Last April, Christopher Helman at Forbes brought up the bumper stickers that served as a uniquely Texan Greek Chorus for the Lone Star state`s last great brush with hubris and hydrocarbons.
The line on top read: "Please God, give me one more oil boom."
The stickers were ten-gallon tears for 1981, when a collapse in oil prices hammered Texas and triggered a wave of bankruptcies and unemployment.
Fracking brought a new boom in 2011 and last April Texas oil production was at a height not seen since 1977. That height also brought a warning from Helman: big oil producers like Saudi Arabia aren't fond of competition. They enjoy occasional spells of oversupply and low prices because it kills off small fry and scares survivors from investing in unconventional deposits like shale and Alberta's oilsands.
Flash foward to last Thursday: the 12 nations who make up the SPECTRE-esque oil-price fixing cartel known as OPEC decided to keep pumping oil. The move keeps world markets awash in oil from aforementioned U.S. shale and further pushed the price of Brent crude down to its lowest mark since 2008. According to analysts, producers like Saudi Arabia, who can ride out low prices thanks to large cash reserves, want to hurt firms working those unconventional deposits who have higher costs to extract each barrel of oil.
Alberta premier Jim Prentice lamented the oil drops means "there will be consequences for all Albertans."
In respect to many families, the more Prentice squirms, the better it is. According to various pundits, lower oil prices mean lower gas prices, lower fertilizer prices, lower food prices and lower household bills in general. As Michael Babad in the Globe and Mail points out, lower oil also means a lower dollar for exporting Canada, a boon for the forestry industry.
Indeed a piece by the Vancouver Sun's Gordon Hoekstra suggests the consensus of economists is the effect on the province should be muted.
It is hard to wonder if pipeline projects like Enbridge`s Northern Gateway and Kinder Morgan`s Trans Mountain expansion could be less appealing if tighter profit margins get ladelled on top of vehement public opposition and regulatory hurdles. However, those same projects could allow oilsands firms to save as much as $8 a barrel off cost of alternatives, like rail, according to the National Post, and eliminate the discount they're forced to give because they're trapped in the U.S. market.
And In the long-term views of the industry, the Great Oil Shock of 2014 could well be a blip. Babad quoted TD Bank economist Jonathan Bendiner saying that, while further declines are possible, the bank expects Brent to stay in the $70 range for the first half of 2015 before climbing to $90 by the end of 2016.
In fact the area where the wannabe petrostate British Columbia has the most to lose is the short term effects on its fevered dreams of liquefied natural gas - yet even here the bust may prove to be a boon. According to FT.com, in a quirk of the markets, the price of LNG destined for Asian markets is linked to Brent. Last Friday, Petronas, the Malaysian state-owned energy giant linked to the most advanced of Premier Christy Clark's LNG hopes, the proposed Pacific NorthWest terminal project near Prince Rupert, announced a 14 per cent drop in its third quarter profits, according to BNN.com, due to the fall in oil. That affected the company's ability to pay the dividends the Malaysian government enjoys and thus it said it will cut next year's capital expenditures by 20 per cent.
That prompted CEO Shamsul Azhar Abbas to say Petronas will be delaying going ahead on the Rupert project, which all told will cost $36 billion; the Canadian Press reported costs need to be lowered on the proposal, especially in light of the trouble with crude. Nevertheless, Abbas and the province struck an optimistic tone Wednesday, with energy minister Rich Coleman saying the project remained a "tremendous opportunity."
They may not be hoping against hope - falling Brent may have helped Pacific NorthWest and other LNG hopes in three ways. The downward pressure on LNG prices will hurt prospective exporters in the U.S. and Australia. According to Reuters, LNG is also sold in long-term contracts that spans decades - lower prices now make those long term deals more attractive and will blunt a movement in Asia to create a separate market for LNG that would decouple the price from Brent. Abbas cited the attractiveness of those contracts when he said a decision on Rupert had to be made soon because it was "vital... for Pacific NorthWest LNG not to lose out on long term contracts to competitive United States LNG projects."
The complexity and volatility of the drop shows how life as a petrostate is vapour and danger. B.C. and the Liberals would do well to read the last line of the bumper sticker: "This time I promise not to piss it away."
