Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The energy sector is such a typical American-Canadian contrast. It’s like the Americans love to shoot guns, and the Canadians love to dodge bullets.
In the USA, the Shale Revolution has turned the American energy industry upside down with huge new supplies of natural gas and light oil.
They have reversed a 40-year decline in oil production in a stunningly short four years. Their entrepreneurial system made it happen; it couldn’t have happened anywhere else in the world. Kudos to them.
The Yanks have built drill rigs, oil pipelines, water pipelines, and brought back billions of dollars of petrochemical plants; secured rail to transport their crude all over the country—the American industry has shown itself to be remarkably agile and responsive.
The world’s oil has been getting heavier for years—and so has the infrastructure to transport and refine it. So the fact that US production increases are in light oil make theirs an even bigger transformation.
Now, look at Canada trying to get its heavy oil to market—but only if you want to laugh.
In Canada, investors have been able to predict our rising heavy oil production for years—think of the old joke where in Regina, Saskatchewan the land is so flat you can see your dog run away for three days —investors have had that kind of visibility on this issue.
And here we are still beholden to the same one customer, and now we can’t even get all of our product down to them! Canada has actually gone backwards in that respect. That’s why we’re price takers and they’re not, and why Canada is vulnerable to the low oil prices seen at Christmas 2012.
Now, despite all our bumbling, Canadian heavy oil discounts are now quite low, meaning the price of our heavy oil is quite high—it was $80.95 in early April, a big jump from the $48 it was getting last Christmas. This is a GREAT price, and makes this drama mere entertainment, not a national tragedy anymore.
This is because Canada has adapted at least one way, and found a way to rail oil down to the US refineries—but it’s still going to only US refineries.
But I can’t help thinking…the US has gone through a much greater upheaval, socially and economically, from the Shale Revolution than Canada has.
They have adapted better, adapted more quickly, than Canada has…at every turn.
And there has been a lot of turns! And they keep coming! Horizontal drilling, hydraulic fracturing over 300 feet, then 1000 feet, then half a mile, one mile, now two miles. Suddenly full oil refineries, suddenly empty gas pipelines (it’s everywhere now, who needs gas pipelines?)—billions were spent on gas pipelines only a few years ago are now well under capacity.
In the US, business just moves on, recognizing the new business reality. Canadians use the National Energy Board to decide the best way to keep everyone from losing money. It’s like Americans love to brag about how much they spent and Canadians brag about how much they saved.
And almost all Canadian oil pricing problems would be solved by getting one, just one, 1200 mile pipeline from the Alberta oilsands to the British Columbia west coast, from Fort McMurray to Prince Rupert. But it has created a family feud in Canada that has dominated news headlines for well over a year.
Opposition against this west coast pipeline has drawn protests from environmentalists and First Nations, and even left-wing Canadian politicians. In the US, build it, and they will come. In Canada, build it, and they will protest.
Of course Uncle Sam agitating the locals under the guise of environmentalism doesn’t help, either. And don’t kid yourself, they are actively trying to keep Canadian oil for themselves; it’s well documented (stand by for a full feature story or three on that in the coming weeks).
But oil is a global product, and it flows from areas of low price to areas of high price. That’s the whole point of pipelines—to get it to higher-priced markets. If the differentials remain wide enough for long enough, that oil WILL find its way to market—even if it has to be pulled by wagon.
I don’t think Canada is going to get backed out of the market, because somehow somewhere somebody is going to find a way to get that cheap oil. For example, I think we will get Canadian oil to Asia—but it will likely go through the Gulf Coast to get there, and get exported from there. When I look at a map, I don’t know whether to laugh or cry.
But it’s interesting that a “national interest” seems to be building around the idea of—instead of doing a simple 1,200 mile pipeline west—reverse an existing gas line that crosses two thirds of the continent to get western Canadian heavy oil to eastern Canada and refine it there.
Hey, that could work, and make more of Canada feel part of the oil wealth that has such a huge impact on our country. Quebec and New Brunswick refineries would finally get western Canadian crude, instead of from Venezuela.
The refineries would have to be expanded to handle our growing crude supply, as would port facilities. It would involve huge infrastructure spending and create thousands of jobs in Atlantic Canada.
It’s already well known that many of the oilsands workers are Maritimers, but it’s also true that the jobs in “Fort Mac” have saved rural areas across ALL of western Canada from big unemployment.
But that pipeline reversal won’t be ready until 2017 at the earliest—four years from now. The best case scenario is 2017.
America’s gun culture is famous for the phrase, “Shoot first, ask questions later.”
Canadians are more prone to the phrase, “Ask questions first. Shoot, we’re too late.”
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