Alright, admit it. You are for sure thinking that you are about to be subjected to some boring, windy diatribe about Donald Trump pulling out of the Paris Accord, full of fury about short-sightedness, the upcoming environmental apocalypse and the degradation of America’s standing in the world. Well, you would be wrong! Ha!

Instead, I am more local this week as once again, here in Canada we are doing our own good work shooting ourselves in the foot. That’s right, in the face of slow growth, rising competition from a mercantilist America and massively increased costs for everything from health care to real estate, the good people of BC find themselves jumping onto the same NDP crazy train that Alberta is on just as things were starting to look up.

As I’ve said before, I am constantly amazed by people’s propensity to enter a ballot box and vote against their own economic self-interest but maybe I shouldn’t be since it happens so often. Whether it’s the Liberals in Ontario, the NDP here in Alberta or the NDP-Green mashup in BC, it happens with such startling regularity that it should make political predictions so much easier. Part of the reason of course is that a large part of the electorate is often so uninformed that they are gullible and easy to manipulate. Then there’s those that stay home and those that decided they want to “punish” a party but think so little about what they are doing that they are surprised when their corporate taxes go up by 20%.

Look, I’m not picking on Canada or singling out BC voters (OK, maybe I am a bit) but the false narrative thing is a global phenomenon – there is no escaping it! Whether it’s the US and the election of Donald Trump on a whole pile of straw men (corrupt Hilary, Obamacare is broken, NAFTA bad, NATO bad/Russia good, need a wall) or the United Kingdom (a Brexit vote fuelled by the false narrative of immigration) or even the election of the crazy strongman Duterte in the Phillipines on his platform of rooting out corruption (through extra-judicial summary execution) we live in a world where we seem to regularly elect all the wrong people for all the wrong reasons. And then we wonder what happened. It’s crazy.

Anyway, on to this latest fiasco, where the BC NDP has signed a 4 year cooperation agreement with the suddenly relevant Green Party to get their three seats to give the coalition a wafer thin majority of 1 seat in the legislature to oust the 16 years in power Liberals and their leader Christy Clark. It’s a mess really, but it is the hand that has been dealt.

So herewith, my top 10 takeaways from this “election” and subsequent deal.

1. Andrew Weaver, what were you thinking? Seriously dude, I want to know. I can’t imagine anyone who has played a hand more poorly in recent years. Instead of acting like the king or queen maker he is, he appears to be in way over his head with the political sharks swimming around him. To go from publicly stating his distaste for the NDP and its leader to hypocritically selling out to the highest bidder for a bunch of baubles is, how should I say this politely – crazy and political suicide. Last time I checked, hasty decisions make for poor politics, but this is what he has done. Perhaps he should take a lesson from the TransMountain project he so detests and practice “laying pipe”. I read somewhere that the Greens received 17% of the popular vote. Impressive. I also read that a lot of that support, particularly in some of the ridings the Liberals lost to the NDP came from Liberal supporters, not cannibalized from the NDP (the math basically worked that NDP vote counts were flat so the migration was fairly obvious). This means that the people who supported the Greens and the Weaver platform did not support the NDP, or they simply would have voted for them. I anticipate a major decline in popular support for the Green party when the next election comes. And Weaver’s biggest win? A referendum on electoral reform and proportional representation? That has been defeated twice in BC referendums – what makes you think that the electorate will change their mind this time, especially as they come to the realization that proportional representation leads to exactly the type of backroom deals and coalitions they are being forced to sit through now. How should he have played it you ask? By acting the part of power broker. Use your outsized leverage to get deals on an issue by issue basis. You don’t need a cooperation agreement to get your agenda in play. The Greens could probably have gotten official party status or even a cabinet seat by playing the long game, but in your rush to push the Liberals out, you are in the NDP’s back pocket, you’ve lost a lot of leverage and credibility so your stature is diminished.
2. What should we call this new “party” anyway? I’ve given this literally minutes of deep thought and the best name I can come up with is the Carrot Party or the Carrots. Mainly because it’s leafy and green on top, but when you yank it out of the dirt, the business end is a bunch of crunchy orange. And I guess we can call the legislature the Pumpkin Patch for the time being.
3. How long will this last? It’s anyone’s guess but in politics, four years is an eternity. Minority governments rarely last more than a couple of years. It is highly unlikely that this coalition can survive. While the agreement looks good and plays well for the media, there are too many things than can and will go wrong, especially when it’s imbalanced like this. The BC Liberals will use the speech from the throne to articulate a rational and reasoned plan for the province, allow themselves to be defeated on a confidence motion (even that isn’t a lock), retreat to opposition and allow the Carrot Party to try and form a government. Christy Clark isn’t going anywhere as leader given the precariousness of the minority and the Liberal machine will be ready when the inevitable collapse happens. Every day the legislature sits it will be pins and needles, hopefully no one misses a cab or float plane or has to use the bathroom. I give it 17 months max.
4. Excuse me Madam Speaker. This one is important. Currently, the speaker of the legislature is a Liberal MLA. Once the government is defeated in a confidence motion, this MLA will step down from that role and the Carrots will be forced to put one of their own MLA’s forward because the Liberals sure won’t. Why does this matter? Well there is a one vote difference in the legislature and by convention, the speaker only votes to break a tie or maintain the status quo. And there needs to be a speaker. Them’s the rules. Without a speaker, the business of the legislature can’t proceed leading to dissolution of the legislature and, wait for it, an election.
5. Is the Trans Mountain Expansion DOA? While John Horgan has vowed to use all “tools available” to obstruct the pipeline and the Greens cited that point as a key to them joining the Carrot Party, the reality is that it is a federally approved project and there is little recourse for the provincial government. The Carrots’ tool box is like mine at home – filled with old screws, bent nails and mystery bolts, Ikea hex keys that don’t fit anything and a paint scraper with a broken handle. They can delay permits and the like but with construction only slated to start in September and to last 2 years after that, there is a very high probability that the Carrots won’t even be around to try and stop the project. Again, Andrew Weaver, what were you thinking?
6. Does Justin Trudeau have the cojones to push the TMX through? Hmm, I’m not a fanboy but I think many on the right underestimate how much he hates to be pushed around. What can I say except… Just watch him.
7. What about LNG? This is way tougher to make a call on. If I’m Petronas, I’m shaking my head right now about this whole Canada gong show as well as brushing up on the rules of parliamentary democracy. Because a Final Investment Decision hasn’t been made yet, it could be tempting to walk away even if they are already in for a shwack of dough, if only to get away from the mess. On the other hand, the pendulum swing points to an LNG rebound post 2020 so it would be a shame to miss out given how much natural gas they are sitting on in Northern BC. The Carrots don’t have as firm a position on LNG as they do on TMX and will 100% need the royalty revenue from natural gas production to pay for their budget. So if I’m Petronas (or Shell who this week said their project wasn’t dead yet), unlike Andrew Weaver I will be holding back from any rash decisions on a FID until this potentially hostile minority government situation is over. Clank, clatter, bang – kick the can down the road.
8. What does this mean for Rachel Notley? Well, lots of fodder for the opposition to feast on as the whole “social licence” thing appears to not matter much at all to her political brethren and Andrew Weaver was decidedly dismissive of Alberta’s concerns and economy at the joint Carrot Party press conference. Again, with a minority government, there is a strong likelihood the Carrots will be gone by the time an election in Alberta happens in 2019. It will be the party in power in BC then and the status of the Trans Mountain at that point that will affect her electoral prospects. That said, this is a big poke in the eye for the whole “engagement” strategy, which was a bit over-blown regardless. It is interesting to note though that thanks to the wonders of a thing called a pipeline that the lower Mainland of BC gets 90% of its oil and gasoline from, you guessed it, Alberta and the TransMountain Pipeline as well as a whole lot of jet fuel. While it’s pretty hard to stop construction of a new pipeline, it is fairly easy to slow or stop the flow through an existing one. Be careful what you wish for, Carrot party, it would appear that Notley has the biggest trump card of all to play in this inter-provincial game of economic chicken.
9. Any Federal Implications? Aside from all the hate from the Lower Mainland and the protest lobby that is going to rain down on the Federal Liberals and Justin Trudeau as they continue to support the Trans Mountain project progressing, this is also a singular opportunity for Ottawa to firmly express its dominance in Confederation and let the provinces know who’s boss. As it regards seat counts for the next general election, I suspect the Liberals are not feeling very threatened by the Conservatives and are prepared to lose a few seats in the Lower Mainland over a pipeline knowing they can carry Ontario and that by championing the TMX and LNG they are likely to pick up a few seats in the BC interior and, dare I say it, Alberta.
10. Who wins the next election, assuming the Carrots don’t last? No one likes backroom deals to share power. The BC electorate was tired of the Liberals but it doesn’t take long to sour on NDP policies either. If, as expected, the Carrots get julienned at some point in the next while, I suspect the electorate will punish both parties and the Liberals will regain their majority, no matter who the leader of the party is at that time. In a minority situation, the election never ends. And the campaign is already on.

Prices as at June 2, 2017 (May 26, 2017)

• The price of oil rallied early before losing ground through the week on production numbers and Trump pulling out of the Paris Accord (not sure how that computes).
  • Storage posted a substantial decrease
  • Production was up marginally
  • The rig count in the US continues to grow
• Natural gas was down during the week mostly on weather

• WTI Crude: $47.78 ($49.80)
• Nymex Gas: $3.004 ($3.236)
• US/Canadian Dollar: $0.7413 ($ 0.7429)

Highlights

• As at May 26, 2017, US crude oil supplies were at 509.9 million barrels, a decrease of 6.4 million barrels from the previous week and 5.7 million barrels ahead of last year.
  • The number of days oil supply in storage was 29.7, behind last year’s 32.9.
  • Production was up for the week by 22,000 barrels a day at 9.342 million barrels per day. Production last year at the same time was 8.735 million barrels per day. The change in production this week came from an increase in Alaska deliveries and increased Lower 48 production.
  • Imports fell from 8.294 million barrels a day to 7.985, compared to 7.839 million barrels per day last year.
  • Refinery inputs were up during the week at 17.510 million barrels a day
• As at May 26, 2017, US natural gas in storage was 2.525 billion cubic feet (Bcf), which is 10% above the 5-year average and about 13% less than last year’s level, following an implied net injection of 85 Bcf during the report week.
  • Overall U.S. natural gas consumption was down 5% during the week – on decreases in power, retail and commercial demand
  • Production for the week was up 1% and imports from Canada were down 3% compared to the week before
• As of May 29, the Canadian rig count was 88 (14% utilization), 52 Alberta (12%), 13 BC (18%), 22 Saskatchewan (22%), 0 Manitoba (0%)). Utilization for the same period last year was below 10%. With breakup and road bans almost done, this count should start to rise modestly for the next month or so.
• US Onshore Oil rig count at June 2 was at 733, up 11 from the week prior.
  • Peak rig count was October 10, 2014 at 1,609
• Natural gas rigs drilling in the United States was down 3 at 182.
  • 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 flat at 23
  • Offshore rig count at January 1, 2015 was 55
• US split of Oil vs Gas rigs is 80%/20%, in Canada the split is 56%/44%

Drillbits

• Kinder Morgan closed its IPO on May 30, raising some $1.7 billion. Shares traded down due to political concerns.
• Last week’s blog was picked up by Oilprice.com – just felt the need to pat our collective back
• The Dakota Access Pipeline was activated and started flowing oil today. So far no major leaks (heh!) – fingers crossed!
• Shareholders of ExxonMobil passed a resolution with 62% support this week calling on the company to assess its vulnerability to climate change. Not dividends, not cash flow, not strategy to grow reserves.
• Someone (ahem) correctly predicted the result of the The Conservative Party of Canada leadership race so we now have a new leader of the loyal opposition: Andrew Scheer. Welcome to the mess.
• Trump Watch:
  • Pretty uneventful week in the land of Trump. Oh wait, he did pull out of that climate treaty thingy. Wait a sec, it was more of an agreement than a treaty. At any rate, he pulled out of it. Well not really, because he can’t until 2020 due to notice periods. Interestingly, the notice period appears to be the only binding element of the whole accord. Reactions as expected were apoplectic. Look, I get the basis for the hysteria on this, but if you take a step back, the US is actually making progress on emissions reductions and this has less to do with international accords as it does with the cold hard reality of market forces. I may rant on this later, I may not. Pulling out of an accord that isn’t legally binding, has no enforcement mechanism and whose targets no one is actually expected to be able to achieve is maybe not as dire as it seems. Plus it was a campaign promise. What were people expecting? Focus on what comes next.