Howdy all, welcome to the last blog of April 2020, a month that, to paraphrase one of my favourite presidents (if only because of that cupcake FDR and the New Deal economics class in university), will live in infamy.
From Chaucer (he dropped the iambic pentameter hammer on April showers) to folksy sayings (April showers bring May flowers (punch)) to the usual Calgary litany of freak snowstorms and patio weather (often in the same day!), April is quite often a bear of a month and this year it has been compounded by pandemic lockdowns and the gradual elimination and cancellation of everything that is fun in the sun.
This week has seen a number of high profile cancellations of festivals and events that typically mark our brutishly short Canadian summer including all the folk fests, Comicon-type expos and most distressingly for Calgary, this year’s Calgary Stampede. Look, I get it. It’s for the best. But my daughter is in the Young Canadians and we were looking forward to seeing the Grandstand Show 13 times. It sucks.
Fortunately, there are a few green shoots. For example, typically by this time, all Canadian teams have been eliminated from the NHL playoffs – not this year! Also, ski hills aren’t very crowded (oh wait). And Donald Trump has found a cure for the coronavirus, which unfortunately involves ingesting fatal chemicals. Urg.
However, out of this doom and gloom, a hero has emerged. And his name is Roger Goodell. That’s right, never one to let an exclusive marketing opportunity for the world’s most dominant sports brand go to waste, the NFL and the Commish elected to proceed with the annual meat market that is the NFL draft, albeit virtually. And you know what? IT WORKED. It was fun. It projected an air of tongue in cheek normalcy to an otherwise otherworldly month.
So good on you NFL for refusing to cancel the draft and soldiering through. I suspect that this may open the spillway (not floodgates – let’s be smart) for sports to serve as a bit of a rally-point in the months ahead, allowing the respective professional leagues to see that doing things virtually works and that rabid fandom notwithstanding, content starved people will watch anything. I mean, I watched South Korean baseball the other day.
Anyway, I digress. While I take a break between Round 1 withdrawal (the Cardinals pick is a defense changer) and wait breathlessly for Round 2, I am going to cast off these April blahs, and, just like the NFL, I am going to hold a draft, except mine is a Global Energy League Draft.
So here goes.
The Global Energy League Draft of 2020.
OK, first the rules. For the purposes of this draft there are only 10 teams, the others are all in some minor league or other entity like the XFL. The draft will take place in typical inverse order, so if you had the weakest record in the last year, you get to pick first. This means the best picks last. Trades of course are allowed and occasionally happen. As an analogy for global energy politics, it has to make at least a little bit of sense and clearly, if Russia isn’t portrayed as evil, then what’s the point?
Alright, here comes honorary commissioner of the league Jason Kenney to announce that the team with the number one pick in the Energy Draft is up and has ten minutes to make its pick.
“Canada is officially on the clock and the draft is on”
Canada – first pick overall! Very exciting, right? Canada has the first pick which means… They were the worst performer of everyone. Not a big reason to celebrate, right? Maybe if they pick the consensus number one, but if they screw it up…
Last Season. The last season for Canada was nothing short of hopeless on the energy front. The country started relatively strong but faded fast as the year went on. Expensive free agent TransMountain finally got on the field, but it was clear that after having to sit for two years while negotiating a new contract, it was going to be at least another season before any significant contribution. Another high profile draft-pick from prior years was Coastal Gas Link, but apparently CGL had some questionable dealings in its past which has led to a lockout that pretty much shut down the entire team for an extended period. Buffeted by lousy pricing and indecisive coaching, Canada finished the season on a massive losing streak.
Needs: Everything. Seriously. OK, maybe not that seriously but there are holes in this lineup that Coach Trudeau needs to address to attract more potential free agents. Probably needs a more focused GM, but that’s for another day.
The Pick. This one is really no surprise. The consensus number one pick in the draft has always been staring any team in Canada right in the face. They need to protect and get the best performance out of their most prized assets. With first pick in the draft, Canada picks LNG and in a surprise move, decides to blow the salary cap out of the water, signs everyone to a new, lucrative contract and finally decides to decommission all the oilwells on its practice field.
Pick Number 2 goes to the United States of America courtesy of three-way trade with Russia and Venzuela with the US swapping its number 2 overall pick for Venezuela’s number 9 and sending Lindsay Graham, Steve Bannon and Jared Kushner to Russia in exchange for cash and a videotape.
Last Season: The United States came in second in the league last year, almost beating out Saudi Arabia. They got great production out of their energy assets for most of the year until about three quarters of the way through the season when the teams financiers decided to call the loan and bankrupted the team faster than anyone thought possible. The problem of course was an ownership group that didn’t understand restraint or salary caps resulting in a lineup constantly filled with pricey free-agent acquisitions, divas and is a lot of flash over substance. Case in point is former #1 overall pick Permamia, easily sucking up 75% of the salary cap.
Needs: The media and analyst community is pretty much all in agreement that what the United States needs in this draft is production restraint, that maybe they can actually finally emerge victorious by slowing themselves down a bit.
The Pick. True to form, the United States ignores the advice of the punditocracy and instead doubles down on what they already have, selecting another Tight Oil charlatan from a mid-major, sure to be a salary cap and draft bust. Doesn’t matter, they can’t afford to pay him or his teammates anyway. It’s going to be a loooonnnngggg season.
Picks number 3 and 4 this year both go to Alberta, home to honourary league commissioner Jason Kenney. The number 3 pick is “earned” thanks to Alberta’s continued lousy record the past season while the number 4 overall pick is a compensatory pick from Canada for its role in the delay of TransMountain, an as yet to be fully investigated “greening” incident and the special surcharge that it has been charging Alberta to use its stadium.
Last Season: Compounded by pipeline challenges and the various incidents with Canada, last season was a bit of a mess for Alberta. Overloaded with newfangled strategies such as Carbon Taxes, emissions caps and social license, Alberta was taught a very valuable lesson in energy world realpolitik. The basics work. Have a strong ground game, play by the rules and don’t make assumptions about your competition and you will be competitive week after week. Start to muck around with the basics and try to outthink the opposition? You are done.
Needs: Many. With TransMountain on the Canada roster, Alberta needs to somehow match that pipeline strength with some of its own. It also needs to understand the division it competes in, having the powerhouse US as a perennial power and also contending with a pesky, upstart BC team. With new coach Jason Kenney now promoted to league commissioner, new coach and former energy exec Bill Lacey has his hands full.
Pick #3: With this pick, Alberta went the safe route and chose to bulk up its offence, and who can blame them after the manhandling they have suffered the last few years. The pick is Keystone. It’s a bold choice worth trying, especially with the expected meltdown of the United States team as it takes advantage of that weak division opponent.
Pick #4: With this pick Alberta is faced with a conundrum. Do you pick another pipeline and hope it pans out? Defence? A Quebec emissary? Ultimately this pick came down to the wire and with time almost expiring to make the call, Alberta traded pick number 4 to Canada for some cold hard cash. And let’s face it, who wouldn’t. The extra cap space and financial flexibility should allow Alberta some flexibility come mid-season to expand their roster.
Pick #4: After acquiring this pick by trade with Alberta, Canada did what any good opportunist would do and took a flyer on methane reduction. A bit of a stretch, but if it works out will form a key part of Canada’s 10 year rebuild plan.
The 5th overall pick in this draft belongs to Russia, who finished in the middle of the pack, notwithstanding being competitive and relevant in every match last season.
Last Season: Led by Vlad the Impaler Putin, the Russian Bears trampled roughshod over pretty much everyone they faced last season yet somehow emerged with barely a .500 record, just made the playoffs and weren’t much of a factor at all. Even their traditional cheating and intimidation did little to help.
Needs: It is hard to say what the Russians need at this point. Their energy team is very balanced and requires very little tinkering. In true Belichikian fashion they are said to have spies everywhere, able to manipulate teams and players to an unprecedented degree, belying their economic impact. If pressed, it would appear that Russia’s two biggest issues appear to be some cracks in team chemistry between Putin the Coach/GM/President and Chief Play Caller and the extremely well-paid minions/stars he has toiling away for him and the general disdain that the Russian team seems to have for the environment (they do spill a lot no matter where they go or how they get there).
Pick: To no one’s surprise, the Russians decided that they would cheat and pick up multiple players with their one and only draft pick and then completely ignore the salary cap thereby destroying league economics. Then he turned around and executed all the draft picks and replaced them with players he received in the trade with the US. Then he stole back the videotape he had sent to the US. Then he blackmailed Trump to get his five-game suspension lifted. Typical Russia.
The 6th overall pick in this draft belonged to Iran and for the longest time, it was radio silence as they searched for their scouting notes, a list of available choices and a video-feed that wasn’t in Russian.
Last Season: Iran was blacklisted for much of the season last year as perennial powers United States and Saudi Arabia did their best to sideline them and keep them out of the playoffs. It was one debacle after another as they found themselves hemmed in with nowhere to send their energy. With China supporting them and an insurgent group of fans from surrounding areas, they thought they had a chance to be relevant, but it didn’t last.
Needs: For Iran, it’s pretty simple. They have some of the best assets in the energy league outside of Saudi Arabia but no way to properly use them unless the US lets them.
Pick: In an inspired twist, the Iranians realized the fundamental flaw in their team model and suddenly started to play nice with the rest of the world, then, when no one was looking, they submitted their pick to the commissioner. Hunter Biden. Genius sleeper pick. This team should be doubly relevant come December 2020.
The 7th overall pick this year belonged to China, a surprise leader last season, especially when one considers they are primarily a consumer and not producer of energy.
Last Season: Finishing fourth in the league last year was something of a major accomplishment for a talented and disciplined Chinese squad. They dominated the energy league by building up massive reserves, satisfying demand by being open to trades with anyone who had a viable option for them and not being intimidated whatsoever by the bluster emanating primarily from the United States squad.
Needs: With strength at virtually every position, the Chinese entry has no glaring needs so they are free to draft strategically. In the current league incarnation, the real rivalry for the Chinese team is the Russia so their battle for dominance is going to be a story to watch, especially with traditional rival United States fading. Accordingly, the Chinese select Aggressive Mercantilist Expansion as their newest weapon. This will allow them to throw money around the world, particularly in energy and resource-rich but economically challenged areas such as Africa and South America. By pursuing this goal, the Chinese are gradually supplanting pretty much everyone as the go-to development partner.
The 8th overall pick went to newcomer Coronavirus who were granted a pick this high as part of the expansion draft, wherein they get to pick one player from each team and as well have the third overall pick in the actual draft.
Last Season: This is an expansion team for 2020, no one even knew they were coming last season.
Needs: The Corona team probably can use a player at every position, but their GM is very crafty and their coach employs a high octane offense that is very infectious and leaves traditional opponents flailing in response.
Pick: As mentioned above, the GM for this team is quite clever and elects to take 30 million barrels of oil as its pick, then proceeds to plunder each team of its best and brightest. The end result is likely a league in turmoil, if not a cancelled season. That said, all the teams in the league are now aware of the game that is going on with Corona and may collude to pull its expansion tag – well everyone except China, who faced Corona in an exhibition and beat it, albeit with significant self-inflicted damage.
As you recall from earlier, Venezuela did the three way trade with the United States and Russia. At any rate, they pick 9th.
Last Season: This past season was an unmitigated disaster for Venezuela. They started weak and got weaker with production falling from beginning to end. The only thing that kept them from utter collapse was financial support from both Russia and China and a refusal to pay their players.
Needs: Everything. Up and down the board. They don’t even have a medical staff. What they do have is the deepest bench in the league – just no way to pay anyone. The pick for Venezuela this year is no surprise – narcomoney from Russia to meet payroll. It’s the best they can do given the league has seized their bank accounts and blockaded their training facility.
The 10th and last pick of the draft belonged to Saudi Arabia, the perennial favourite and founder of this league and its onetime rival league OPEC.
Last season: As always, Saudi Arabia started out as the favourite, won the most games, dominated the headlines, the stat sheets, the press, talk radio, the playoffs – you name it. They won the season going away and easily locked down the championship. They are the perennial favourite and this coming year will be no different. They don’t even have cheating scandals to hang around their necks.
Needs: Absolutely none. How do we know that? Well, just prior to the draft they elected to show the rest of the league exactly how strong and deep they were by letting everyone see their books, scouting reports on players and any other information. And aside from that weird incident when their training facility was attacked by rockets, they made it through just fine. Even with Corona set to dominate the league this year, Saudi Arabia has the bankroll and the cap space to wait anyone out – just ask the United States.
The Pick. This one is interesting, because they really don’t need to make one. There is no weakness on their roster. Their farm teams are stacked, they have a massive cost advantage. In fact, there is only one area where they have previously elected not to compete with the rest of the league. So true to form, they drafted some LNG and incremental refining just for fun. Expect them to dominate this space soon. It’s just the way the Saudis operate.
OK, there you have it. An awkward energy draft.
Before I leave this flea-bitten, beaten to death analogy, I have to acknowledge Mr. Irrelevant, the name traditionally bestowed on the last pick of the last round of the draft. It’s a terrible thing to call a kid who just is happy to be picked and there are tons of free-agent walk-ons that weren’t drafted either so technically are even more irrelevant, but I need to do one here.
So, with pick number #60, in the 6th round of the draft, Canada decided to pick, purely as a flyer, supporting its energy industry. Maybe it’ll stick. Not sure. Like all draft picks – you just have to wait and see.
Prices as at April 24, 2020
- Oil prices
- Oil storage was up (no kidding!)
- Production was down
- OPEC+++++ cuts did little
- Natural Gas
- Storage was up, but historically very high; consumption down; production flat; exports flat.
- WTI Crude: $17.31 ($18.44)
- Western Canada Select: $8.76 ($4.19)
- AECO Spot: $1.74 ($1.75)
- NYMEX Gas: $1.75 ($1.74)
- US/Canadian Dollar: $0.7092 ($0.7088)
Highlights
- As at April 17, 2020, US crude oil supplies were at 518.6 million barrels, an increase of 15.0 million barrels from the previous week and a increase of 58.0 million barrels from last year.
- The number of days oil supply in storage is 38.7 which is 9.2 above last year at this time.
- Production was down 100k for the week at 12.200 million barrels per day. Production last year at the same time was 12.200 million barrels per day.
- Imports decreased to 4.937 million barrels from 5.680 million barrels per day compared to 7.149 million barrels per day last year.
- Crude exports from the US rose to 2.890 million barrels per day from 3.486 million barrels per day last week compared to 2.681 million barrels per day a year ago
- Canadian exports to the US increased to 3.307 million barrels a day from 3.249 million barrels per day last week
- Refinery inputs decreased during the week to 12.456 million barrels per day
- As at April 17, 2020, US natural gas in storage was 2,140 billion cubic feet (Bcf), which is 19% above the 5-year average and about 76% higher than last year’s level, following an implied net injection of 43 Bcf during the report week
- Overall U.S. natural gas consumption fell by 3% during the report week.
- Production was down 1% for the week. Imports from Canada fell 6% from the week before. Exports to Mexico were down 3%.
- LNG exports totaled 48 Bcf
- As of April 24, 2020, the onshore Canadian rig count decreased 4 to 26 (AB – 16; BC – 7; SK – 2; MB – 0; Other – 1). Rig count for the same period last year was 87.
- US Onshore Oil rig count at April 24, 2020 is at 378, down 60 from the week prior.
- Peak rig count was October 10, 2014 at 1,609
- Natural gas rigs drilling in the United States is down 4 at 85.
- Peak rig count before the downturn was November 11, 2014 at 356 (note the actual peak gas rig count was 1,606 on August 29, 2008)
- Offshore rig count was down 1 at 17.
- Offshore peak rig count at January 1, 2015 was 55
US split of Oil vs Gas rigs is 86%/14%, in Canada the split is 66%/34%
Trump Watch: Drink bleach. Tanning Beds.
Kenney Watch (new!): Need more money.
Trudeau Watch (for balance): Rent abatement!
