Page 34 - Newcom

JUNE 2020
PAGE 34
EDITORIAL
The most powerful weapon
The only way to enable a viable, durable recovery from the economic calamity inflicted by the Covid-19 pandemic is with more — and better — information.
As lockdowns begin easing and economic activity picks up, the biggest risk is returning to a shutdown. Businesses and employees have already sustained heavy blows from the initial shuttering of the economy, and governments have massively expanded spending to cushion the impact. A second round of self-imposed economic oblivion would make that task exponentially more difficult.
Avoiding that sort of tragedy can only happen with reliable data on the risks of infection. Resuming activities that enable the virus to once again spread unchecked would render the months of lockdown, and the calamitous economic side effects, an utter waste.
A great deal has been learned about how the virus spreads, which can now be used to engineer a sustainable, strategic reopening of the economy. Research shows that the virus spreads primarily through dir- ect contact. It also transmits much better where large groups of people
EDMONTON
are gathered indoors, particularly in poorly ventilated conditions. It’s not nearly as infectious outside, and it doesn’t spread well via surfaces. Utilizing this information can help us avoid the kind of “super- spreader” events that underlie some of the most severe outbreaks. At the same time, we can help businesses, people and governments to make better informed risk assessments that allow relatively safe economic
activities to resume.
If we do face a second wave despite these precautions, policy-mak-
ers must arm themselves with testing and contact-tracing data that will enable carriers to be isolated and prevent spreading the virus thoughout the broader community — without resorting to wholesale lockdowns again.
During the initial outbreak, governments had little choice but to shutter everything or risk the collapse of the health-care system and economic devastation. Volunteering to suffer extreme economic con- sequences has undoubtedly saved lives and spared hospitals. Now, util- izing what’s been learned is critical to avoid future lockdowns, which would needlessly compound the existing economic damage.
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For Albertans,
oil and gas will never die
There will always be a price for a barrel of oil or a cubic metre of natural gas. The only question is what that price will be
BY MICHAEL GANLEY
if oil is dead, that only proves
there is a long and lucrative afterlife. Green Party leader Elizabeth May pronounced the death of oil on May 6, during the height of the coronavirus pandemic, and added that her “heart bleeds for people who believe the sector is going to come back.”
She should save her compassion for those who deserve it. The people who believe the energy sector is going to come back will make a lot of money in the coming years, and no amount of wishing otherwise will make it so. “Buy the dip” is perhaps the most well-worn of investing mantras.
Recent history has been brutal on the oil and gas industry. The price of a bar- rel of Western Canada Select (WCS), the most relevant blend for Alberta-based pro- ducers, was around zero in April. Global demand for everything from gasoline to real estate to potatoes has plummeted. Saudi Arabia and Russia waged a battle for market share that further depressed prices and filled global storage facilities.
But as they say in the industry, the cure for low oil prices is low oil prices. Since March, monumental amounts of pro- duction have been shut in. The Energy Information Administration reported
that by May 15, U.S. production was down by 1.5 million barrels per day from late March. By mid-April, Canada-based oper- ations reported that 365,000 barrels per day had been withdrawn from the market.
“These figures are old and likely low,” wrote energy analyst David Yager in EnergyNow Media. “Total production cuts in the U.S. and Canada are probably well over three million barrels per day.”
Globally, estimates suggest as many
as 15 million barrels per day have been removed, equalling about 15% of pre-pandemic production.
At the same time, the oil and gas indus- try’s recovery has begun. By late May, WCS was back around US$25 a barrel and West Texas Intermediate had doubled in the month. Inventory in storage has begun to come down.
The impact of Covid-19 will be felt for years, both because the economic col- lapse has been so profound and because the virus will return, probably in waves. But Alberta is through the worst of it.
The province has, aside from scandalous outbreaks at two meat-processing plants south of Calgary, managed well through the pandemic. The province had 6,955 confirmed cases and 143 deaths from the virus as of May 28. Premier Jason Kenney has, for the most part, taken his cues from the provincial officer of health, and cit- izens have taken their responsibilities seriously. The rhetoric condemning the federal government and Prime Minister Justin Trudeau for sins real and imagined has picked up, but none of that matters to the price of oil or natural gas.
In other good news from Alberta, natural gas prices have held their own throughout the pandemic and even ticked upward. The liquids-rich natural gas plays in the Duvernay and Montney formations are profitable now, and will be even more so when the LNG Canada liquefaction plant in Kitimat, B.C., and the Coastal GasLink pipeline are completed in 2024.
Not only are oil and gas not dead yet, they never will die. There will always be a price for a barrel of oil or a cubic metre of natural gas, whether it’s to make gasoline or diesel for internal combustion engines or for use in fertilizers, chemicals, plas- tics, medicines or asphalt.
The only question is what that price will be, and whether you can bring the product to market — taking into account environ- mental regulations, carbon taxes, produc- tion, refining and other costs — for less than that. At least, that’s what the calculation will be for the private-sector producers.
The state-owned enterprises of Saudi Arabia and Russia, however, come with different considerations. IE
Monumental amounts of oil production
have been shut in — probably over three million barrels per day