the border, Republicans, of course, now are much more protectionist as well. But historically, the protectionist party has been the Democrats, And the Democrats are still protectionist. Democrats are still very much in favor of doing things that help get votes down the south at the expense of other countries such as Canada. So I think that provides a great example.
Joe:The tariffs, of course, another huge concern. I'm personally I personally don't think that Trump is going to put tariffs on Canadian oil and gas, for the various reasons that you said. But, just in general, I think that in Trump's mind, Canadian oil production, Canadian oil energy production is part of the large North American system, and I suppose the cancellation of the Keystone XL pipeline showed that the Biden administration did not consider Canadian oil to be part of the same system. So it's all it's all very interesting dynamic here and I think the general thesis of the paper is that the integration of North American energy industry has been generally a good thing both for Canada, the state United States, and also for Mexico because that's a huge part of this. But, this, overdependence, creates these sort of political risks when the United States is might be doing things that are also against its own interests.
Joe:But yeah go ahead.
Markham:I I want to get your take on what I consider to be the biggest political risk or the biggest risk to the Canadian production and it's not the United States. It's in fact the the prospect of global peak oil demand in 2030. The IEA, International Energy Agency is is is forecasting that might even be 2029 now they're they're saying. And this is, on my mind because I'm currently writing the script for our next, our second online training course called the future of oil. Mhmm.
Markham:And the point here that the the broader framework that I'm operating under is that electric transportation is the innovative disruption for the auto industry. So, you know, think when you think about innovative disruption, we're talking about things like, you know, streaming video disrupted Blockbusters rental business model, and and Blockbuster couldn't respond and and and so net Netflix ate its lunch. In this context, there's no doubt, no one can argue that electric hasn't disrupted the auto industry and and and, electric in China. The problem is that the, oil industry is upstream of the auto industry. So you disrupt the auto industry, the auto industry disrupts the oil the global oil industry, and then eventually that disrupts the Alberta industry.
Markham:And I run this past a couple of, economists like David Doherty at the, at Bloomberg, and they agree that's kind of how it's gonna work and the only question now is timing and long before that it's likely that there is displacement of oil, so, you know, we get on the decline curve long before that, These these are smart people running these companies. And ain't nobody gonna be investing tens of, you know, 1,000,000,000 and 1,000,000,000 and 1,000,000,000 of dollars in new oil sands production if they think there's any chance that decline curve is coming in the near future. And what does that perception of structural market decline risk do to this analysis?
Joe:I suppose there's the question of where where we have let's let's say we have a scenario declining oil demand by 2,030, and, we we can talk a little bit more about, you know, what what the if that's a reasonable thing. And I I just want to plug quickly. I'm going to be taking some ideas from a paper that I wrote earlier this year, which is titled How Much Should Canada Worry About Decline in Global Oil Demand? And, there's a question of where where the supply response from any sort of flattening out or declining of demand will come from, And is Canadian oil in particular vulnerable to this process of declining global oil demand or or even just a flattening out of of global oil demand? And you've had Kent Fellows.
Joe:He's my former professor on the podcast before.
Markham:Big shout out to Kent. Yep.
Joe:Yeah. Yeah. Big shout out to Kent. He wrote a great paper for the C. D.
Joe:Howe Institute. I think it was back in 2021 that he released it, but but we brought him out to Ottawa earlier this year to just talk about the paper and what it could mean for Canada and his paper was I think it was called Last Barrel Standing and it focused on the economics of oil sands production versus various other types of production especially where it comes to comparisons with United States, tight oil, shale oil, those sorts of the economics of that. So there's a question of this short run versus long run idea where it comes to decisions to invest. So right now we have a huge amount of capital already in place in the Canadian oil sands. It is ready to of course, there's there's still capital that needs to be invested to keep it operating.
Joe:You, of course, need to replace equipment and all the like. But by and large many of these facilities are set to operate at current levels of production for at least a couple decades without any sort of major new investments needed. So these are quite resilient. You can think of these more as factories rather than as a, like, for example, an oil well that's drilled right into a reserve. You need to when you're drilling oil wells, you need to constantly have an inventory of drilled but uncompleted wells or and having drilling rigs always looking around to find new oil.
Joe:Whereas with the oil sands we know where it is, we know exactly how big the resource is, or at least fair enough idea in every single region, and, we already have the capital there. So I think that where it comes to that, our breakeven cost for continuing to produce it, even if a even if one of these plants isn't running breakeven on the original capital cost, it still wouldn't make sense for it to shut down because the breakeven cost on the marginal barrel are are, still still makes sense economically. So anyways but we can we can chat more about that.
Markham:And we will. And we will. Yeah. So here, let me take let me run a scenario past you. We had peak oil demand in 2029.
Markham:We've got a plateau of 2, 3, 4 years, and then decline starts. Starts. And when when you have I mean, we're already talking about lower oil prices because we have an oversupply next year. So anytime you have a a a more supply than demand, prices go down. So let's assume that the what you're talking about is full cycle cost versus half cycle.
Markham:So full cycle cost takes into account all of the costs of running that business and providing dividends to shareholders, the whole night paying for your capital, all of that. Half cycle costs are basically keeping the lights on. And you and those so the average full cycle break even in US dollars is $57 a barrel in the oil sands. Because it goes as high as 75 for some projects. Half cycle costs are much lower than that, they they can be down in the, you know, like $30.
Markham:The problem is that's okay for a cyclical downturn would last a year or 2, it's what what happens when you have a structural downturn and there and once the once the client starts, it keeps going and prices stay low for years, maybe decades. And then at that point, let's even assume that all of those oil sands companies stay afloat. None of them fail. But how do they respond? Well, first of all, the Alberta government doesn't get $24,000,000,000 a year in royalties like it did last year.
Markham:So who's gonna pay for Alberta's health care and and education and because they foolishly depended on, operational revenue, the revenue they get instead of putting it away in a in a fund like like Norway did. So Alberta government's in big trouble. Okay. So now there's a 150,000 roughly workers, you know, in the Alberta oil fields, direct employment. And the first thing that companies will do when if they are in a structural decline and low prices is they're gonna shed workers because now there's all kinds of new technology like AI and remote sensing and drones and video cameras where that you can displace labor with that technology.
Markham:So now you're gonna have a bunch of job losses. And so the companies may survive but what are we what kind of a an oil economy, oil and gas economy are we left with? Well, a shell of what was there before and if you're thinking about it from Alberta, Albertan's point of view, you know, where less revenue, less jobs, less business activity, less tax revenue, all of that stuff. And and and the one thing we haven't talked about, the massive, massive unfunded environmental liabilities that the oil and gas industry has in Alberta which they're a a Alberta Energy Regulators own directive 11 estimated at $260,000,000,000. So if you stop making pro profits, you can't reclaim your wells, you can't reclaim your tailings bonds, you're in big trouble.
Markham:So it's not the displacement that is the problem for Alberta, it's the disruption that is the problem, and and we don't even talk about that. I've never heard, god bless Kent and god bless Kevin, they never talk about this stuff.
Joe:Mhmm.
Markham:And when you when the dominoes start to fall for Alberta, it's big, big trouble for Canada, for Alberta and the government of Canada because Alberta hasn't got the money to take care of any of this stuff. Anyway, that's my that's my long winded explanation. I'll turn it over to you.
Joe:It's definitely an interesting and important thought experiment where we have I'm assuming that, where it comes to kind of the supply stack of various different types of oil production and the marginal costs of each type, I believe that shale oil is more, well, more expensive for sure than, for the marginal barrel. Marginal barrel costs, are more expensive for something like shale oil. Just Maybe
Markham:you should explain for the audience what a marginal cost of a barrel is. So that's the next the next barrel of production that's brought online, not your average cost, not your it's the the next one. Right?
Joe:Yes. Exactly. So, you know, if you think about average cost for an entire project, oil sands is actually quite expensive. There I believe that, each of these projects cost tens of 1,000,000,000 of dollars, and, and it took a ton of capital. In fact, so much capital came into Canada from the United States to build out the oil sands that it had a huge impact on our, on our exchange rates.
Joe:Like, it's it was actually major economic shift in Canada, during that time when so much money was coming from the states to build these projects. So, let's just say that it was enormously capital intensive, and average costs across the entire life cycle of these projects is actually fairly high. But the marginal cost per barrel now these projects exist is quite a bit lower than it is for shale oil. And I believe that it's probably also lower than most sources of, for example, offshore crude, offshore crude oil production, various other types of production. It's, of course, more expensive, I believe, than marginal the marginal cost of most OPEC production, though.
Joe:For example, in the in the Persian Gulf, you get absurdly cheap oil to produce. Now for those guys, they need to have high oil prices just to pay for their enormous mega projects that they're building in the middle of the desert, but, they can probably produce at maybe 7 or $8 per barrel without losing money on the production itself.
Markham:Hey. Question for you. Just, if you don't mind me about it again. That's for the light the light crude. Saudi Arabia produces, heavy crude and medium crude.
Markham:What are the lifting costs or the the the production costs for for those grades?
Joe:I I think that would be a better question for someone like Rory or Kevin. I I wish I could get into the details on each individual type of barrel. I I do know that, right now, Canada is displacing some of the demand for Iraqi Basra heavy crude in Asia, because of the Trans Mountain pipeline opening. So, there is a a, there there Canada is getting a foothold there, so it is competitive, in some markets in Asia where it comes to competing with Middle Eastern crude oil.
Markham:Oh, that I didn't know. That's interesting. Okay.
Joe:Yeah. Yeah. No. It's, it the Trans Mountain pipeline, let's just quickly shift over that for a second here. It has changed things.
Joe:Of course, it's not nearly as large as the, Enbridge mainline system. It's it's around the same size as the, the current Keystone pipeline system down at the states, but let's just say that compared to the around 4,000,000 barrels per day of crude oil going to the states via pipeline, you have this, I think it's 590,000 barrels per day of pure export of Canadian heavy crude oil capacity going to the part of Burnaby there for export into the Pacific basin. Around 45% of that oil is going to the states. The other 55% of it is going to Asia for the most part and a little bit to South America as well here and there, but I believe China is the largest single Asian importer of that crude oil. I I think some of it is going to Southeast Asia as well.
Joe:Japan and South Korea are starting to talk about bringing in more, but they're still a little bit hesitant. So there's the dynamics are shifting over there. So, and Canada is building a little bit of a role there. But like I said, not nearly as big as the United States is.
Markham:Can we do the math on that? Because, what's 70% of 590,000?
Joe:I believe that would be around 450? Maybe, Yeah. I I wish
Markham:I would better map Let's say 400,000, 450,000. Yeah. My, never mind. I'll tell my calculator story another day. But anyway, okay.
Markham:So let's say that, 45% of that now goes off to California. So now 55% goes over to Asia. So we're really only talking a couple 100000 barrels of of oil. I mean, it's not upending the heavy crude markets in, in Asia or any other in other place at those quantities.
Joe:Well, I mean, depends on what you I don't think there will ever be a a shift in the oil market. Barring something really seriously extreme, I don't think there will ever be a shift in the global oil market that caused the same sort of impact as the discovery of, tight oil, the new ways to produce tight oil at economic prices. But it is causing a shift in Asia. I'd say that many of these countries are looking to diversify away, or not completely diversify away from Middle Eastern crude, but they're looking at the instability that's happening right now in the Middle East and they're probably saying this is even though the Middle East does produce crude that it's very cheap, there's still these huge geopolitical risks where it comes to having these long term contracts where you're assuming that all of your oil will come from the Middle East for a long period of time. Having some diversity, having some Canadian oil in the mix really brings a little bit more geopolitical stability to the to the to the issue.
Joe:Canada, let's just say we don't foresee a circumstance where Canadian Canadian crude export infrastructure is struck by missiles anytime soon. That could happen sometime in the future. Let's, let's just say that, you know, the 21st century might get interesting in the latter half of it, but, right now we're not we're not seeing a situation similar to the Middle East and Canadian crude oil production.
Markham:Okay. Fine. I'll I'll grant you that Donald Trump isn't gonna be lobbing missiles at the Canadian pipelines anytime soon. I'll I'll grant I'll give you that one. But any everything that we've talked about, none of it, none none of it contradicts necessarily my hypothetical scenario of the declining prices and and, you know, long term decline of oil demand and and the problems that that could cause for, for Alberta, even if it doesn't well, and the companies become less or not profitable.
Markham:So, I don't know where we go from here, because really, if everything worked, if the status quo reigns, then this is a good deal for Alberta and for Canada. Right? I mean, production is going to increase, society is scheduled to increase by 600,000 barrels by the end of the by the end of the decade, and and prices are are probably going to recover and, life will go on. The the big question is, what happens if that isn't the case? What happens if the disruptive innovation scenario that I laid out causes big problems in Alberta?
Markham:And I I wrote a column about this, and I'll say it again. I've talked I asked the premier this at the premier Danielle Smith at a press conference, said, where's the plan b? If there if the worst case scenario happens, what's the backup plan? There's no plan b. Alberta and Canada and Canada's just as bad.
Markham:I mean, we you know, the Alberta government beats on the federal Liberals all the time, and and I have problems with that, but whatever. But in in this context, the federal Liberals are as clueless, in my opinion, as the Alberta government at not having a plan b. Not I know because I talked to minister Wilkins' office. I asked the minister's office. I said, you're approving gonna approve tens of 1,000,000,000 of dollars for subsidies for CCUS, for carbon capture and storage.
Markham:Have you has your minister or your department reviewed modeling on the competitiveness of Alberta Oil Sands Caruso Bitumen in the context of a declining demand scenario where prices are lower and and so on. And they fumbled around and and, you know, gave me the non answer which is an answer, which is that no. And so, you know, the Alberta government doesn't have a plan b, the Liberal government doesn't have even hasn't hasn't done its basic due diligence, as far as I can tell, and is now doling out 1,000,000,000 of dollars all over the place in this context, and I think Canada is being irresponsible. This is not the way well run countries Norway would not conduct itself like this. Texas would not conduct itself like this.
Joe:I I think there's a little bit of trouble in trying to predict the future where it comes to things like this because if we if we look at the future, like say in 2050, like what what oil demand will be in 2050, I think under the IEA's step scenario, it's currently said to be I want to say 91,000,000 barrels per day of consumption. But, you know, if we have if we have, like, full on decarbonization, I think it goes down to 20,000,000 barrels per day. But there's a really wide variation because some some projections say that will, of course OPEC you can you believe them or not. Of course there's a lot of people who are skeptical of their projections, and there's there is some thought that the reason they're doing that is mainly for political reasons to keep the cartel together. It's really hard.
Joe:It's very difficult political organization to keep together, any cartel is. But a like so 120,000,000 barrel per day, consumption 2,050, 100,000,000 barrel per day, consumption 2,050, but let's say 90, 70, 50, 40, all of these very different futures and the idea that we really know what oil demand will be in 2,050 is it's just not true. No person on earth knows what it'll be because if they did they'd well they'd be investing all of their money in the exact circumstances that they see happening. But each of these futures is a very different future for Canadian oil as well, for the competitiveness of Canadian oil specifically. Because as my paper as Rory and I's paper shows, we have really big advantages where it comes to this incumbent infrastructure in the United States, for our oil continuing to be extremely useful to, well, one of the world's largest economies.
Joe:United States will continue to be one of the world's largest economies throughout the 21st century. So that is a major benefit for Canada's oil. We have this incumbent infrastructure. I believe heavy oil is also more useful for uses for oil uses that aren't just pure gasoline and sort of light ends consumption. And those are the sorts of things that might in a world where we have declining fast declining global oil demand, it'll be things like gasoline which disappear first because that's the light EVs.
Joe:Those are the things that are quite competitive with gasoline powered vehicles. When you go to heavier uses, it becomes a little bit more difficult. That's when you start to see other forms of decarbonization starting to be talked about things like hydrogen, which I'm a little bit skeptical of.
Markham:And you should be.
Joe:Yeah. Yeah. And like those are the sorts of things that deep decarbonization concepts I think are much more difficult to see the world adopt all at once versus some of the EVs. And we should also keep in mind that the outlook for EVs has been curtailed a few times the last few years. I still think that EVs are
Markham:Well, I'm gonna take you to task on that one.
Joe:Well, we can we can talk about this because in China, still huge EV demand, and, I think that's because China has very good just incredible manufacturing base in China for pretty much everything. But, for example, in North America and Europe, traditional vehicle manufacturers are having a very tough difficult time doing that transition. But we can we can chat about that as well for sure.
Markham:Well, the reason it's very interesting. The, the narrative that EV growth is slowing down came in the last quarter of last year. And in the Q1 of this year, EV sales globally, EV sales, you know, had a steep decline, and everybody Mhmm. Lit their hair on fire. But they didn't they didn't met, talk about the Q2, which was quite, markedly higher, the Q3, which was quite a bit higher than that, and the Q4.
Markham:Now both Bloomberg NEF and the IAF come out and said, well, you know what? We said last, in 2023, we forecast 16,700,000, units of EVs would be sold in 2024, And lo and behold, that's exactly what we're gonna have at the end of December.
Joe:Mhmm.
Markham:So, you know, the this idea of the somehow the slowing EV adoption is I don't I don't buy it. But here here's where I would push back on the oil demand stuff, and whether you can, forecast the future. OPEC, and you alluded to their their modeling. And what they say is by 2050, the global demand will go from a 103,000,000 barrels a day today to a 120,000,000 barrels a day. And the reason for that is because, the global north will partially electrify and decline and oil in the global north will decline somewhat, but the global south will well, I think it goes up by 80% in their modeling.
Markham:And so we're talking about, like, you know, Latin America and Asia and and and, Africa and and so on. And I've unlike most of the politicians I've read those damn reports. And and I and their assumptions, the OPEC's assumptions are shall we say, highly suspect? I mean, they're they just don't hold water, and we're seeing them already. You know, like, they were they were forecasting, Chinese, oil demand would grow by 4 and a half 1,000,000 barrels a day by 2,050.
Markham:I don't think so. Now Sinopec came out and said, no, we're gonna have peak oil demand in China between 20, 26 and 2,030. I mean, there's their assumptions are falling apart like wet cardboard. So, anyway, I my point is that Canadians, both at the provincial government level and the federal government level, need to do a much better job of due diligence and understanding what's going on at the global level. And I'll have you I I need to have you and Rory back together to talk about what's going on globally and and how that might affect Canada because, I mean, we could that's a whole another interview, you know, all by itself.
Joe:Yep. More than happy to come back on. Really appreciate you having me on here, and, of course, I I recommend everybody to give my paper a read and check out the other activities the Canadian Global Affairs Institute.
Markham:I'm gonna put a link in the show notes to your, to your paper, and I'm gonna also look up some of the other work that you've done because I I confess, Joe. I haven't, wasn't familiar with your stuff before. I am now, and I really like it. I mean, it's it's thorough and it's, well researched, and you clearly know the know your stuff as and I know that Rory does, because I've been following him for a long time. So thank you very much for this.
Markham:This has been very, very, very, very useful.
Joe:Great. Yeah. Thank you for having me, Markham. Really appreciate it.