By Michael O’Neill
Throughout history, no country has systematically and deliberately worked to destroy its best wealth-creating industry.
There is one now.
Say “hello” to Canada.
The Canadian government is proposing, adopting and implementing, a series of energy policies which will become the benchmark for countries wanting to kill an economic cash cow.
Prime Minister Justin Trudeau wants to scrap the oil industry. He said as much in January 2017 when he spoke about phasing out the oilsands. He been working diligently to fulfil that goal.
His actions speak louder than words. He failed to challenge those provinces blocking pipeline access to the east and west coasts. He only provided a tepid, namby-pamby response to US President Biden’s cancellation of the Keystone XL pipeline.
Trudeau’ government has been very vocal with its desire to transition Canada’s economy from fossil fuels to some sort of green energy. At the end of March, Trudeau released a statement “Delivering clean air and a strong economy for Canadians.”
It said he plans to “develop a national net-zero by 2050 buildings plan. It would support the adoption of the highest tier building codes, pilot community-scale retrofits, and facilitate deep energy retrofits for large buildings. The operative word is “develop.”
In addition, he will “develop an approach to cap oil and gas sector emissions to achieve net-zero emissions by 2050, reduce oil and gas methane emissions by at least 75 per cent by 2030, and create good jobs. There’s that word “develop,” again.
Essentially, the statement was “all burger-no bun” except for the part where he said, “100 per cent of new passenger vehicles sold in Canada will be zero emission by 2035.” That means no internal combustion engines.
It’s a great idea, but not realistic or well thought-out.
The infrastructure for electrical alternatives doesn’t exist and the current electricity grid can barely handle current (no pun intended) requirements.
Lithium Ion battery life-span and power is reduced when temperatures are below 0°C. They are expensive to recycle and are environmental hazards.
Even worse, how many times have you spent 20-40 minutes to fill-up your car? Is your house, condo or apartment equipped with a 240 charging station? The answers are probably never, and no.
And charging a car is only possible if there is electrical power available. It might not be.
The North American Electric Reliability Corporation, a US regulatory body is warningof severe electrical blackouts in large parts of the US and Canada due to: a drought limiting hydro-electric power, delays in solar power projects, a lack of fuel for coal plants and an aging electrical grid.
The Trudeau government has enthusiastically embraced the “climate change” agenda. He calls his carbon tax a “pollution tax.”
Canada isn’t the only G-20 country with a carbon tax. There are thirteen other countries including the US, Norway, and Japan that impose a carbon tax.
No wants another ice age or to see arid farmland become desert. The G-20 is responsible for about 80% of CO2 emissions and carbon taxes are viewed as tool to lower the levels.
But why should Canada lead the way?
Canada is a minor player in the CO2 emission stakes and the biggest polluters (except for the USA) do not even have an energy industry.
The 2022 Organization for Economic Development and Cooperation (OECD) rankings of greenhouse gas emissions by country show Canada in ninth place but contributing a mere 2.6% of the 20.786 million tons of CO2 emissions. In addition, Canadians are just 1.0% of the combined of the top nine.
Source: OECD/IFXA Ltd
Global warming is a serious issue with devastating consequences if left unchecked However, unless China, India, USA, and Russia take the lead and make a serious, quantifiable effort to slash their emissions, Canada’s effort is no more than a grain of sand on a beach.
Canada’s has the third highest oil reserves in the world at 170.3 million barrels. Only Iran (208.6 mb and Saudi Arabia (258.6 mb) have more.
That means Canada is sitting on over USD $19.3 trillion dollars of black gold, using the March 18, West Texas Intermediate (WTI) opening price of $113.97.
Why would anyone or any country want to transition from such wealth?
FX traders have answered with their wallets. When WTI spiked above $140.00 during the 2008-09 Financial Crisis, USDCAD was traded below 1.0000. When the pandemic began, WTI dropped to the $35.00/b area and USDCAD jumped to the 1.4500 zone.
Nowadays, USDCAD tracks S&P 500 moves and just gives a passing nod to oil prices WTI oil is trading at $115.00 while USDCAD trades at 1.2800.
However, the Canadian dollar relationship with oil prices is only frayed not broken.
The sanctions on Russian crude won’t disappear even when hostilities end, the lack of supply will underpin prices. In addition, China is spending a lot of money to stimulate its economy, including massive infrastructure programs which will boost demand.
The world will be looking for alternative energy sources and Canada is sitting pretty. Investors are taking note.
The Canadian Association of Petroleum Producers (CAPP) expect a 22% increase in natural gas and oil investment this year , reaching $38.2 billion.
USDCAD may not rally to the extent is has during prior period of elevated crude prices, but it will likely remain below 1.3000 in 2022.
Given the political headwinds, USDCAD may not rally to the extent it has during prior periods of elevated crude prices.
Even so, the Loonie the may still become the first progressive petrocurrency.