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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 305 of Damage Talks podcast. I'm energy and climate journalist, Markham Hislop. I recently published a Markham on Energy column titled my TMX Mia Culpa. During the intense opposition to the Trans Mountain expansion pipeline, I reported on the project and supported it editorially. This would have been around 2016 to 2019.
Markham:At that time, the experts I interviewed thought the energy transition would be slow, and 2 to 3 decades of TMX heavy crude oil exports to Asia or the West Coast of California seemed like a good idea. Today, the global energy transition is galloping along at breakneck speed, raising the possibility, perhaps even the likelihood, that after 2030, falling demand and prices will render the $35,000,000,000 TMX a bust. The risk is great enough in my opinion that I repented of my earlier support in the column. Good friend and National Observer columnist, Max Fossett, says that I am wrong, and he has kindly agreed to come on the podcast to explain the errors of my argument. So welcome to the interview, Max.
Max:Thanks for having me. I'm I'm always happy to come on and and explain the area of your ways too.
Markham:Well, you know, it's, you don't usually do it on the podcast. You usually just simply do it on, on social media, usually on Twitter. So I I appreciate doing it on you doing it on the record.
Max:I mean, why do something for free when you can help a friend get some, I'll say, money for it, but, you know, serve as readers. So I'm I'm listeners, so I'm happy to do it.
Markham:That's right. Well, thank you. And speaking of happy to do it, I am happy to offer you my congratulations on winning the top columnist award in Canada a couple of days ago. And why don't you tell our listeners about that? I I think they would be very interested to know that you are now the best columnist that Canada has.
Max:Well, I I I mean, I would first of all, thank you. I I I wouldn't say that that it is dispositive, you know, that now I am the greatest columnist and Chantal Hebert and Andrew Coyne and the rest of them have to lay down their arms. It's not quite how it works, but, couple years ago, the National Newspaper Awards created a new, a new sort of special award, called the Mary Anne Shadd Award, which is named after a very famous Canadian who was a very prolific writer herself, and, I was up against, 2 other very capable, columnist in their own right for the for the finals, I guess. And I was on vacation. I have this sort of long standing belief that if I go to award ceremonies, I lose, and if I don't go to the award ceremonies, I tend to win.
Max:And and my theory was born out. I got a text on the airport as I was leaving to come back to Calgary that I had won, and it was, yeah, it was delightful. I mean, sort of validates the life that I've chosen for myself and all the work that I put in, and and, you know, it's nice to be recognized and all that, but then you have to start cranking out the columns again. So, you know, that back at it now and, I guess I'll have to try to win another one.
Markham:Well, come on now. You're the best sausage maker in columnist in all of Canada. I'm sure that's not not a an onerous task for you, but I wanna disagree with you a little bit. Seeing as how you're gonna, you know, puncture my argument, I am gonna I'm gonna return the favor.
Max:Sure.
Markham:I think that Canada, there were there were we had a golden era. I don't know if it was the seventies eighties, eighties nineties, but there were some damn fine columnists that wrote for Canadian magazines and newspapers. We don't have much of that anymore. And you mentioned Chantal Hebert and and, Andrew Coyne. I would argue that they are well past their best before date.
Markham:And I mean, I'm I say that as a critic of Andrew Coyne, who I don't like, and a supporter of Chantal Hebert, who I really do like, but I think it was it really is time for a new generation of voices, to take over you know, to, have a bigger impact on the national conversation, particularly around energy, which is Myspace. And, I I think your voice is, well, deserving of the praise.
Max:Thank you. And I and I think it's important to note that the winner came from outside the, you know, the Ottawa bubble, the the Toronto Golden Horseshoe area, you know, someone from Western Canada who has more of an insight into to climate and energy and writes about those things more often. I I maybe that's part of why I want is these issues are becoming more and more important, and, look, I would I would be a complete moron to challenge Chantal Hebert on on anything to do with Quebec or national politics because she has seen so much and and knows so much. But, yeah, I think I think when it comes to the issues of of our time around climate and energy, I probably do have a pretty good handle on things. So, I'm hoping that I, you know, I get my spot on on the national and add issue panel, and and we can go from there.
Markham:Oh, Max, your your humility your newfound humility is is, is encouraging. Look. Let's get let's get down to brass tax here because you and I are going to, disagree on something. Yep. You just had a a call a podcast story that you, that, has now, been retired, called maxed out in which you discussed issues with people with whom you disagreed.
Markham:Yep. And I never got on there because you and I mostly agree on many things. Well, most things, but not on this thing. So have at it, my friend. Dissect my argument and tell me where I'm wrong.
Max:So, I I mean, I think just to sort of bring your the listeners up to speed on what I'm disagreeing with, you're you're saying that the TMX is not a good investment, and if you could do it over again, if you could get in your time machine and go back to, you know, 2019, 2018, whatever it was, you would strongly encourage the government not to do it. It won't be worth it. And my perspective on that is I I feel like that's a bit of an overreaction. I take your points about the energy transition and the speed at which it's going. I I think people in in Calgary where I live are are dangerously blind to what is happening under the surface in global mark energy markets around demand and, you know, electrification of vehicles and everything that's happening China and whether that's gonna sort of lead to.
Max:But I don't think that that will put TMX out of the money, and and I'll explain why briefly. The the first thing is that as demand for gasoline goes down because, you know, we're all driving these these better, cheaper, more efficient EVs, that hits light oil, much more than it hits heavy oil because because gasoline then we're gonna get into, like, the weeds on on crack spreads here and things like that. But when a refinery, processes light oil, it a ton of gasoline. When it produces when it processes heavy oil, it produces more middle distillates, diesel, things like that. And and so the grade of crude that is going to be most impacted by electric vehicles is light oil, and then TMX doesn't ship light oil, it ships heavy oil.
Max:I think that the demand for heavy oil is gonna be a little more resilient just because of those things that that can be extracted from it that are harder to replace in diesel, you know, middle distillate, products. Those those are harder to substitute with with low carbon solutions. They will eventually get there, but I just think that the substitution is gonna be a little slower, and so the demand is gonna hold up a little better there. And the other part of the argument is, you know, the other major producers of heavy oil are by and large basket cases. Right?
Max:You have you have Mexico, which which has really kind of fumbled the development of its oil industry, and and it's heavy oil production continues to decline, which means there's more demand in California and the United States for for Canadian heavy. You have Iran, which, I mean, who knows? Their production has been increasing despite the fact that there's, you know, why do I wanna say I don't wanna say embargo. But, anyways, there's there's issues around their nuclear program and and there's a you know, they're they're being punished, but they're getting the barrels out. I just I have no confidence that at some point Israel isn't gonna drop a nuclear weapon on that country or something.
Max:Like, who knows what's gonna happen with Iran? So I have no confidence in the long term trajectory of their production. Then you have Venezuela, which is the king of basket cases, you know, like, truly cannot, run their their country much less their oil industry. And so Canada's gonna benefit from the fact that it is the is the only non basket case in the heavy oil space. And so I think that it doesn't mean it's boom times for Alberta.
Max:It doesn't mean that the oil and gas company should be building new oil sands mines. They shouldn't and they won't. But it means, like, that that the product that flows through, Trans Mountain will continue to be bought and demanded for the next 20, 25, 30 years, and that's all it takes for that project to pay out.
Markham:Well, let me provide some data to back up your argument. So there are is, out of the 104,000,000 barrels a day of oil demand globally, 10, 10 and a half 1000000 barrels a day of that is heavy crude, of which, bitumen is ultra actually ultra heavy sour crude. And 5 and a half 1000000 barrels a day of that, is in the United States, and most of it is in the Midwest US and in the US Gulf Coast down in Texas, Louisiana. And about 500,000 barrels a day is in, California. And California just had heavy oil production for a long time, and it's really on its last legs.
Markham:Like, when I worked down there 20 years ago, they were stripper wells at that point, and how they've managed to stay in production is beyond me, but maybe they'll stay in you know, maybe they'll maintain that level of production. I'd I'm pretty skeptical, particularly since California is the US king of electric vehicle adoption. And so I agree with you about the Latin American competitors. I mean, Venezuela's getting a bit of a lifeline from Biden these days, and I think it's Chevron that's moving in and and spending a little money and getting, you know, increasing, but it's not much. And it's not anywhere near the 2a half or 3000000 barrels a day that they used to produce back in 2,000 ish in that in that that area.
Markham:And, frankly, a lot of their infrastructure now is is rusting and falling apart, and you probably couldn't even restart it. You know? It's it's that bad. And Mexico, has 600,000 barrels of of Maya, which is their heavy grade, and, the they signaled a couple of years ago that this year, they would withdraw that from the export market, that they were going to process that internally, for their, you know, domestic market. And and then, of course, there are problems with all of the other suppliers that you mentioned.
Markham:And then you have rising petrochemical demand. China's demand from their their huge and we a little bit of background for our listeners. When China builds a refinery these days, it they're huge, but they also have a petrochemical component so that they can kinda switch back and forth, and they can maximize the value that they get out of out of their crude feedstock, and that demand has been going up. In in fact, that's been a strong source of demand for heavy. So I acknowledge all of that, and I've been droning on for a couple of minutes now with that information.
Markham:So I would say that and the argument that you made and that I just buttressed with, you know, some additional information is essentially the argument that gets made out of Calgary.
Max:Yep. So why why is that wrong?
Markham:I have spent the last year I spent a lot of time, on China, And I didn't realize until I spent that time how deeply committed, the Chinese government and is in particular, they see, to some extent, the, clean energy manufacturing. So we're talking about solar panel modules. We're talking about wind turbines, batteries, EVs, heat pumps, hydrogen electrolyzers, and all sorts of other technology, but those would be the core 6, let's say. But they see that as an extension of their national security program or or issues. And Yep.
Markham:They, 20, 25 years ago, when they decided to make the pivot to clean energy manufacturing, they poured 100 of 1,000,000,000 of dollars. They had a very, very robust industrial policy at that time, and they scaled up those industries, drove down prices. We're all familiar with the declining cost curves over the last decade or so of batteries and solar. You know, like, solar, that was, you know, 9, 10, 11¢ a watt. I mean, it's almost we're we're rapidly approaching what Tony Seba said in 2017, which is the marginal cost of, electricity will be 0.
Markham:I mean, it's that crazy, and it's happening so much faster. Now that would that's one thing. And you can see the Americans and the Europeans both responding. And then the Americans ones, of course, we're in Canada, were the were the, the nice, loft on the top of the crazy party that that goes on south of the 49th border, parallel. Sorry.
Markham:But the Americans get it. They now understand that they can't be vulnerable to Chinese, supply chains. And so they've you know, we have the infrastructure act, the chips act, and the and the inflation reduction act, as well as other legislation, frankly, and what's going on at the state level in places like California. So the Americans have mobilized. It's like World War 2 for them.
Markham:They are going to get back into it, and they're going to compete with the Chinese. Now based on how much the Chinese have spent so far, one would logically think, well, okay. You already have overcapacity. And Janet Yellen was just in China a month ago complaining about Chinese overcapacity and driving down, you know, prices and dumping basically their products, but that's not China's game. China has indicated that it is going to continue to invest and subsidize all of those industries, but particularly EVs, in a way in the same way that they have over the last 10, 20 years.
Markham:And so that logically leads to the question, what are they gonna do with it all? And I think the signals coming out of China are that they are going after emerging markets in a big way, and emerging markets are the key assumption in OPEC's world oil outlook 2045. That's that, those markets will stay with oil and gas, and I think China's gonna prove them wrong. I I think China is gonna be a huge surprise. We'll look back on 2030, and we will be surprised by the number of electric vehicles and factories in places like Brazil, in India, Pakistan, Bangladesh, places, you know, Thailand, Malaysia, Indonesia, places that maybe where we thought would be laggards.
Markham:And in fact, they will be well on the way to electrifying their transportation. That speaks to the rapid decline in demand for oil. And we saw I I because you and I I remember you and I having many conversations about this around 2015, 2016. What happened when there was a surplus, supply of a 1,000,000 and a half, 2,000,000 barrels around that time, prices just fell off a cliff. So I think I'm not saying that it's going to happen, but I think there's a very, very good chance that demand destruction and the, the remaining supply not leaving the high end supply, high cost supply, not leaving the market as readily as people think, I think will drive down prices and make it very difficult for Alberta producers, and the question is when.
Markham:Will it be 2030? Will it be 2035? It might even be this decade. But there's a worst case scenario here that that really is bad for Alberta and for Canada.
Max:So I don't actually think we're disagreeing on substance as much as we're disagreeing on timing, because I agree. I mean, it was it was always interesting to me to hear people say, oh, well, you know, don't worry about what's happening in North America and Europe because China and India, they're gonna just keep wanting more stuff, and they wanna be middle class like us, and that means fossil fuels. And so we're gonna be good up till 2060, and I I was sort of trying to point out to them, like, it is it is explicitly in China's interest to get off fossil fuels as fast as possible because it's a huge drain on their foreign currency reserves. It's it's just it's a huge vulnerability, a huge weakness because they're importing something and and having to pay for it with with non, non Chinese currency. Same thing in India.
Max:Like, if they could snap their fingers and make it happen tomorrow, they would. That's not that's not true in the United States, which has always had this sort of conflicted relationship because, of course, it it has always been a major oil and gas producer, not as major as it is today, but it always had sort of a a mixed relationship there. And so people just never understood what the game was for China, which is basically get off this and get into the next economic space as quickly as possible, and that's one that it can dominate. You know, they don't have the oil reserves of Saudi Arabia or Canada, but they damn sure have the economic and political system. And believe me, I'm no fan, but the ability to direct their economy in ways that we simply can't do in North America.
Max:So I don't and I agree. I think that the emerging markets are where they're going. They are where they have been projecting their strength. You know, the the the silk the with the silk belt and silk road or belt and road project that they Belt and road initiative. Yeah.
Max:Where they're basically trying to expand their investment and their their ships into Africa and and other, you know, very emerging markets. So I agree. I think I think OPEC's forecasts are are self serving and and somewhat delusional. And I think people in Alberta cling to them because it tells them they don't have to change or they don't have to change within their own professional lifetimes. They can retire to Kelowna and let the next generation clean up the mess they've made.
Max:I don't think that that is as material for the pipeline as it is for the industry. So I think, you know, you could easily see prices come down, you know, 40 bucks, 45 bucks a barrel, something like that. As far as as far as the operations of TMX go, those companies are still gonna pay those tolls to move that that product to market because it still makes more sense at those prices to produce than not to produce. And and a pipeline business is just it's fee for service. You're just basically taking a product and sending it down the road.
Max:So I, you know, I think the the the upstream part of the story is much more at risk, much more, fraud than the actual infrastructure story. And I and I think, you know, I think you will see that in the bids that ultimately come forward to buy the project. Certainly, they're not gonna get every penny they put into it or anything close to that, but I think you will see some pretty pretty lofty bids for for owning this project because it is a, you know, a key piece of insert infrastructure in an otherwise fairly landlocked, part of the country. And and I think everyone is in in agreement. They're never building another pipeline, oil pipeline, probably not even another natural gas pipeline on the West Coast.
Max:That that is done. And so this the one that exists is gonna be tremendously valuable.
Markham:I think at this point, we have to tip our hat to economics professor Trevor Toem, who, at the University of Calgary. He wrote a piece in the hub. I think it was earlier this week or late last week, and he did the math on the financial basically, the business case for, for TMX and said that it was a terrific investment at, worth every penny, I think, is the way he put it. And his math certainly makes a lot of sense. The the profit margin on this pipeline is very high, and it will, pay down the the, debt and the, you know, the $35,000,000,000, is quite a balloon in the cost.
Markham:But, nevertheless, even at that number, he says that the debt will be paid down, and whoever owns this, it's going to be it's going to be quite profitable. And I I don't take and I wanna the reason I bring this up is because I don't wanna take issue with Trevor's numbers. I think what he's done is he said, look. You know, let's take average average oil prices and extrapolate out to 20 or 2042, and and, demand doesn't fall off a cliff. And under those conditions, then this is a very profitable project, and it should have been built.
Markham:And I don't disagree with that. I think if Trevor's assumptions and the assumptions that you're making, turn out to be true, then the numbers actually look pretty good, and TMX will be will be a a very it would be a profit generator for whoever owns it. It probably won't be the federal government. It shouldn't be the federal government.
Max:Yeah.
Markham:So the question the really the question is the, degree of risk that we at, each of us attaches to the demand destruction that could be caused by the electrification of transportation and China's role in it. I mean, that's really comes down to it. I really worry that it's gonna be happening so much quicker than than we expect, and that is why I think the assumptions will turn out to be wrong. But this is about go ahead.
Max:Well, it's possible, but, I think the the risks associated with letting that project die, were far greater in the near term, and not just because of sort of knock on impacts on other projects, on the the ability that Canada is a good place to invest, but also if we, you know, if we just look at TMX from a project perspective, you know, and and professor I I call him professor Toome. You can tell him. We'll sort that out later, but he, you know, he has the numbers that suggest even on an internal sort of just looking at the project itself, it's in the money, albeit just barely. But when you expand the analysis to the impact it has on upstream realized prices and then the the impact on royalties, on corporate tax revenues, Like, we're talking 100 of 1,000,000,000 potentially in in revenue that that is that is generated upstream, and captured by by government taxes at various levels. And, I mean, that just pushes the the project so far into the black that even if even if, you know, we have the most aggressive electrification scenario that you and I can can imagine.
Max:And let's say 2035 volumes on TMX started tipping down and and it's you know, it starts, you know, it there's just not enough product to put through it because prices are so low. We're still in the money. Now the the whoever buys the project wouldn't be in the money, and that's obviously a consideration that they have to, take into account when they're when they're making bids on it. But just from the perspective of the, quote, unquote, Canadian taxpayer, like, I mean, you could really kind of almost mothball the the project 10 years in, and it would still be very good and and a net positive for for the federal and provincial combined treasury. So that's sort of how I've always looked at it that, you know, if you just treat it in isolation like it's a a pipeline project being developed by a a private sector, company, you're kinda missing the forest for the trees on why the federal government did it.
Max:Right? They didn't do it necessarily because they thought they could sell it for more than they they paid and and and spent building it. They bought it because there's a multiplier effect happening upstream that that benefits governments and benefits the taxpayer.
Markham:Well, I have to say this government in particular, the the Liberals led by prime minister Justin Trudeau, do like to spend money. And they've, they've supported the industry, ever since they were elected in 2016. They made it very clear. I mean, the the industry is enormously important to the the national economy, and it generates a lot of tax revenue for them.
Max:Yeah. I I in to to no credit. You know, they've gotten no credit from the industry for you know, and I've argued this. I think it's it's provocative, but it's also true. This is the most pro or not the most pro.
Max:The government that has been the most friendly to oil and gas in Canadian history. You know, people talk a lot about Harper, but Harper, number 1, 0 pipeline projects broke ground under under his watch. You know, they made a complete cock up of the, you know, the environmental assessment process that that probably set a bunch of those projects back, and they killed the income trust structure, which, you know, it's funny to hear people about the the capital gains changes and how, you know, arbitrary and capricious it is and how it, you know, targets rich people. The the the income trust structure decision happened overnight and basically vaporized, like, 1,000,000,000 of dollars. I think yeah.
Max:Tens maybe an enormous amount of money, in the trust sector, which was overwhelmingly concentrated in the oil and gas industry in Calgary. Like, there was trust companies that overnight, like, once clarity made the decision, their their value went down 30% the next day on on the TSX. And weirdly, didn't hear much, you know, talk of of how they they were socialist, communist, they hate rich no. It was, you know, that it it's just this such wildly unfair and unreasonable kind of fun house mirror that gets applied to these governments in the way they treat the oil and gas sector. But at the end of the day, I think what I've learned is they're not interested in the policies.
Max:What they want is a government that will tell them they're doing good for the world, that they will cheerlead them and say, yes. You are ethical, and you have you are the greatest oil industry in the world, and that's what they wanna hear. Even if the policy is the gut the people saying that wanna implement will actually hurt their pocketbooks, hurt them at work, whatever. As long as they say the nice tender words that make them feel good about themselves, that's what matters. And that's ridiculous, but that is that is where that's the state of play.
Markham:Max, you and I have been doing this for a long time, and I've had a chance to, you know, have conversations with various people in the industry. I won't say that I have lunch with CEOs, but I do know people in middle management, and I run into the odd vice president that I get to have a conversation with. And like you, I get drunk emails. I I have I I have the chairman of a board of a you know, one of Canada's biggest oil companies send me a drunk email on a Friday night, and and, you know, he didn't like one of the columns that I I wrote. And then I had a former chief of staff to the premier, Jason Kenney, you know, write me a drunk email.
Markham:And here's the thing that I've taken away from all of those interactions. The understanding of oil's competitor, which is electricity, clean electricity, and all of the new technologies, that's the supply side, but then there's a demand side like electric vehicles and and so on. The ignorance of what's going on globally and with that technology is astonishing in the Calgary oil and gas industry. They are they hold on to and I'll bring up Brett Wilson, you know, the former dragon Dragons then and, now a provocateur on social media climbs into my threads all the time with goofy memes that are inaccurate. None of his points make any sense, and he's considered a thought leader.
Markham:And the level of understanding of what's coming, they they're not even they're not even as well versed in their competition as Blockbuster and Eastman Kodak were. Yeah. So go ahead. I made my point.
Max:Well, I just this is the thing that's always I found mildly shocking. But, you know, if if your entire livelihood, your entire existence, your entire identity depends upon believing the world is a certain way, you should at some point at least try to test it, and not test it against some, like, stair you know, some cardboard cutout version of your opponent's argument. But, actually, go to the go to the place where it is the strongest and and hear it out, give it a fair hearing, and then try to reassess. And it just feels like a lot of people in leadership management positions in Calgary kind of travel from one echo chamber to the other. You know?
Max:Like, oh, I'm gonna go down to Texas and talk to some people, or I'm gonna go and hang out in Kelowna with my other retired oil and gas buddies. Those people are not outside the chamber. They're in the same chamber as you. They're just in different geographies. And and yeah.
Max:If, you know, I think if they spent a little more time in places like Toronto, New York, London, wherever, and and really got a better sense of where the world is heading, they would realize, number 1, no one gives a shit about Alberta. Right? I I I you know, they there's this idea that, like, the prime minister is out to get us because his father was out to get us, and he doesn't care. Like, he's he really doesn't think about it that much. He's actually trying to help you.
Max:He he over indexes to Alberta. I'd have been told this multiple times by people because he he feels this sense of of almost like he has to overcompensate for the legacy that his father was, I think, unfairly handed in in the west, but, you know, he doesn't wanna hurt Alberta. He wants to help. But he also understands that there's a bigger world out there, and he has to respond to that. And it really feels like a lot of Albertans think that this is all gonna be won or lost and decided in Ottawa.
Max:And it's not. Like, we are we produce a lot of oil and gas, but we are not a major player in any of this. And the fate of the oil and gas industry will be decided in China, in the United States, in Europe, in in all these other places where, you know, these thought leaders, quote, unquote, just have no purchase. And and I I really wish, you know, I I've always said, like, the thing that conservative politicians should be doing is leading this conversation and saying, like, hey. Look.
Max:There's a thing coming that might really affect us in a negative way. Why don't we try to get our heads around it and prepare for it? And instead, what we have is conservative politicians who just use, you know, Trudeau and and climate change as ways to kind of pack more insulation around the echo chamber. And maybe that serves their political interest. It probably does.
Max:I mean, you look at the electoral maps here. But it's very bad for the people they claim to be serving. It's very bad for the future generations of Albertans they claim to care about, and that that's sort of what's frustrating to me. And now, like, Brett Wilson, he's got his. Right?
Max:But he's not doing any favors to the next generations of Brett Wilsons who wanna come here and make make their mark. Right? And and that's just kinda selfish. And and, you know, from from the guy that I used to know, and I know a very little bit, you know, covering and and interviewing him. It's just it's a it's a unfortunate path that he's gone down.
Markham:Unfortunate rabbit hole he's fallen into. But I there I wanna run an idea past you that, I've been thinking about and working on a lot, and that is the incumbent's dilemma is what I call it. So when an incumbent industry is disrupted, it has 3 options. It can adopt a new, business model, and you see the Danish oil and gas company has now becomes and is the world's largest wind, installer. It can reengineer, its own, oil and its own business model.
Markham:So you see Suncor tried that. You know, it had invested in, wind and solar and invested in start ups and on and on. It was hoping that some of these would take flight and and maybe, you know, help them, add to their their clean energy angle to their business model. Then the 3rd then you get to the 3rd angle, 3rd, option. And that is when incumbents don't see that they have an obvious pivot or an easy pivot, they double down on the status quo.
Markham:And and I would argue and the Suncor is the perfect example last year when it said it was done with the energy transition. It was just gonna, you know, turtle and and, you know, look after its knitting. I'm I know I I just, mixed my metaphors, but you you you get you get the drift.
Max:And turtles turtles love to knit, so go on. Knitting turtles.
Markham:That's our metaphor for today. But the point here the point here is that this is an industry that's always been prickly, always been insular, and but in the in response to the disruption that it at least feels, if nothing else, but doesn't understand it, it feels it, has has turned inside and become even more insular. We talked about the Calgary bubble, you know, that they all, seem to live in. And I think that and then you have, of course, the, Daniel Smith, who's premier of the of the province and leader of the United Conservative Party government, who almost seems to have been recruited to put a shield up around the province and cooperate with that whole you know, the, protecting the incumbents. And that's deadly.
Markham:That is deadly. It's a very, very Internally, there's just no recognition of it in opposition to it. The federal government, you know, the constitution ties its hands. It's only it it can only do so much. It's a very difficult I don't see a path away from this, to be honest.
Markham:That's why I'm really concerned that Alberta is going to wake up one day and go, oh my god. The price of my oil is $15, and it's not ever gonna get over $15, and I'm toast because I I didn't respond and, you know, build a carbon fiber manufacturing industry for my for my bitumen feedstock. That's my argument, and I'm curious what you think of that.
Max:Yeah. I think it's a good argument. You know, I I I always find it interesting to contrast how this industry actually thinks and behaves with how it thinks it thinks and behaves. So it imagines itself. It has this sort of lore and and mystique as, know, this industry of swashbuckling, renegades and rogues who are out, you know, sort of charting new new frontiers and and taking risks and, get out of the way, government.
Max:I'm I'm a man of action. You know, it's a sort of Ayn Rand Ayn Rand fantasy. And the truth is they're basically like a commodities telecom company. They they they have the risk mentality of a government utility. They are they are they are cautious
Markham:That's so true.
Max:They are cautious to a fault. They are careful. They don't take risks unless someone else has proved the risk out first. You know, it's not it's not endemic to the oil industry. Like, in in the states, I think their oil and gas industry is much more willing to take risks and try new things than ours is.
Max:But ours is very cautious, very safe, very Canadian. And so then I I think they were never gonna be the ones who disrupted their own businesses because they don't know how to disrupt anything. They don't. They they're they're engineers. They know how to apply proven solutions to proven problems, and this is a situation where that that approach just doesn't work.
Markham:I actually have some practical, experience that I'll share here that I think is relevant to our conversation, Max. From 2003 to 2008, I worked for a company, in the oil patch that was that was, in the in Calgary, in the Foothills Industrial Park. And as part of that work, setting up distribution networks all over North America, I was down in Midland, Texas for a couple of years. I was at Bakersfield, California for a couple of years. And when I was home, I was working in the Calgary area, Lloydminster over in Estevan, sometimes in Saskatchewan.
Markham:And every day, all day, for those 5 years, I sat across the desk from engineers, mostly, petroleum you know, oil and gas engineers, drilling engineers, completion engineers. And the one thing I I came away from is how conservative, how cautious those people are. And it was exactly the thing that you said, and that engineering culture permeates oil and gas culture. It's a bedrock part of of that culture. And those engineers would always say things like, well, what kind of data have you got?
Markham:Who's done it first? I'm not gonna be the 1st out of the gate to try it. And, you know, how are you gonna derisk this for me? Or are you gonna share the risk? Are you gonna get government funding to derisk it?
Markham:And and you can see understand why because this is an industry that failure could mean 1,000,000 or tens of 1,000,000 of dollars.
Max:Understand. I get it. I you don't want engineers who take bad risks because then you have bridges collapsing, you have buildings falling over like that. That is a good part of their culture. That is a part of their culture I think we should celebrate and and appreciate.
Max:But when companies are run almost exclusively by engineers, then it permeates the corporate culture. Right? And and so, you know, you do not get people who are willing to blow things up to start over again. That is that is a mindset of, you know, tech companies, and tech companies tend to be run by young people because young people just have a much higher risk tolerance than than 55 year olds with mortgages and multiple, you know, multiple property, whatever it might be. And I I think there's, like, an HR.
Max:I've said this before, but I think there's an HR component here that is, that is overlooked, and does not get the credit it deserves, which is all of the people making the decisions right now just wanna get to the finish line. Right? They're in their early fifties, maybe their late forties, early sixties. They don't want to break the wheel. They do not want to reinvent, how they do business.
Max:They just wanna get to the finish line, cash their stock options, move to Kelowna or wherever it might be and call it a day. And so whenever they are presented with a a choice between try something dangerous that will evolve our business or status quo, double down on the status quo, they'll double down. And, you know, you look at what happened at Suncor with with Rich Krueger coming in and and getting rid of all the the sort of anything to do with climate change and the stock pops as a result of that. People, you know, people in management, their shares are worth more. That's just gonna reinforce that mentality of we just gotta do what we've always done and get to the end of our careers, and we'll leave the real hard lifting, heavy lifting for the next generation.
Max:And that is why you need governments to get involved here. That's why you need politicians because the industry is not gonna do it like you say. They just do not have it in them to make this change. Government has to, number 1, put in place provisions and structures so that if things go badly quickly, the public doesn't have to carry the bag there, and they have to put in place structures and and incentives so that the industry takes the steps it won't take on its own. Right?
Max:You you have to raise the carbon price. You have to, you know, slowly expose these companies more and more to the full weight of the carbon price. You have to create incentives for electrification. Like, there's all there's all these things it has to do. And, unfortunately, we have a provincial government that is doing the exact opposite.
Max:Right? It is basically an an arm of the industry that won't change. And, yeah, yikes. Yikes.
Markham:Now, I have had this debate with with investors, if Alberta based investors who say it's none of your business. It's the, you know, the private companies. They're public companies. They're held to, you know, high standards, and they're regulated, and they're overseen by a securities administration, and it's, who cares what columnists think? Well, here's why here's why the industry should care, because the people of Alberta own the resource.
Markham:That's a major difference between Alberta and Texas, where mineral rights are held mostly privately. In Alberta, 80% of it is held publicly. Under the Canadian constitution, the provincial government, is responsible for the essentially, shorthand is the the people of Alberta through its government own the the bitumen. They own the oil. They own the the gas that's that's, under the ground.
Max:Yeah. But we haven't we haven't hold on. We haven't behaved like owners since Lahey. Yes. Like, we I agree wholeheartedly.
Max:You know? We we have not acted like we are the ones in control. And I think there's a mindset now in Alberta where, god forbid, you do anything to upset the oil and gas industry. Well, they're just gonna take their ball and go home. And, yeah, it would be great if we added politicians who kind of reasserted the ownership mindset because, in very short order, I think we're gonna get reminded that we're owners, but it will be because we have these massive liabilities dumped in our laps.
Markham:Well, for, folks who are listeners who are outside of Alberta, but particularly outside of Canada, there are unfunded environmental liabilities like orphan wells and, oil sands tailings ponds and on and on to the tune of about I mean, we're we're we kind of debate the number, but the number I use is $300,000,000,000 And whatever number you use, it's a huge number, and it would be very, very difficult for the Alberta government. The industry is not going to pay it. I've come to that conclusion. I've asked and here's the interesting interesting point, Max. I ask often ask people inside the industry, do you think the industry, the companies, will pay for their unfunded environmental liabilities?
Markham:And they all say no off the record. As a journalist, that makes that means something. Right? You can't you you can't even go put them on background and, you you literally are not supposed to use that that information unless you go chase it down somewhere else. But it's astonishing to me how many people, you know, PhDs and people who have spent 30, 40 years in the industry say, no.
Markham:This industry is gonna walk away and stick the taxpayer with that those liabilities, which just adds a whole another layer of risk to the discussion we were having about electrification and where China is going in the energy transition.
Max:Yeah. I mean, if if it was just the case that companies would go bankrupt and and it's sort of the, you know, the normal course of the of the capitalist cycle and, you know, and and shareholders would would, you know, they they lose money. Like, sure. That's that's the way the cookie crumbles. The problem as you say is that if and when the cookie crumbles, it's all gonna crumble into the taxpayers' lap.
Max:And, you know, it's not like we can send liens to these folks, these former executives who are now, you know, wintering in Kelowna and say, hey. You owe us, like, $5,000,000 for screwing this up, and and get all your friends to kick in the same amount. Like, we can't do that. They get to walk. They get to walk scot free, having profited from an asset that belongs to the public, but leaving behind this this giant liability.
Max:And, you know, I have this conversation with with Martin Olsinski, who's a professor at the University of Calgary, and he gets so he gets so angry about this issue, and I totally understand it because people are so indifferent to it. Right? And it's like you can't you can't get people's attention on this issue. And it's like, how how is this not on the front page of every newspaper in Alberta every day until it's until it's resolved? And I think the answer is we don't care as much about future generations as we like to think we do.
Max:In fact, we don't even care a tiny bit as much as we we like to think we do, and and we're willing to, like, write this check on their backs and just hope things turn out for the best. Right?
Markham:Yeah. That that old argument about, the debt we're leaving to our grandchildren. Well, excuse me. Let me let me give you the data on the this other debt that we're leaving to our grandchildren. This I have to say, Max, as you know, last year, we did the, unethical oil series, and I'm still working on part 3, which is about the oil sands.
Markham:But understanding the unfunded environmental liabilities that the oil and gas industry in Alberta has, is also part of my perception of the risk around TMX, just to bring it full circle, in the discussion we had, that we started, you know, almost an hour ago. Yeah. I my perception of risk is much more heightened today, now that I have a sense of where things are going globally, the cost to Alberta, if everything goes bust. It's so hot, and it's not just Alberta. I would imagine if the worst case scenario happened that the government of Canada would have to step in.
Markham:The 100%. Is so large that the one province couldn't handle it.
Max:And so Then it
Markham:this becomes a problem for all Canadian taxpayers.
Max:Yeah. I mean, there's a there's a certain poetry here, which is that Albertans love to complain about, you know, the the 100 of billions that have been sent, you know, quote, unquote sent to Ottawa, in in net transfers, you know, because we pay more taxes than we get back in services. The reason that's the case is because we're rich and we locked into a bunch of, you know, liquid dinosaurs under our feet, but we like to pretend that it's all this hard work that's being sucked out of Alberta. And it may end up being the case that that Ottawa has to bail Alberta out to the tune of 100 of 1,000,000,000 of dollars. All
Markham:of it irony. All of it.
Max:Yeah. And I hope it doesn't get to that. But I know that there are plenty of folks in c suites who would have no problem with that. They they would feel like that is fair. Right?
Max:Hey. We contributed all this money. So, yeah, if we, you know, if things go badly and we have to to dump this on the tax fair, fair is fair. And and I don't know how you get around that mindset. I really don't.
Markham:There was, this reminds me of some documentation I had, and Drew Yuchuk, who's a colleague of Martin Olashinsky's at the University of Calgary, he's in the law department, and he had FOIT, some documents from the Alberta Energy Regulator, historic documents from the eighties nineties, and one of them was a debate about this whole liability issue back in the days when the it was much, much smaller. And there was some pushback on the part of the regulator, which at that time was not completely in the pocket of the industry, that maybe, you know, we should be able to go back to the original owner of the well. Well, that didn't get that got a pushback from the industry, which said, hey. You know, maybe the owner of the resource should be on the hook for some of these. And and that all got, you know, resolved, and they put in place this cozy little system where the industry said, okay.
Markham:Well, you know, that that led to the Orphan Well Association and the Orphan Wealth Fund, that, you know, the industry would would pay for those companies that went bankrupt and left orphan orphan wells. But my my point here, I guess, is that this stuff never bubbles up in in conversations with government and around any place other than behind a closed door, and I don't even think anymore, you know, they don't even talk about it. I think we you know, the the level the level of interest, as you say, is they're just not interested. And it's so frustrating because the level of risk is so high. Have you got any suggestions whatsoever, because we're both in the business of communicating, on how we might raise this in the public of Alberta and Canadian public consciousness so that it is better understood and, I don't know, worst best case scenario, somebody actually did something about it.
Max:I start from the assumption that I think is pretty easily defensible that the conservatives will never do anything about this. They will watch this happen. They will encourage it. They will have that. They have no interest in in doing anything about it.
Max:So it falls to progressives to raise the alarm. And I think the way forward is is to raise the alarm without being alarming. Right? So I you know, if you're I think the instinct sometimes on the left to say, oh, those greedy fat cats, they're out to get us and I hate the oil and gas industry. They're terrible.
Max:And it's that is not the way to do it. That will never work.
Markham:I'm in Alberta. That's for sure.
Max:No. But what, you know, what the NDP could do if it had more communicators in its midst, but also, like, people who are literate within the oil and gas industry is to say, look. We are, you know, very grateful for all the the hard work these people do, and it's obviously a huge part of our prosperity. But we think it's fair that companies who create messes have to clean them up. Right?
Max:You you frame it as a fairness issue, as a responsibility issue, and you say, look. We you know, we're not saying we don't want to to produce this this product that's in demand. We're we're not opposed to prosperity. You know? Hell, we were the ones who got TMX bill.
Max:But we need to ensure that these companies are held to the highest possible standard because number 1, that's the message we're taking out to the world, that we are ethical, that we are the best in the world. So we kinda have to put put our money where our mouths are mouths are, and we need to protect the public. You know, that that that's just sort of table stakes. And I think with a sustained conversation about this stuff, they they could shift they can move the needle. I'm just not sure that they have the discipline to do it.
Max:I think there are too many people currently within their ranks who are just hostile towards oil and gas, hostile towards capitalism, prosperity, that they would kinda mess it up in the same way that I think social conservatives sometimes, step on the message that that, you know, sort of bigger picture conservatives would like to to tell. And and look, it's it's essential. Right? Like, maybe there maybe there's some sort of role for, a nonpartisan group to do it. I don't know what it is, but, it's not it shouldn't be acceptable to leave future generations with 100 of 1,000,000 of dollars in debts that they didn't they didn't incur, but they have to pay.
Markham:Max, on that note, we're going to wrap up the interview, and I have to say thank you very much. This has been a fascinating, conversation for me. I hope our listeners enjoyed it as much as I did, and, we'll have you back in the very near future. Thank you for this.
Max:Always happy to do it, and and thanks for having me on.