The Geoeconomics of Energy and Superpower Ambitions
This week on the podcast, Jackie and Peter start by talking about Jackie’s recent op-ed in the Globe and Mail, titled “Yes, absolutely – Canada needs more oil and gas pipelines to our coasts,” also available on the ARC Energy Research Institute website.
Next, Peter and Jackie review the fundamentals of oil prices, the muted effect of the 12-day Iran-Israel war, and why oil prices have been creeping up despite weaker short-term fundamentals. Peter argues that the growing importance of “geoeconomics” – where countries use economic tools to influence foreign affairs – means that predicting oil prices will no longer be just about counting barrels. In the future, one of the most significant factors shaping oil markets will be the geoeconomic strategies of nations, including actions such as sanctions, tariffs, and withholding supply.
Finally, Jackie and Peter discuss President Trump’s recent letters to numerous countries threatening higher tariffs effective August 1st, including a letter to Canada with 35% tariffs on Canadian goods. Washington also introduced global copper tariffs.
This is the last podcast before a break; the podcast will resume at the end of summer.
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Episode 292 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. Welcome back. So, Jackie, you forgot your smartwatch.
Jackie Forrest:
Yeah, I did. I’m not going to get my credits today for all my activity, so-
Peter Tertzakian :
You’re in withdrawal.
Jackie Forrest:
… I’m not going to get my star at the end of the day.
Peter Tertzakian :
You’re in withdrawal.
Jackie Forrest:
I am.
Peter Tertzakian :
Yeah, yeah. I got rid of mine.
Jackie Forrest:
Wow.
Peter Tertzakian :
Yeah.
Jackie Forrest:
How do you know if you’ve had enough exercise at the end of the day? Or if you need to stand up?
Peter Tertzakian :
Well, I just think it’s TMI, too much… I don’t need it anymore.
Jackie Forrest:
You don’t have your watch buzzing every time you get a spam call?
Peter Tertzakian :
No. Well, this is the problem. It’s just like it creates ADD. And so I’ve got back to my old collection of analog watches, which I love.
Jackie Forrest:
You don’t miss it? Reminding you about your calendar, what you need to…
Peter Tertzakian :
Well, the number one reason I had it, I did keep track of all my physical stuff. And it was all very interesting and important, admittedly, to a certain degree. But what I really missed was that feature where it would ring your phone if you didn’t know where it was.
Jackie Forrest:
Oh, yeah, I use that all the time.
Peter Tertzakian :
Yeah. But actually, I find it quite liberating to get rid of the digital shackle.
Jackie Forrest:
Yeah. Well, it looks good, too. There you go.
Peter Tertzakian :
Yeah, there you go. Okay, good. What are we talking about? There’s no end of things. We’ve got more tariff uncertainty from the United States. We’ve got oil prices that are hanging in there, all sorts of opinions about where they’re going to go. Pipeline talk, you wrote a recent article. You want to start with that one?
Jackie Forrest:
Yeah, let’s start with that. And it really came out of my Stampede discussions. I wrote an op-ed talking about the need for oil and gas pipelines to Tidewater in Canada, because I think that was a big discussion during the Stampede. Especially with Mark Carney coming to Alberta and saying that an oil pipeline is likely. We also think that LNG support… He never said this, but I think most people believe that there’s a good case to be made for support of LNG in terms of these nation-building projects.
So generally, pretty good mood at Stampede. I have to say, best Stampede in terms of the overall sentiment, unless you’re in the power industry. People in the Alberta power industry had some concerns around this market redesign that continues to go. And I think there’s still some real big concerns about, will it result in a system that allows people to invest in new generation in the province? And then concerns around these AI data centers and the cap at 1.2 gigawatts between now and 2028. But generally overall a pretty good sentiment. I know you weren’t there, Peter, so-
Peter Tertzakian :
No, I wasn’t. I was overseas and somewhat absent from the whole debate and discussion. But certainly not absent from discussions about tariffs and international, what I would call geoeconomics, the use of economic power as leverage to gain international sway, such as we’re seeing from Trump or such as we’re seeing from countries like China who limit supply of critical minerals and so on. I want to talk more about that when we talk about oil. But before we go there, so you’re going to post…
Jackie Forrest:
Yes, I’ll put a post, a link to the article. It was published in the Globe and Mail. We’ve also got a version of it on our website. I’ve had a lot of good feedback on it. It actually ties into what you just said. I argue not only is it an economic case where we can now get a more fair price for our goods. For instance, we talked about it when we had Mark Mackey on, the Trans Mountain Project. If you actually do it in Canadian dollars, I would estimate it’s adding about $7 to $12 billion in annual revenue for Canadian producers. But that doesn’t only help producers, it helps all Canadians through higher taxes and royalties. I also calculated, if we could, through more LNG exports, and of course while you were away, we celebrated the first LNG export off our coast.
Peter Tertzakian :
Yes, I saw that.
Jackie Forrest:
We understand it’s soon to arrive in Asia.
Peter Tertzakian :
Yeah, it’s just circling around in the sea of Japan at the moment.
Jackie Forrest:
Yeah. Going to head for Korea, it looks like. So we’ll have our first natural gas molecules hitting Asia. But if we used a conservative assumption, which I think is quite conservative, because our gas was pricing so low the last couple of years, almost like half of the American price. Basically giving it away. But if our gas could just be $1 per gigajoule higher, that’s $7 billion a year of additional revenue to Canada.
Peter Tertzakian :
It’s huge. Yeah.
Jackie Forrest:
Really just shifting the value of our resources back over the border, giving us a fair price. So despite the economic argument, I think there’s a real argument here. If we’re a superpower, we have more power and influence, kind of like what you’re talking about with this geoeconomics, right? Would Mr. Trump threaten the 35% tariff… we’ll get to that, but that just happened in the last week… on Canadian goods if we had more diversified export routes? Would the trade negotiations be going better if we had greater leverage because we had more customers and we weren’t so dependent on the Americans? So I think there’s this other aspect that helps all Canadians that has to be considered.
Peter Tertzakian :
Yeah. Well, I do think so, and I think that touches on what you touched on, the definition of energy superpower. To me, getting a better price for the commodities is just smart business practice. Selling at a discount makes no sense whatsoever. It’s just leaving money on the table, or advantaging the customer. As in the case of when we had very wide differentials, advantaging US refineries with our heavy oil. What sense does that make if we should be getting the benefit of the full price that is being paid by the world? Ditto for LNG and natural gas, as you point out.
So mere getting a better price is not defining being a superpower, certainly. Nor in my mind is the size of what we offer. So we are the fourth and fifth-largest producer of oil and gas in the world. You mentioned that in the article. But having actual leverage is when you become a superpower. The ability to use that as a negotiating or bargaining chip in some trade negotiation or other kind of negotiation.
And that’s what we need, and that’s what countries of the world today are jockeying for as we enter this new era. This new era where countries like certainly the United States with its tariff assaults, China with its restrictions on critical minerals and other things. These are geoeconomic/geopolitical-type strategies where vital commodities can be used as leverage in negotiations.
And so, the more that we can get our commodities offshore to various markets, the more relevance and influence we can have. And as the size of commodity exports that we have, we certainly should be able to do it.
Jackie Forrest:
And I think the definition of an energy superpower is one that sells their products to many countries and therefore, has more influence in these countries.
Peter Tertzakian :
Exactly.
Jackie Forrest:
One of the paragraphs I had the most feedback on is I asked the question, “How can Canada, the fourth-largest producer of oil behind only the US, Saudi Arabia, and Russia, and the fifth-largest producer of gas, not already be recognized as an energy superpower?” And it’s because we fail to send our products to enough countries. And then we forfeit our influence and our autonomy by doing that.
Peter Tertzakian :
And our relevance by definition. And we are in a world where being relevant matters, because now we are in an era where it’s nation against nation. And that sort of relates back to the article that I wrote several months ago about the new, almost mercantilist economy that is reemerging in the world. But we’ll have more to say about that and certainly more to say about the realities of geoeconomics, which again is national interest as defined by its economic muscle and power, and using it as levers of influence globally.
Jackie Forrest:
Now, another comment I got was, “Well, can we actually do it?” And I think that’s another question. The question I was trying to answer is, “Should we do it?” And yeah, there’s a real question around do-ability, around, “Are we going to get private capital, or the BC government going to allow us to do this?” And all the problems that we need to solve, I do think the new government is trying to head in the direction of solving those problems.
But the other question I had, and this is one for you, Peter. When you think about energy superpower and what that entails as the definition we just said, what does this mean for clean energy? I started thinking about it. How would I define a clean energy superpower? Because you know our government has said they want to be an energy superpower in both clean and conventional energies. And I thought, like China, the topic of our last podcast, for sure they’re an energy superpower when it comes to clean energy. They’re flooding the market with cheap stuff, critical minerals technology.
We learned from Mike Carr last week about how that’s made it very difficult to build manufacturing in the United States. We’re learning that critical mineral plants can’t be built. It’s getting worse instead of better because they’re making the price of these commodities so cheap. So when you think about what we have, do we have any places where we could play? The Chinese are investing something like $100 billion annually in building out clean energy infrastructure, manufacturing plants, whatever. Can we really be a clean energy superpower?
Peter Tertzakian :
It’s difficult. And certainly, the Chinese have done it. Let’s just get back again to this notion of energy superpower, or economic superpower as a broader umbrella, which is projecting or exerting force in the national interest. So, the Chinese have invested, as you say, hundreds of billions of dollars, in fact trillions of dollars, in three really important areas: critical minerals that are vital to electrification and other parts of clean energy, including the manufacture of solar cells, solar panels, etc.; wind turbines; and batteries. And therefore, tertiary industry products such as vehicles and so on.
So it’s very hard to catch up to them now. We’ve talked about that in previous podcasts. So for Canada to be a clean energy superpower in any of these is difficult, except for possibly critical minerals. If we can develop some processing. I mean, it’s not just mining the critical mineral ores. It’s actually processing them and turning them into the products, or even magnets and things like that that go into electric motors, or the cells that go into batteries and things like that.
Jackie Forrest:
Well, we have the natural resources in the ground, but there’s a lot to do. Yeah.
Peter Tertzakian :
Yeah, so theoretically, we should be able to do it. But the free market on its own is unlikely to do it. So it requires a lot of national help. And the amount of money that the Chinese have allocated to this is far beyond what Canada can allocate to it, so catching up would be very difficult.
Jackie Forrest:
Okay. Well, there’s a couple areas that I agree with you on that. And by the way, I think we’re going to have a bit of a break here for the summer, but maybe when we come back in the fall, maybe we could do a podcast on critical minerals?
Peter Tertzakian :
Yeah.
Jackie Forrest:
But there are a couple of areas that I think potentially we could be leaders in. In fact, I would argue we’re already leaders in carbon capture storage. We have about 7 million tons annually that we store, either through enhanced oil recovery or carbon capture storage. That’s about 1% of all of our emissions.
However, when we look at globally how much carbon capture storage and EOR is going on, I would say it’s in the range of 10% or so of what’s happening globally. So maybe that’s definitely an area where we are a established player.
Peter Tertzakian :
Yeah, okay.
Jackie Forrest:
We know what we’re doing. That could be something.
Peter Tertzakian :
Yeah, but I think you have to distinguish between as it relates to the original question, energy superpower. I don’t think carbon capture really is something that you can use to exert influence. Correct me if I’m wrong, you can be an industry leader in reducing your carbon emissions out of your supply chains, but does that actually allow you to exert geoeconomic or geopolitical influence in the world? I don’t think so.
Jackie Forrest:
No. We might be able to export some of our knowledge and technology or things like that. But no, I agree, it probably doesn’t. Not like having 4 million barrels a day of oil exports or something like that-
Peter Tertzakian :
That’s right.
Jackie Forrest:
… would have political influence. Okay, well, here’s another one. What about electricity with SMRs? If we made it a strategic priority to roll out quickly these SMRs? We are going to be the first country with an SMR in the G7 by 2028/29. If we were to say, “This is something we want to be leaders in. We’re going to roll these SMRs around the country, then we’re going to become experts at building them. Then we’re going to export this technology to others,” do you think that is an area we could-
Peter Tertzakian :
That’s an area where we stand a chance. We were leaders in nuclear technology in the first generation of nuclear in the 1960s and decades after that. But I would argue we would need a lot more investment still. But that’s certainly an area, if we choose to have an industrial strategy that leads to us becoming a fourth-generation SMR nuclear superpower, I guess we could do it. To what extent you can wield any sort of influence with that is not clear because it’s a pretty competitive space. But-
Jackie Forrest:
And by the way, you said the Chinese, but they’re actually already installing these things and their own technology.
Peter Tertzakian :
Yeah. Yeah.
Jackie Forrest:
So, yeah. And also the costs, right? We already talked about the Ontario Power Generation, the costs, about $20 billion for these four units. It’s going to have to get a lot cheaper, I think, for it to be really compelling for a lot of countries.
Peter Tertzakian :
Yeah. To have real influence as an energy superpower, you have to have influence or control over primary energy sources that are vital to the global economy. So there’s oil, there’s natural gas. And frankly, critical minerals, because they’re vital to the supply chains. But after that, I don’t know. There’s just not a lot.
Jackie Forrest:
Well, I think you’re coming to the same conclusion I came to, because I really started thinking about this definition and what we really have when we think about the leaders in clean energy. So I think it’s a bit more challenging there to see how we could accomplish that. Not to say that these areas wouldn’t generate GDP, and private capital, and other benefits to the country.
Peter Tertzakian :
See, I’m keeping in mind the original question, “What does it take to be a superpower?” Let’s just lower the bar a bit and say, “What does it take to be an industry leader?” And I think that there’s plenty of things we can be industry leaders in in the world of energy and export, whether it’s knowledge, or whether it’s actual commodities or supply chain materials. So that’s what we should be targeting. But “superpower”, that’s a whole different dimension.
Jackie Forrest:
Yeah. And I would add too, worth a mention is our clean energy potential. We’re already a very large generator of clean energy with our hydro. We’re growing wind and solar now across the country. There’s room for more hydro, and more wind and solar.
But the issue I have with that when I think about energy superpower, for sure, that’s going to increase GDP. Maybe that will bring more people to our country to invest in manufacturing plants that want clean energy. But it’s not like an export market. We can send our power to the US, but unless we put it into the form of green hydrogen, we can’t really get this product out into the international markets to many customers.
Peter Tertzakian :
The dollars are just not enough to be meaningful in terms of any kind of leverage.
Jackie Forrest:
All right. Well, let’s move on to the next topic, which is oil prices. So we did cover this a little bit in the intros to some of our podcasts. But we had this 12-Day War in June, which really didn’t cause prices to increase as much as you would’ve thought.
Peter Tertzakian :
You’re talking about the bombing of Iran?
Jackie Forrest:
That’s right. Yeah, so we had a Israel-Iran war. They call it the 12-Day War now.
Peter Tertzakian :
okay.
Jackie Forrest:
That’s what people are calling it. And then there was the US coming in and bombing these three nuclear sites. And at that point when that happened, it wasn’t certain how this would go, but it turned out it diffused very quickly when Iran sent some missiles over towards a US base in Qatar and that ended the whole thing.
So, short event. Could have caused a real outage in oil supply and could have caused much higher prices, but the market really didn’t react. It went up about $10 a barrel and came back pretty quickly after. Now, prices have actually drifted up since then. But when I thought back, if you think about the Libya Civil War in 2011, oil prices quickly shot up over $100 and there was only the potential outage of 1.6 million barrels a day.
So now we’re talking about, there’s many different scenarios here, but everything from taking out some major infrastructure in a neighbor, or just losing Iranian exports, which are around one and a half million barrels a day. We didn’t see any impact to the oil price, really, considering the threat.
Peter Tertzakian :
Well, though, the price of oil had retreated to the high 50s, low 60s. You’re right, it went up mildly over 70 for a few days and then retreated. We’re in the mid- to high-60s now, depending upon the day of the week. So I would argue that there is a 10% minimum premium that’s lingering on top of other issues that we can talk about here in a minute that’s keeping the price of oil buoyant, I think.
I would just add that, although it was a 12-day war, that’s the 12-day, I’ll call it the “hot war” where there was actual bombing going on, but this war is far from over. There’s still no nuclear agreement in terms of the Iranians stopping all nuclear refining activity towards achieving a nuclear weapon. The Israelis are very skeptical that any agreement would lead to anything honest. The Americans want a peaceful deal.
This is far from over. And now the Iranians are very jaded about the whole thing. So I think there’s just sort of a hiatus right now. This story is far from over. The chapters yet to come. There are chapters yet to come.
Jackie Forrest:
Well, maybe that explains. Because since that time, actually when everything diffused, the price of oil went back into the mid-60s. However, it’s up to $68 right now, which is surprising because in the meantime, we’ve learned that OPEC will accelerate supply additions to the market. They announced in early July that they’re now going to have yet another tranche of supply. Even more than people thought, 548,000 barrels.
This is in addition to tranches of around 400,000 barrels a day over the previous several months. Basically getting all their supply for their first tranche of cuts back, and there’s even more potentially that they could do because they’re still sitting on spare capacity. And, now Donald Trump is sending out letters around the world saying he’s going to put these Liberation Day tariffs back in. So the threat of a recession is far from over. And yet you-
Peter Tertzakian :
So you think the price of oil should be lower.
Jackie Forrest:
Yeah, the oil price is moving up. How can the oil price be moving up in-
Peter Tertzakian :
Well, I’ll give you the counter arguments. We’re at 105 million barrels of oil per day now, 105. The last I checked, we were a little over 103, and I just reviewed all the numbers and the IAEA reports and whatever. We’re at 105.
Jackie Forrest:
Right. That’s not the annual average. That’s at this time. The peak consumption for the year.
Peter Tertzakian :
I still think people don’t really appreciate how much oil that is. It’s still going up. I think it will continue to go up. The OPEC report that came out just recently said it’s going to go up to potentially over 123 million by 2050. But even if it goes up to 110, these are staggering numbers. It’s not retreating, as people have been saying over the course of the last 10 years.
The consumption this year to next year I think is going to go up by something like 700,000 barrels per day. It’s not as much as was expected, but it’s still a lot. These are big numbers. It’s like a supertanker a day increase in consumption. And then on top of that, you look at some of the stats in terms of the inventories. The inventories are actually quite low. So I actually am not in the camp that these oil prices are going to retreat.
The biggest thing I would argue to you is that counting barrels is no longer the dominant paradigm, adding and subtracting barrels and making calls on what the supply and demand is going to be. Because the uncertainties are now in what we’ve been talking about, those geoeconomics. What are the impacts, as you just pointed out, of the tariffs?
But if we think about tariffs not as slowing down the economies of the world as a whole, but as actually creating distortions in regional supply-and-demand dynamics, all of a sudden it’s a completely different paradigm of how you price these commodities. I just think there’s so much uncertainty that the uncertainty is not in whether it’s going to be 105.2 or 105.4. The uncertainty is all in how different countries are going to leverage their energy superpower and economic superpower levers. And the uncertainty around that is so great, I think there’s a premium built into a lot of commodities, not just oil and gas, but if you look at all of the other commodities as well.
Jackie Forrest:
By the way, today, now, this quarter is one of the highest times of the year. So when you say 105 million barrels a day, that might be this quarter. But for the rest of the year, the second half of the year, it’s generally lower, just because the summer season in the Northern Hemisphere drives a lot of oil demand.
And so, let’s go forward to November, December, when demand on a daily basis isn’t so great. When maybe this recession has started to impact demand, and all these OPEC barrels are actually in the market and inventories are starting to build. Because I agree with you, inventories are low. But when they start building, it does change the dynamic and the psychology of the market.
And reminding us that we still are sitting on a bunch of OPEC spare capacity, so there’s the potential for even more barrels to come in. There are many forecasters… Well, many. At least a few, that think that the oil price could get into the 50s, maybe the high 50s by the end of the year because of those dynamics.
Peter Tertzakian :
See, I’m just not in that camp. Because actually, the inflation for core commodities and supply chain distortions as a consequence of all this geoeconomic to-ing and fro-ing around the world is driving the costs up. So the cost of exploring, developing, producing oil and gas is going up. It has yet to manifest itself and show up, but I think what the market is also seeing is that future supply is not necessarily going to be as robust as you would think. And demand is being stubborn, particularly if prices stay at these levels. The current prices at the pump are not anything that scare people away from consumption.
So I just think that we’re in a new paradigm of how we price these commodities. Like the last 30, 40 years, we used certain formulas and ways of thinking about pricing risk and return in commodity markets. In this new world now that we’re seeing, the ability to price risk has become very difficult, so the default is just to price in premiums into all these commodities, including oil.
Jackie Forrest:
Okay. Well, let’s switch to the last topic, because it’s kind of related, which is this Trump uncertainty associated with the tariffs, or Trump-tility some people are calling it, for volatility. Because we had letters last week that talked about threatening 25 to 40% tariffs to a long list of countries by August 1st. Canada of course got our own letter, and we’re still trying to understand what it means. 35% on all goods, but we’re not quite sure if that’s NAFTA-
Peter Tertzakian :
But not USMCA.
Jackie Forrest:
Well, I don’t know. People are a little confused. Is it USMCA? Is it energy? Obviously, the stock market is assuming it’s not. But I went and looked at last week the performance of the overall Dow Jones. It’s kind of moving sideways. If you think about Liberation Day, was that April 1st or 2nd? We saw about a 10% drop in these indexes, like the overall stock market in the US.
I looked at Canada. Even with this 35% tariff, barely a move in our overall composite stock index. So they’re calling it the TACO trade now, Trump Always Chickens Out. So no one’s actually believing he’s doing this stuff anymore, and therefore it’s not being factored into stock values.
I also argue it’s not being factored into the oil price right now. The oil price is just sort of seeing through it. So could everyone be surprised when he actually goes ahead with some of this stuff and the markets have a big drop? Because now they’re not factoring in that this is real anymore, in my opinion.
Peter Tertzakian :
Well, I’m not going to stick my neck out and say what the markets are going to do, because I certainly don’t want anyone taking investment advice from me. But I would say that the probability that some tariffs are going to prevail, that Trump isn’t going to chicken out, is quite real. I think there are going to be tariffs that are going to linger and it’s just a question of how much.
Now, what that does to the global geoeconomic situation, I don’t know. I also think though that this threat of tariffs is going to come and go, come and go, deals or no deals. Because we are in an era, again, where countries are throwing their weight around, notably the United States, but not only. There’s also China. They’re throwing their weight around using economic muscle as a weapon. There’s a weaponization of economic leverage.
So to think that everybody’s going to get deals and that’s going to be the end of the story I think is incredibly naive. And that this lingering uncertainty of how countries are going to use their economic muscle to gain national interest, it’s going to be a story for a while. And that includes the EU, it includes the Japanese, the Koreans, everybody.
Jackie Forrest:
Right. And it doesn’t only have to be tariffs. That Trump’s favorite variety, but-
Peter Tertzakian :
No, it could be sanctions. There’s sanctions, there’s restricting supply, restricting… Yeah. Sure.
Jackie Forrest:
Well, there’s like the Chinese just saying, “We’re restricting selling these certain products to the world that we know that there’s very few other alternatives.” Yeah, and now we have the copper one.
Okay, so here’s the question. July 21st is the date that Mark Carney and Trump were supposed to ink a trade deal. Seems a bit unlikely to me. But in this environment that you’re describing, why would he ever make a deal? And I actually think, as a Canadian, now’s not the time to make a deal. Maybe we need to wait until the US feels the brunt of the tariffs, copper being the latest one. It’s going to hurt their companies, and eventually maybe they will have some motivation to come to the table, because we learned with this digital service tax that we don’t have a lot of leverage here.
Peter Tertzakian :
No.
Jackie Forrest:
Right? And so maybe the leverage we could have is time.
Peter Tertzakian :
The leverage we could have is time, the leverage we could have is not be the first to make a deal, which was something that Prime Minister Carney has said is part of the strategy and I agree with. I think also that even if there is a deal, it’s not the end of the story, as I said earlier. I think that anytime the United States doesn’t like what a country is doing, whether it’s Canada, Brazil, or whomever, they pull out the economic cannon and say, “If you don’t do this, then we are going to put another tariff on, deal or no deal.”
Jackie Forrest:
Okay, and is that just for the next three years or so, or do you think that’s a new permanent change?
Peter Tertzakian :
Well, I don’t know. I just think this is the new reality of the world that we’re in.
Jackie Forrest:
Well, it speaks to… I kind of come back. Let’s finish the podcast coming back to our debate on oil price. To me, it speaks to a slower economy. Because if all of this crazy volatility and Trump-itility, how do companies make decisions around investments? And if they stop investing, does that not cause a slower economy, which lowers oil demand, which lowers oil prices?
Peter Tertzakian :
Potentially, but that’s if you think about oil prices in a global sense. What the geoeconomic reality of the world means is that we are seeing fragmentation and regionalization of different economies. So counting barrels globally is potentially an outdated mode of thinking that you have to think about, “Okay, well, what if the Russians are sanctioned and the Iranians are sanctioned even more or less?”
And all these things, they’re uncertainties that are far greater in terms of their error bars than the historical way we used to think about the probability of demand being 100 million barrels a day or 100.2 million barrels a day. And saying that the uncertainty that is being wrought by all these other factors now create error bars that are much bigger. And when you have greater errors, the tendency is to price the commodities higher because of greater volatility.
Jackie Forrest:
Right. And another example, like United States, President Trump seemed to get kind of aggravated at Russia. Could we see some sort of change in Russian oil supply?
Peter Tertzakian :
Yeah. Absolutely.
Jackie Forrest:
So you’re right. There’s a lot of potential for large amounts of supply to come out or into the market.
Peter Tertzakian :
Right.
Jackie Forrest:
Iran could go either way. It could lose its supply or we could see some sort of deal and they add supply. So you’re just basically saying there’s this geopolitical influence, which comes back to the very first topic we started with. For Canada to be an energy superpower, for Canada to be relevant in this new world, we should be getting more of our oil and gas to the international markets.
Peter Tertzakian :
Well, we should be getting more oil and gas to our allies, because we want to help the economic bloc, specifically I would think the Europeans, Koreans, Japanese, et cetera, because they are economically and otherwise ideologically aligned with the way Canadians think, more or less.
So we want to be able to have influence within our allies. To think that Canada’s going to exert influence over the global situation I think is a bit naive. But to have influence within our ally peers I think is quite… And in fact, they’ve been asking for it.
Jackie Forrest:
Well, I get this question often, which is, “Well, is there even demand for the product out there? If Canada built a pipeline for a million barrels a day, would somebody want that?” I’m like, “Of course they would.” We would be less than 1% addition to the global market.
And I think after the events of even the last month, people recognize the importance of diversity of supply, supply from a country like Canada with rule of law and not having our oil flow through a choke point like the Strait of Hormuz, which is, what? 30 kilometers wide at one point, surrounded by people that are having conflict.
So I think there is no doubt in my mind that not only our Western alliance, but other countries would want to see diversity of supply. And we’re not talking about adding a whole bunch more supply in the world. I think it can be easily absorbed.
Peter Tertzakian :
No, the world can easily absorb it. And as a fraction of the world’s consumption, the incremental barrels that we offer are not that great. But in terms of the fraction of our allies’ consumption, it’s all of a sudden quite significant.
Jackie Forrest:
Right.
Peter Tertzakian :
All right. Well, that’s a robust discussion, Jackie. That all started with whether or not you were wearing your smartwatch. Given that you’re not, time has gone by quickly on the podcast, so I suggest it’s time to wrap up.
Jackie Forrest:
It is. And also, we’re going to take a little bit of a wrap up for the summer.
Peter Tertzakian :
Yeah. Well, I hope everyone enjoys their summer.
Jackie Forrest:
Yeah, I hope all our listeners have a great summer and we’ll be back here in late August. 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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