Despite predictions the rise of zero-emissions energy, we
could be in for another (huge) spike at the gas pumps
by David Booth | 56
At their best, contrarians are the soul of an open
democracy. They’re the watchdogs, the canaries in the coal mine warning of
impending doom the rest of us can’t — or simply won’t — see. They’re the data
crunchers who warn that the Baltic Dry Index indicates that seemingly endless
bull markets might be poised for a fall. They are the pragmatists who remind us
that environmentalism — a good thing — is well on its way to becoming a
religion (not nearly as good). And, perhaps most controversially — considering
we’re in the middle of the worst pandemic in a century — they remind us that we
still need to pay attention to the economy even as mortal danger looms.
Of course, the problem is that for every genius that is
Michael Burry — the hero of The Big Short, who sussed out 2007’s impending
mortgage crisis — there are a thousand whack-jobs who think John F. Kennedy
killed himself. Indeed, if the history of whistleblowing tells us anything, it
is that bona fide contrarians like Harry Markopolos — the financial fraud
investigator who finally brought down Bernie Madoff — are so rare that they are
only recognized after our crises have passed.
That’s why I wonder how the future will treat Adam
Rozencwajg. He is the energy industry analyst — a Montreal native who is now
partner in New York’s Goehring & Rozencwajg — who recently predicted that
we are heading into another oil crisis. Yes, I know — and is this not the very
definition of contrariness? — there’s an almost universal consensus that the
age of oil is over, killed by a combination of clean energy and a
post-coronavirus economic doldrums.
Yet, his recent paper — On the Verge of an Energy Crisis —
maps out a pretty logical, even convincing argument that Big Oil’s stranglehold
on our pocketbooks is not quite as dead as we’ve been led to believe. Where
others are predicting only the most modest growth prospects for crude at best,
Rozencwajg predicts we’ll see worldwide shortages as early as next spring.
His argument is four-fold. First, his analysis says that our
oil consumption has not dropped nearly as much as predicted. While many had
speculated there would be a whopping 30 per cent — 30 million barrels per day!
— plunge in fossil fuel consumption, it seems it only really dropped by 10 per
cent. China, first in — and out! — of the coronavirus, has already seen
petroleum demand increase by 10 per cent year over year.
Even the 70 to 80 per cent freefall in air travel, says
Rozencwajg, disguises the fact that real “global daily air traffic is only 10%
lower than the start of the year,” the discrepancy explained as airlines
dropping their load factors and the massive increase in cargo shipping as we
all Amazon from the comfort of our La-Z-Boys. Moreover, says Rozencwajg, the
reserves that have been supposedly stockpiled — further driving down prices —
are nowhere near as vast as reported, his research noting there are only 400
million extra barrels languishing in OECD depots around the world; less, in
fact, than during the last serious surplus (in 2016).
And those might get eaten up sooner than we think. Even as
quarantining resulted in the number of miles driven dropping off early during
the COVID-19 crisis, recreational “motoring” has boomed, with dirt bikes sales
absolutely skyrocketing this summer and demand for RVs going through the roof.
Demand for cars has largely rebounded as well, and even if demand for EVs has
increased in Europe, we North Americans are buying more gas-guzzlers than ever.
Ford of Canada, for instance, reports that sales of its best-selling F-Series
trucks were up some 15 per cent in the last quarter. Factor in increased rail
and trucking shipping and you have pent-up demand that could be, COVID willing,
unleashed sooner than we think.
What makes that projection troublesome is that, according to
Rozencwajg, oil exploration was already dwindling pre-pandemic. Even more
problematic is that, as a result of the coronavirus, drilling for new wells has
all but stopped. As Rozencwajg explains it, the only major new non-OPEC
discoveries of any significance have been America’s shale oil and, says his
latest analysis, drilling is down some 75 per cent compared with just four
months ago. And, while the International Energy Agency claims US production
will recover some 500,000 barrels per day by the end of the year, Rozencwajg
says that this “simply cannot happen.”
Throw in the fact that Alberta’s oil sands are in full
retreat and, just as demand may be ready to explode, our ability to ramp up
supply could be dramatically curtailed. Even if, as the pundits prognosticate,
the long-term prospects for oil are waning, if Rozencwajg is right, it’s still
possible we’ve misjudged its short-term supply. As he says, the oil industry
“operates on the margin,” meaning even a small shortfall — say, just one per
cent of the world’s total 100 million barrels a day consumption — could have a
dramatic effect on crude pricing.
So, what might even a mini oil crisis look like? Well,
according to Dan McTeague, former Liberal member of parliament and president of
Canadians for Affordable Energy, based on existing taxation, $80 a barrel crude
would see Ontario gas spike to $1.40 a litre, while $100 a barrel would see
“regular” hit a record $1.57. Vancouver pump prices, the most expensive in the
land, could shoot up to $1.90. Even more problematic, says McTeague, is the
Parliamentary Budget Office’s recent revelation that if the federal government
is serious about meeting Prime Minister Trudeau’s 2030 Paris promises, the tax
on gas would have to increase a further 69 cents. Yes, the future could well
hold $2 a litre gasoline here in Canada.
How that might affect the auto industry is anyone’s guess.
On one hand, the lower “total cost of ownership” protagonists have long
promised might finally spur EV sales beyond early adopters and subsidy seekers.
On the other, environmentalists have been rejoicing in Big Oil’s diminished
clout; a price spike would almost surely rekindle dormant exploration.
Throw in the federal government’s need to dramatically invigorate
sales of electric vehicles — as Motor Mouth pointed out three weeks ago, the
$600 million of public funds being pumped into Ford’s Oakville plant has to be
justified somehow — and nothing will spur conversion to battery power more than
overpriced, taxed-to-the-hilt gasoline. At the very least, a rapid price hike
might finally quell our addiction to gas-guzzling pickups. Whatever the
outcome, as McTeague says, “it feels like the era of ultra-cheap gasoline might
be coming to an end.”
Now, I want to be clear. I have no idea whether Rozencwajg
is another Burry-like soothsayer or the oil industry’s version of Alex Jones —
the InfoWars wingnut who claims the Sandy Hook massacre was a hoax. I do know
that “accepted wisdom” is the enemy of intellectual growth and that shunning
opinions contrary to our own leads to the echo chambers threatening modern
Had Elon Musk, for instance, been successfully discounted as
a mere kook, the automotive industry would not be in the midst of its biggest
revolution in a century. And had Nils Bohlin, the inventor of the three-point
seat belt, been dismissed as a “rocket scientist” — he designed ejector seats
before joining Volvo — a lot more of us would have died in automotive
So, no matter how skeptical you might be, pay Mr. Rozencwajg
some heed and give a boo to On the Verge of an Energy Crisis. You might
surprise yourself and learn something.