So here I sit, all hot and bothered again.

It seems that not a week can go by where some article comes out that demonstates either a puzzling lack of knowledge about what is happening in the oil patch, or displays a remarkable level of tone deafness to the plight of the economically critical and troubled regions including Alberta, B.C. and Saskatchewan.

I refer of course to the recent coverage of a memo written inside the Federal Government and delivered to the Labour Minister postulating that the effects of the slowdown in the energy sector are not as dire as the 2007-2009 crisis in the auto sector.

Let me preface this first by saying that the following commentary is in no way meant to downplay the severity of that crisis, because let’s face it, it was a narrowly avoided catastrophe. In fact, I believe that at the time I was fully in favour of the bailout, not just the Canadian government’s symbolic participation, but the full force and effect of the US government’s intervention.

That said, the memo in question misses the forest for the trees and. I think, is misleading and underlines a disconnect between Ottaw on the one hand and the oil patch on the other.

First of all, the memo postulates that the bailout was needed because there was a risk that manufacturers would relocate operations to lower cost US locales or Mexico, and while that really wasn’t in the cards at the time, it was a great negotiating tool by the automakers to leverage bailout dollars from a panicky Federal and provincial government.

Another macro point it makes is that the auto sector in 2009 was being impacted by an “international crisis” while the current slowdown in the energy sector was largely due to slowing global growth – umm, what? First of all, the international crisis was really in the financial sector, not the auto sector – why didn’t the memo compare that to the oil patch? And, with all due respect, the current low oil price environment is a global crisis as well with billions of dollars in capex are not being spent, directly affecting the livelihood of hundreds of thousands of industry workers around the world.

This of course brings up a key point of the memo, which was after all written for the Labour Minister. This is in relation to unemployment levels. The memo says that unemployment in the auto sector rose from 8.4% in 2007 and peaked at 21.9% in 2009 while saying that the unemployment rate in the oil and gas sector “only” rose from 2.9% in 2011 to 7.9% in 2015 (estimates having it peak at 12.3% in February 2016). Correct me if I’m wrong here, but hasn’t the energy sector’s unemployment rate quadrupled?

Also, this simple analysis overlooks the fact that a large proportion of the oil and gas service sector (where a large proportion of the jobs are) work as subcontractors, so when they lose their jobs, they don’t make EI claims, they don’t show up on the unemployment stats – they’re just out of work.

It is estimated that the oilpatch related job losses in Alberta will exceed 100,000 by the end of 2016. And this is only Alberta, what about BC, Saskatchewan and Newfoundland? The rest of Canada? Easily up to another 20,000.

For perspective, Unifor says that the auto sector in 2012 directly employed 120,000 Canadians. And that more broadly, it supported up to 400,000 indirect jobs. So the energy sector has lost the equivalent of the entire direct auto sector or 30% of the indirect jobs. Yeah, I get it – no crisis here.

The analysis suggests that if Chrysler and GM had gone into bankruptcy it would have impacted the entire supply chain and rippled across the country. Excuse me? Ripple effects? Last time I checked, just like the auto sector, the energy sector represents about 10% of the Canadian economy – stop spending there and the ripple effects will be plain to see, oh wait they already are, ask the Alberta government how the loss of $5 to $7 billion in royalties and tens of billions of capital investment, payroll and taxes is working out.

I think what bugs me the most is the tone deafness of even comparing these crises. And what it says about the general impression people are left with about the patch.

Clearly the energy sector is in a crisis, but this kind of denial or relativism serves no purpose except to underscore for many of us in the energy sector just how out of touch many Canadians (and in particular it seems the Federal Government) are with the breadth and depth of the energy sector, its importance to the Canadian economy and the scale of the crisis it is currently facing.

The greatest irony is of course that no one in the energy sector is asking for a bailout like the auto sector received. Never have, never will. We know what needs to happen to put the building blocks in place to recover. Reduce costs, fix balance sheets, and all this not with government largesse. Some of these are outside of our control (commodity prices) and some of these are 100% in our control (100% privately funded pipelines and LNG export facilities …) – oh wait, maybe those aren’t really controllable. That’s because those projects are all currently sitting with the Federal government in Ottawa, awaiting final decisions that apparently will be informed in part by the type of analysis contained in the crackerjack memo described above.

Yeesh. I have a stomach ache.

Prices as at August 19, 2016 (August 12, 2016)

• The price of oil ended the week up after last week`s slump
  • Storage posted a surprise increase
  • Production was up marginally
  • The rig count was up
  • The market continues to react to vague Saudi commentary suggesting production management
• Natural gas fell marginally during the week

• WTI Crude: $48.26 ($44.63)
• Nymex Gas: $2.584 ($2.586)
• US/Canadian Dollar: $0.7775 ($ 0.7720)

 
Highlights

• As at August 12, 2016, US crude oil supplies were at 521.1 million barrels, a decrease of 2.5 million barrels from the previous week and 64.9 million barrels ahead of last year.
  • The number of days oil supply in storage was 31.2, ahead of last year’s 27.0.
  • Production was up for the week at 8.597 million barrels per day. Production last year at the same time was 9.348 million barrels per day. The change in production this week came from higher Alaska deliveries and a surprise rise in lower 48 production.
  • Imports continued to be elevated but have come off their highs at 8.193 million barrels a day, compared to 8.038 million barrels per day last year.
  • Refinery inputs were up marginally during the week at 16.895 million barrels a day
• As at August 12, 2016, US natural gas in storage was 3,339 billion cubic feet (Bcf), which is 13.8% above the 5-year average and about 10.9% higher than last year’s level, following an implied net injection of 22 Bcf during the report week.
  • Overall U.S. natural gas consumption rose by 1% during the week on increased power consumption
  • Production for the week was flat and imports from Canada rose 3%
• As of August 15, the Canadian rig count was at 111 (16.5% utilization), 70 Alberta (15%), 12 BC (16%), 25 Saskatchewan (22%), 4 Manitoba (27%)). Utilization for the same period last year was about 24%.
• Oil rig count at August 19 was at 406, up 10 from the week prior.
  • Rig count at January 1, 2015 was 1,482
• Natural gas rigs drilling in the United States was flat at 83.
  • Rig count at January 1, 2015 was 328
• US split of Oil vs Gas rigs is 82%/18%, in Canada the split is 52%/48%
• Offshore rig count was up 1 at 18
  • Offshore rig count at January 1, 2015 was 55

 
Drillbits

• Slow news week, the follwoing was notable/interesting
  • Chesapeake raised $1.5 billion in new debt, priced at LIBOR plus 7.5%.
  • Flooding in Louisiana has forced Exxon to shut down the fourth largest refinery in the United States, located in Baton Rouge
  • Officials from Russia and Saudi Arabia recently met to discuss the possibility of a production freeze
  • Seven Generations closed its previously annoucend Acquisition of Montney Nest assets from Paramount
• Drumpf Watch – Drumpf has a new new Campaign Manager. That’s 3 and counting. In what was billed as a major foreign policy speech, Drumpf promised to engage in “extreme vetting” of prospective immigrants, presumably because the 19 to 24 month process currently in place is not extreme enough.