Strait of Hormuz Closure and the Oil Price Roller Coaster
This week on the podcast, Jackie and Peter review developments in the Iran war, which entered its tenth day at the time of recording on the morning of March 9, 2026.
The U.S. reports striking thousands of targets in Iran during the first week of the conflict and damaging or destroying more than 40 Iranian naval vessels. In response, Iran and the Islamic Revolutionary Guard Corps (IRGC) have launched missiles and drones across more than ten countries in the region.
Energy infrastructure across the Middle East has also been targeted, including facilities in Saudi Arabia, Qatar, Bahrain, Kuwait, the UAE, and Iran. Some regional producers have shut in oil production due to export disruptions, full storage tanks, and, in some cases, damaged facilities.
Tankers continue to avoid the Strait of Hormuz, a chokepoint through which roughly 20% of the world’s oil supply and LNG trade normally pass. The U.S. has offered naval escorts and a $20 billion tanker reinsurance program to restore shipping, but tankers are not moving yet. WTI briefly surged to about US$118 per barrel on March 9, before easing, amid reports that the G7 was considering releasing strategic petroleum reserves (SPR) and comments from the US President suggesting that the conflict could be nearing an end.
Jackie and Peter also explore potential winners from the crisis, including renewable energy and other alternatives, electric vehicles (EVs), Russia, and possibly Canada, particularly if Canada can expand market access and increase oil and gas production.
Content referenced in this podcast:
- Financial Times: G7 discuss joint release of emergency oil reserves (March 9, 2026)
- Polymarket: US X Iran cease-fire by….
- CBC: Nervous nations calling Canada’s energy minister after Iran strikes (March 3, 2026)
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Episode 317 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian, and welcome back. Well, Jackie, I wish there would be one instance of our podcast where I could say, “Hey, there’s not much going on. What do you want to talk about?” But there’s certainly a lot to talk about today. It’s not quiet at all. The oil markets are roaring, if not screaming. Closing Friday past at over $90 and now over the weekend, over a $100 as we record this morning, Monday, March 9th at 8:30 AM Mountain Time. So here we are. What do you make of it?
Jackie Forrest:
Well, we have to definitely tell you the time because Sunday night, the price had gone up to, this is WTI, $118 per barrel when the markets opened on Sunday. And we just had some news that there may be a release of the SPR, the Strategic Petroleum Reserves. And so price came down to $103 just in the last hour or so. So price is certainly very volatile, but hey, we made a prediction last week that we could definitely see a triple digit oil price and that certainly has happened.
Peter Tertzakian:
Yeah, there’s no visibility really on when the Strait of Hormuz, which control about a fifth of the world’s oil is going to open again. There’s maybe a handful of tankers here and there making it through from what I understand, but certainly my maritime traffic app is still showing that there’s not much going through in terms of cargo and tankers. So this situation is likely to persist as we go forward.
Now it’s interesting to take a look at the forward curves because when we say the price of oil is, okay, what did we call it? $103. That doesn’t mean it’s flat line $103. As we look out to the forward markets for prices settling for delivery in the forward months and you can take it all the way out to 2027, we have a fairly steep backwardation as they call it, which means that the price drops off fairly quickly. And by the time you get into, oh, the middle of 2027, the oil price for WTI is back into the $60, 60 to $70 range.
Jackie Forrest:
And I guess because the markets don’t know, are we going to go back to a situation where we have ample supply as we did before this conflict or that was the perception of the market anyway?
Peter Tertzakian:
I personally think we’re in a new regime here where the price of oil is probably going to settle for quite a while for forward month deliveries in the $70+ range, even if there’s some kind of resolution that allows tanker traffic to pass back through the Strait of Hormuz, reinstating some of the vital supply lines. And that’s because there’s a lot of damage being done within Iran, within Iraq, and indeed within even some of the refineries on the other side of the Persian Gulf on the Saudi side, UAE, Kuwait, and places like that, Bahrain.
Jackie Forrest:
So there’s kind of two reasons I think that the old price has moved up so much. One is just this, I think it’s starting to become clear that maybe the Strait of Hormuz is not open for quite a bit of time. And on Friday, the US did announce they’re going to have a $20 billion oil tanker insurance program. They’re also talking about maybe the US Navy helping to get some of these tankers through the strait. But based on the price move this weekend, I don’t think the market thinks that that’s a solution. We had oil price at $90 and hitting $118 when markets opened on Sunday.
And then the other thing is I think this oil refinery that was attacked in Tehran and the oil depots as well in Tehran and another location show that they’re willing to take out oil infrastructure and that increases the chance of Iran having a lower productive capacity in the future. And not only that, Iran is hitting oil infrastructure, for example, in Iraq, which apparently is down about 60% in their oil production right now. And we don’t know the extent of the damage and how much time it will take to repair, but it’s I think becoming clear that potential for production out of the Middle East may be lower coming out of this.
Peter Tertzakian:
And we’re not talking about hundreds of thousands of barrels a day. It’s now millions of barrels a day. It’s I think the Iraqi impairment is close to two million barrels a day. Iran is probably exporting nothing at this point. And when it comes out of this, it’s not likely to be getting back to its 3.2 million barrels a day. And that’s by the way, not just because of the damage to the physical infrastructure, but also the damage to the institutional infrastructure. There’s a lot of bombs being dropped on government institutions and other things. So even if you have the physical capacity to sell oil, it doesn’t mean you have the transactional capacity to do so.
Jackie Forrest:
I think there is a chance as it becomes more clear what has happened here and what the damage has been that you could see that long end of the curve coming up. I mean, if we go back to pre-conflict and this view that there was surplus oil, there were two pieces to that. One was there was too much spare capacity in the OPEC plus group and the other was there was too much oil in inventory. Well, we’re going to get into that, but it looks like inventory levels are going to be drawn down here as a result of this.
And on top of that, OPEC spare capacity may look very different coming out of this. And I think if the market starts to understand that, then maybe the long end of the curve starts to move up as well, because that’s showing structurally we are going to need a higher price. We are going to need to incent more investment and that long end of the curve has to come up, I think, to see that investment for sure.
Peter Tertzakian:
For sure. I think we should just spend a couple more minutes on understanding the price curve and then we’ll get into the inventories and the SPR and some of the other dynamics that are in play, including some early signs of hoarding. But before we do that, I want to come back to the price curves because some of the people that I talk to have this assumption that if the price of oil is a $100, then it’s a $100 all through the year and beyond ad infinitum, and that’s just not the case. And why that’s important is because the assumption that people are making is that this is a bonanza for things like royalties and taxes.
I mean, it’s certainly going to give a nice bump, and I’m going to quantify that for you in a minute here, but it’s important to recognize that the price of oil is not $103 as it stands today, all the way through ’26 and ’27, that the forward curve indicates a price average that would take our royalties and taxes from about $30 billion, which is what we were indicating before the price shocks bore out when the oil prices were in the very low $60s. $30 billion in royalties and taxes, and right now the indications are that it will be 40. So another 10, certainly hardly anything to sneeze at, but I’ve been hearing some really big numbers and that’s not the case.
Jackie Forrest:
Well, it’s important, I think based on the current strip, the average price for the year is now $75 per barrel WTI, where it would’ve been in the low $60s before. So it’s very high for a short bit of time and then it kind of comes off and then your average is up quite a bit.
Peter Tertzakian:
And also royalties and taxes, which were expected to be lower in 2026 than in 2025 are now definitively tracking higher, but perhaps not as high as people think at that $75 price average indication as of today.
Jackie Forrest:
Well, certainly would go aways to filling the deficit. The Alberta government announced-
Peter Tertzakian:
-it will…
Jackie Forrest:
… a few weeks ago where it was a $9 billion deficit, I think. So $75 oil would make a big difference. I just want to talk about the absolute price level too. If you go back and look at the prices, and this is on a nominal basis, not correcting for inflation. We’ve only had a couple of periods since 2000 that have been in the level that we’re talking about. We had about $140 oil price right before the financial crisis, and you talked about 2022. We got into the $120 range with the Russia-Ukraine war when it first started.
So we have seen these kind of price levels before, but they have not lasted very long at all. They were real blips on the chart. If you look inflation adjusted, which I think is the right way to do, that $140 back before the financial crisis is actually almost $200 in today’s dollar. So prices can certainly go up more based on history.
Peter Tertzakian:
Yeah, they certainly can. And if the waterway, the Strait of Hormuz stay closed for another week, it could definitely go higher because already the other thing that’s happening is that the major producers, including Saudi Arabia, are starting to shut in their production. And once you shut in your production, it takes a while to ramp it back up. And so just as a reminder, world oil consumption is around 105 million barrels every day, and the amount of oil that flows through the Strait of Hormuz is about 20-ish. So it’s just a hair over 20% we’re talking about. So this is a very significant outage.
It’s a big scenario that everybody’s been talking about since the 1970s oil price shocks. And guess what? Here we are again facing the same sort of thing. And it’s important to think about what I call sort of the stages of what happens as a consequence of this sort of thing. So the first thing is, of course, some general sense of panic. And then, all right, what are we going to do? The discussions about releasing oil from the Strategic Petroleum Reserves, which is happening as we speak, and we don’t know what will come out of those discussions at the end of today. But then the next thing that happens, and there’s already been hints of that, is hoarding, is that countries start to hoard, particularly countries that don’t have easy access or their own production of oil. And so we have, which countries is it Jackie? It’s Thailand, China.
Jackie Forrest:
India also announced that they’re suspending fuel exports from their biggest refinery. And so yeah, if you’re a country that imports crude oil, you’re like, “Why are we sending out refined products? We need all of them in this country because we’re not getting as much oil coming in.” And we also saw interestingly enough on the weekend news that Japan may consider using their national oil reserve storage as well, and not a collective thing like what’s being talked about by the IEA this morning, which helped kind of ease price a bit. But I think if you’re in Japan, you need those tankers coming in. Something like more than 90% of their oil is coming from the Middle East.
Peter Tertzakian:
Yeah. And that leads to the final stage of what happens, which is rationing. So you pull into the pump and there’s a sign that says, “No, you can’t have 60 liters. You can only have 30 maximum per day or per whatever.” And that I think is a distinct possibility if this continues to go on. So we’re not there. And actually the gasoline price does not yet indicate that. Let’s use the American benchmark.
Jackie Forrest:
And I think that’s an important one because that’s going to affect the president’s action potentially. And so average gasoline price was about $3 per gallon in the US pre-conflict, and it’s now at about $3.50 or so. So we’re up about 15%. I would say that actually reflects the oil price change up till Friday, because it was up about 20% from pre-conflict. Now prices come back down again, so maybe it’s going to sort of stay in that range. But I think $3.50 is a price that probably doesn’t create too much pressure on the president yet, but if we get higher oil prices like we saw over the weekend and they stick around, I think gasoline price is going to become an issue.
Peter Tertzakian:
And the price has to flow through the system. And so you’re probably thinking, okay, we’ve gone from $60 a barrel oil to a $100. That’s almost like roughly a 40% increase in the price of oil, but $3 to $3.50 is only… Oh, what is a 1/6-
Jackie Forrest:
15%.
Peter Tertzakian:
… Yeah, 15%. So what gives is that a large price part of gasoline prices is tax, road taxes and other type of state taxes and here in Canada provincial and federal taxes. So you don’t see an exact translation of a doubling of say oil prices into a doubling of gasoline prices. But from the historic work that we’ve done, the threshold, the American threshold anyway, is about $4 a gallon. And in some states like California and others, I think it’s already there, but broadly speaking as an average, it’s sort of like that pain point where people really start to get concerned is $4 a gallon. And so the behavior of countries and the United States in terms of these dynamics like hoarding, rationing, et cetera, they start to kick in when the consumer starts to get very uncomfortable with the prices.
Jackie Forrest:
And let’s talk about natural gas prices as well. The Strait of Hormuz also moves about 20% of the world’s LNG through. So when you look at all the LNG, it’s about 20% of the market. We’ve seen almost a doubling in international prices from about $10 pre-conflict to about $20 now, both in Europe and in Japan. And so that’s also going to put some inflation. Now sadly here in Canada, we haven’t seen gas price move very much at all. It was about $1.50 pre-conflict and a $1.80 now. So just shows you that we’re very insulated from international pricing right now. But internationally, that puts pressure on European and Japanese industrial capacity because of the costs really related to the natural gas that they use, as well as heating and things like that.
Peter Tertzakian:
There’s no question there’s a scramble for LNG shipments for countries that are reliant on natural gas as we speak. So that’s the situation.
Jackie Forrest:
Well, let’s talk a little bit about this SPR release.
Peter Tertzakian:
Oh, yes.
Jackie Forrest:
I think that’s really what caused the price to come down Monday morning. So the news is that there’s a consideration, and this is from a Financial Times article this morning that G7 finance ministers are discussing with the IEA, the potential for really quite a large release from the strategic reserves of potentially 32 members of the IA, and they could be talking about releasing 300 to 400 million barrels. So that’s quite significant and I think was a big part of why we saw price come down this morning.
Peter Tertzakian:
It’s significant, but if you take it to the limit, if 20 million barrels a day is blocked in the Strait of Hormuz, 400 million barrels is only 20 days of reprieve. So let’s put this in perspective. These SPRs are not sufficient to really deal with a prolonged, like a really protracted war in which those straits are blocked, which sort of tells you that something’s got to give. There is going to have to be some kind of resolution to this conflict because globally, this is not a sustainable situation.
Jackie Forrest:
And we did actually a bit more work on the inventories. I know Joseph had looked at the OECD inventories. We actually looked at the total global observed inventories. This is the data that the IEA has put out and they’ve got data back five years or so on that. And that includes not only the commercial stocks, but oil and water and the Chinese strategic reserves, as well as all of the strategic reserves. So this is looking like everything we have. And we’re actually at kind of an elevated level right now. Again, inventory levels were generally high at about 8.2 billion barrels, which would give you about 80 days of supply if you had to supply the whole world with that, which wouldn’t be the case. But let’s say that you lost 20 million barrels a day for a month. That would actually bring us down to the lowest level of inventory in the last five years.
And very similar, the low point was actually in 2022 when we had the invasion of Ukraine by Russia. And so that would get us to some of the lowest levels we’ve seen in five years. And of course we had the $120 oil price then. So a month of this, of the Strait of Hormuz being closed, when the absence of the SPR, even with the SPR, this gets us into low inventory level area and I think justifies a higher price regardless of what’s going on in the Strait of Hormuz once you get inventory pulled down to that level.
Peter Tertzakian:
Now to this point, we’ve only really discussed the supply side of the situation. We haven’t discussed the consumption or the demand side. And these inflationary pressures really come hard. Now we’re looking at global economic slowdown, which is the next step or the next chapter in the story that’s potentially looming here. And when you have slowdown, then you have a decrease in the demand. And so that is likely to happen if this thing continues along. And then the other thing that happens too is substitution to the extent substitution is possible. One of the things we learned from the 1970 oil price shocks was that there was a strong determination to push off of oil and oil products as a consequence of the shocks and the geopolitical fallout and countries wanted to have alternatives. And that really was the catalyst for nuclear power to come in, which was a technology that was ready and waiting. And countries like France went all in and pushed the burning of oil and power generation out of the market and replaced it with nuclear power as a source of electricity.
Now, a lot of that pushing out of oil from the electrical power market has already happened. So it’s more difficult to do substitutions quickly, and quickly I mean by years than in the past. But I think what you’re going to see is a renewed resurgence of alternatives, whether it’s nuclear renewables and other things as a consequence of this as well over the course. And I always say that the force of change as a function of say carbon policy is a lot weaker than force of change as a consequence of national security and energy security issues such as we’re witnessing today. So I actually think this is a catalyst potentially for setting up potentially for more renewables and nuclear power coming in again.
Jackie Forrest:
Oh, I think you’re right. In the short term, of course, we can’t affect anything, but I think a lot of countries are going to look at this situation and say, “How can I make myself more resilient to these sorts of events?” And clean energy offers a lot of benefits. I mean, you may be dependent on the Chinese initially when you buy your wind and solar and batteries, but once you have them in your country, you’re energy secure. No one can stop the wind from blowing or the sun from shining. And so it does add a lot to your energy security. And I think clean energy is going to be a big winter that comes out of this, nuclear as well, but renewables has the benefit is you don’t need any source of fuel. Even with nuclear, you’re dependent on a handful of countries for your fuel.
And I think another winner coming out of this is Russia. You’re already seeing Russia start to flex their muscles a little bit more. People are going to need all oil, including that oil on water, which a lot of that was Russian oil, some of it was Iranian oil as well that had sanctions on it and nobody was allowed to buy it. And we’ve already seen some flexibility. For example, India, they had the threat of tariffs from the Americans early this year. They had to agree to stop buying Russian oil or the US was going to impose these tariffs. Late last week, the US announced a 30-day waiver to allow India to buy the Russian oil, and it was indicated that potentially they could get that extended depending on how long this goes on. So they’re already getting more buyers. They’re probably getting higher prices. I know they have that price cap, but there’s certainly, as there’s more demand for oil and a shortage of oil, I think they’re going to get higher prices.
And we’ve also seen them flex their muscles when it comes to this gas situation. For those that weren’t following the European Union in January of this year, approved that they are going to ban Russian gas imports and they want to phase out of LNG, but also pipeline gas. So by the end of 2027, they didn’t want to take any Russian gas. And now Russian is saying, “Well, maybe I’m just going to cut them off because I got lots of people that want my gas.” So he’s using this point of maximum leverage to show the Europeans that they need his gas and maybe he’ll get some flexibility on that policy as well.
Peter Tertzakian:
Agreed. Russia’s going to be a big winner. So do you think electric vehicles are going to make a comeback and be a winner if the price of gasoline stays high?
Jackie Forrest:
I think for sure they will be, because we actually have electric cars to buy now, maybe not every kind of model here in North America, but internationally we certainly do. And I think that’s another thing that countries are going to say, “How do we reduce our dependence on this oil importing?” And China has shown you can reduce it quite a lot by going to electric vehicles and they work. And by the way, the Chinese are producing them cheap, sending them around the world. So I actually think electric cars are going to get a big boost, maybe not so much in North America, but probably more than they would have been sold anyway, but for sure internationally. Even this weekend, I’m like, “Well, at least I’ve got an electric car that I’m driving around this weekend and I’m not going to see the impact of the high oil prices.” Now, of course, higher natural gas prices in some countries are going to filter into high electricity prices too.
Peter Tertzakian:
It has a different mix of electricity, so it will affect them differently. But I had done a calculation, it’s three or four years ago, and this was the rough rule of thumb that I had put together was that every $10 US boost in oil price per barrel translates at the pump to $35 a ton equivalent carbon price. In other words, if you increase the price of oil by 10 bucks a barrel, it’s the same as slapping a $35 a ton carbon tax on a gallon of gasoline in the United States. Okay, so we can work that backwards to Canada.
But my point is that we’ve gone from $60 to $100 at the moment. So this is the equivalent of putting $140 a ton carbon tax on gasoline. And so I think if it’s sustained, it will start to change some behaviors. And it’s different in different countries and it depends a whole bunch of areas. But you sort of think of it that way, is that the knock-on effect of this by making the incumbent fuel higher priced means that the propensity to switch to alternatives like electric mobility all of a sudden becomes greater.
Jackie Forrest:
Especially when you have a working technology that’s getting very cost competitive and many models are very close in terms of the upfront cost. Maybe they’re a bit higher, but the fuel savings now will make them more attractive. Talking about how long this lasts though, Peter, one of your predictions last week, and you and Joseph had a bit of a debate about this, about how long this lasts. A week in, I kind of think that you had a lot of insights there in that US is striking in Iran some of these military sites, but these drones are becoming a big issue, and I think it’s going to be a lot harder to figure out where these drones are coming from, where they’re stored. And so this probably could extend for a bit of time.
So I did look at that Polymarket. They have a question, Iran ceasefire will end by different dates. And take it as you are, Polymarket isn’t sort of a perfect predictor, but it’s interesting what people think. The people that think it will end by the end of March is like a 23% chance. That’s what people have rated the chance. And when you go out to May or the end of June, we’re talking about 60 to 67% chance. This is as of Sunday night. So that’s three to four months away. Well, the majority of people think this is three to four months away. Well, I can’t imagine the Strait of Hormuz will be closed that long. That isn’t the question being asked here, but the ceasefire is important because I still come back to, as long as Iran has this strategy of just launching these drones and missiles to a lesser extent around the whole region, I don’t think it can be safe to be moving ships and tankers through that Strait of Hormuz.
Peter Tertzakian:
I agree. Well just as a side note with the Polymarket by 60 to 70% say by the end of May, this is also consistent with the front end of our conversation where we were talking about the forward curve of oil, that there’s some expectation that things will be returned back to normalcy. But as I think about it, I think: what is normalcy? We talked about the supply side and it being impaired, but in terms of this notion of a ceasefire, I think if you take out a centralized government, then you have a country that’s factionalized, split along many lines, the major fault line being the religious conservatives versus the rest of the population.
And the hardliners, I don’t sense, are going to capitulate even if some centralized government person says they’re going to capitulate. And I sort of use that data point, I think it was over the weekend, was it Saturday or maybe it was last Friday where one of the Iranian leaders basically apologized for attacking their neighbors, then within an hour they were attacking their neighbors because it was a different part of the apparatus that basically didn’t agree with the statement.
So I think that this notion of ceasefire is going to be elusive. I just think this thing is going to go and then it’s factionalized and there’s going to be a state of fear in this region even if the tankers are going out and state of fear means even if the tanker captains say, “Yes, I will transit, I feel it’s safe enough to transit with escorts”, the insurance rates are still going to be through the roof and higher insurance and tankage rates mean ultimately the consumer has to pay with higher oil price and therefore gasoline price.
Jackie Forrest:
Well, and the $20 billion that was put forward on Friday by the US, most articles I read said that was completely insufficient when you think about the potential damage that could be had here to these tankers and not only the value of their cargo, but the ships themselves. But hey, if we’re talking three to four months, this is a big problem if it means the strait is closed for that period. When you look at the global observed inventories and you think that we’re going to be cutting into that by 20 million barrels a day or so, that is going to draw us down to very, very unsustainably low inventory levels. So something’s got to give, I would think. That’s why I would argue it won’t last that long. It may be hoarding and rationing, all these things that you’re going to do aren’t probably going to work. You’re going to be really running into total energy shortages in some countries.
Peter Tertzakian:
And inventory is a very important number to be following because the oil price trades very heavily on that inventory. In other words, the lower the inventory goes, the higher price goes. So if there’s the global supply demand balance estimates that analysts make, but ultimately supply and demand meets in inventory. And if inventory gets drawn, that’s the most overt indicator that there is a supply deficit and price will respond as those numbers come out.
Jackie Forrest:
Price is going to go very high in that case, and that will create the rationing in a natural way, not with government mandates because people will start conserving energy. Well, we don’t know how long this will last, but my bet is it won’t last that long because that is going to create a lot of pain economically for a lot of countries and potentially recession and things like that. So I think that is too long to have this strait closed.
Peter Tertzakian:
You want my bet?
Jackie Forrest:
Yeah, sure. What’s your Polymarket bet?
Peter Tertzakian:
Well, my bet is it’s not going to last too long, but the ending is not going to be a hard stop. It’s going to be a fuzzy stop. There’s going to be a lot of uncertainty and a lot of lingering fear. So it’s going to be unstable for quite a while. I think the oil will start flowing again, but that it doesn’t mean that the price is going to come down back to where we were before.
Jackie Forrest:
And you can see a scenario even where there’s movement through the Strait of Hormuz, but it’s not at the same rate because if they have to have like Navy escorts and all of insurance, and we could be at half the rate of before or something like that in three to four months, which would help, but still would draw down those inventory levels a lot.
Let’s switch to the Canadian perspective. That’s something we finished on our podcast last week and we talked about how this makes Canadian energy look even more attractive. It makes clean energy look attractive, but it also makes energy from stable secure suppliers like Canada look more attractive. And we did have comments from Minister Hodgson about the situation on March 3rd. He talked about the fact that he was starting to get calls from countries about how Canadian energy producers can fill this gap and the world right now is feeling incredibly insecure as a result of this weekend.
So we already have seen an uptick inquiries about how quickly Canada can expand both clean energy and conventional energy. And he finished by saying, “You can’t change the amount of production in LNG or oil in days.” That’s for sure, especially when we need to build pipelines, because actually our existing pipeline systems are getting pretty full. And we saw that because Enbridge rationed their space for February, first time we’ve seen that in a while, which shows the pipeline systems, that’s a signal that we’re getting full in terms of our export pipelines.
Peter Tertzakian:
Well, if you recall, I don’t know, what was it, two or three years ago, the Germans were begging for Canadian LNG and we offered them hydrogen. So here we are, they’re going to be begging twice as much for LNG as are the Asia-Pacific customers, and now our oil becomes more valuable as well, and we can’t really deliver. I mean, there’s no way we can deliver extra. I mean, potentially if we could ramp up our production, that there’s excess ability to transit through the United States to the Gulf of Mexico and put barrels on tankers there, I suppose. There’s some extra capacity post-Trans Mountain Expansion, but what do you think?
Jackie Forrest:
It’s not a lot. The fact that the Enbridge system is getting rationed is telling you the system’s pretty full. And now we do have expansions planned, the Trans Mountain, Enbridge has announced that they want to expand their system. Could we accelerate those? Could we fast track these things? We keep talking about fast tracking things in this country, but to me, that Trans Mountain, why don’t we put a goal of whatever needs to be done to get more oil moving through that pipeline like pronto? That would be nice to sort of see some progress. They Talk about to have something like 350,000 barrels a day, more could go through that existing infrastructure. I think it would take some capital investment, pumping stations, some changes, the terminal, but we should be moving on that quickly.
Just to remind people though, just in terms of how much Canada can grow its production, we’ve been growing at about 140,000 barrels a day each year. So that’s what we’ve been doing the last several years. But if you go back to the heydays of the oil sands expansion when we were really growing as fast as we could, even then if you look at the average over 10 years or so, it was about 200,000 barrels a day of new supply. So we’re certainly not going to be replacing 20 million barrels a day of lost supply anytime soon. But I think we could add incrementally 200,000 barrels a day if we could get those pipelines expanded. I don’t know how long that takes.
Peter Tertzakian:
You could. I would just push back a little bit and say that this growth rate is going to be declining quite substantially here in the next couple of years because to really ramp it back up, we have to build new greenfield facilities to fill the pipes. In other words, a lot of the expansion of incremental oil capacity has come from building off of the facilities that were built now five to 10 years ago. And so that is going to come to an end here and was looking like it was going to come to an end at $60 a barrel and also amidst the regulatory uncertainty.
This may be a catalyst, these higher prices, but my point actually is not just about building the pipelines. You have to fill them and the ability to fill them is going to require a commitment too. Now, I think that as a consequence of what’s happened here, there are a lot of foreign investors, state-owned companies, multinationals, and otherwise from various countries around the world that would willingly come in and help pay to build and fill the pipelines. But we have to be ready. We have to have the right regulatory regime and the right commitment within Canada to accept doing that.
Jackie Forrest:
And that’s a great point. To get to that growth level that we saw in the heydays of the oil sands, well, we had a whole long list of greenfield projects that were being developed that were going through the process. I think we had over a million barrels a day, well over a million barrels a day of projects that were being moved forward. And we have to build that up again. And that takes time. People have to come in, they have to, “Okay, We want to get this site that maybe was active 10 years ago that got shelved. We kind of have to reinvest in it and it takes some time before we can see actual investment and actual oil production growth.”
Peter Tertzakian:
Well, there’s nothing that stimulates action more than national security, energy security related threats. So we shall see what happens. But before we finish this discussion about building and filling pipelines segues into not only energy security, but also in terms of the economic contribution to the country’s GDP and future prosperity. So that’s going to be coming up next week.
Jackie Forrest:
That’s right. So we’re going to talk about how, if we built pipelines, maybe the million barrel day pipeline and expand the other pipelines, how that could actually affect the economy, which is one of Mark Carney’s goals, is to become the fastest growing economy in the G7. And we have a long ways to go on that one. We’re kind of a dead last.
Peter Tertzakian:
We have a long ways to go, but we can definitely move the needle toward becoming the fastest growing economy in the G7, especially in light of the economic malaise that is potentially looming upon us. So next week we will quantify what it means to build pipelines.
Jackie Forrest:
Okay. Well, let’s wrap up this podcast. Thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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