Nobody can really deny these are turbulent times; One could argue they’re turbulent for any number of reasons, but of the multitude of reasons that the world is worse today than yesterday, it’s the commodities crash that occupies my thoughts as of late.
Crashes, Booms and Busts, aren’t unheard of and they’ve been a fairly common theme through my life.
While I was growing up in Newfoundland, the spectacular collapse of the fishery, culminating with the 1992 moratorium decimated the economy of my home town and most of the province.
Although I wasn’t directly impacted by that economic implosion, honestly, I grew up never really appreciating what anything less than 15% unemployment could be like. That seemingly perpetual recession (read as +20% unemployment) only really began to lift with significant government investment in infrastructure and an uptick in the price of oil. I can still clearly remember my junior high social studies teacher saying how the Government and some of the big oil companies were really taking a risky bet, hoping that Hibernia would pay off if oil could somehow stay above $15/bbl, if it went above $20/bbl they’d be set. That was 1994, construction was underway, oil was somewhere around $14/bbl, and unemployment had finally started to decline below 20%.
Years later, I first entered the energy industry with bright eyes in 2006 and then full-time after graduation from engineering in 2008. Graphs of historical Oil and Gas futures are not hard to find these days, and below are 2 more, clearly showing the trend and illustrating the sentiment around that time. I was hired into what was then the dawn of a new Energy Age. Industry was faced with the challenge of peak oil, there was (and still is) the challenge of meeting the massive projected energy requirements of a human population on a path of exponential growth. August 2008 seems like ancient history now, and it certainly did in December 2008, when after 4 months on the job, every project I had been working on was suddenly canceled.
Since those uncertain days through most of 2009, there’s been highs and lows; but to be honest, mostly highs with work alongside great people on awesome challenging projects that I’m very proud to have been part. But now, when you look at the graphs and you ask around, something’s different this time. There is still certainty that a rebound will come, but this time there is doubt on the timing of the rebound and its magnitude; you see, this crash has been engineered.
It’s been engineered by the willful and arguably deliberate oversupply of the market. Some would blame OPEC, and maybe a share of the blame does reside there, but there’s also something else. There’s the maximization of all available production by essentially every producing company in existence to maximize cashflow and hopefully at least partially offset the impact of the lower commodity prices to the balance sheet.
It’s also been engineered by the incremental evolution of unconventional hydrocarbon extraction technology and continuous improvement of techniques. These improvements though initially slow in pace and costly, have resulted in previously uneconomic or unfeasible reservoirs “suddenly” becoming economic and often, prolific producers, with ever quickening delivery cycle times.
When you stop to think about the scale of this crash; the increasing unemployment; the fact that a large share of producing oil and gas companies are losing money everyday, you realize it really is a fight for survival, where the positive cashflow, or even the prospect of near term positive cashflow is license to live another day.
The effects here in Calgary haven’t gone unnoticed. There’s really no problem getting a parking spot anywhere downtown anymore; Crowded lunch lines seem like a distance memory; Traffic congestion (barring that caused by collisions and weather) seems to be a thing of the past; And more unfortunately, it seems like everyone knows someone who’s out of work or someone who’s under threat of unplanned unemployment.
I have hope that a turn around is sooner than later, but in the meantime we’re taking a cautious approach and a measured outlook. We’ll see what the future holds one day at a time and in the meantime, we’ll keep living each day like there may be no tomorrow… what else can you do? I mean other than delay the Porsche purchase another year? If there’s one thing I’ve learned, it’s that living with uncertainty, even turbulence, is simply the norm, even if the cause isn’t.
And, in case you’re interested or otherwise, Just for reference, The Annualized Average unemployment for all provinces, with the Canadian average included, summary table with the data here: www.stats.gov.nl.ca/statistics/Labour/PDF/UnempRate.pdf
(Note, historical annualized NL unemployment always appears to show high, attributable in part to the large share of the population that relies of seasonal work)