Fact checking Drew Barnes: Ain’t no sunshine in that man’s talking points

Nothing Drew Barnes said in Thursday’s Question Period is accurate, knowledgeable, or insightful

Drew Barnes is the Wildrose energy critic, which is a pretty busy job given the size of the Alberta oil patch and the aggressive new energy and climate policies of the Rachel Notley NDP government. A reader sent me a Hansard link to the Medicine Hat MLA’s question period grilling of Finance Minister Joe Ceci. Barnes is a real downer, man.

How is it possible for an energy critic to not be a beaming ray of sunshine these days? According to economist Trevor Tombe, assistant professor at the University of Calgary and Research Fellow at the School of Public Policy, even though the provincial economy shrunk in 2015 and 2016, it is still the strongest in Canada: more investment and output per capita, business confidence has turned positive, and energy is hiring again.

The Conference Board of Canada is forecasting 2.2 per cent growth in the Alberta gross domestic product in 2017, the highest in the nation.

Barnes is having none of it. Part of his sour attitude is baked into the cake; in the Westminster system of government, opposition politicians are supposed to oppose the government of the day and present alternative policies.

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Part, though, is Wildrose’s view that Alberta oil and gas should be as lightly regulated and taxed as possible. And the only focus of public policy should be to extract oil and gas at the lowest possible price in order to make the highest possible profit.

Policy to reduce greenhouse gas emissions? No. Help lowering production expenses for high-cost oil sands producers? No.

Barnes thinks the Alberta government’s principal job should be shaking its pompoms and chanting fight songs on the sidelines as industry runs the ball into the end zone.

Well, he wasn’t shaking his moneymaker during question period Thursday. Oh no, the Alberta Barnes apparently lives in is on the edge of collapse and ruin.

Take his view on oil prices: “Given that every $3 swing in the price of oil has a billion-dollar implication for the treasury and given that The Rapidan Group is predicting that by the middle of next year crude could revisit the low $30 mark…”

The Rapidan Group is an American energy consultancy run by Robert McNally, a former advisor to President George W. Bush.

McNally’s schtick is that global oil markets have lost their swing producer – Saudi Arabia abandoned that role in late 2014 to force down prices and punish high-cost American shale producers – which means that prices will “gyrate between the busts needed to plug wells (well below $30 per barrel) and demand-rationing, if not recessionary booms, to well above $100.”

Barnes conveniently forgot to mention the possibility of oil prices above $100/b in his question to Ceci. Or that the Saudis appear to have returned to their role as global swing producer, which suggests a moderating effect on prices going forward.

And it’s not hard to find other analysts with other opinions.

Goldman Sachs, the Wall St. investment bank whose highly respected energy group is closely watched by traders, thinks the market is well on its way to shedding excess inventory and re-balancing, meaning prices will rise, not drop.

I asked Maria Sanchez, manager of energy analysis for Denver-based Drillinginfo, for her take on prices:

Current market fundamentals are more bearish for prices in relation to the market outlook released in November. For crude oil prices to average between $50-$52/b in 2017, OPEC must extend quotas through 2017 and maintain reasonable compliance, demand must grow at least 1.34 million b/d (as currently forecasted by the IEA), and Libya and other countries must keep production growth to a minimum. Only when these criteria are met can the high crude oil inventory levels be normalized to levels from prior to the price crash by the YE2017.

Price recovery may be sustainable once the inventory levels are normalized. However, when OPEC ends the production cuts, this will inject a significant amount of supply back into the market putting pressure on prices, which will be unlikely to reach $60/Bbl levels in 2018.

In other words, more flirting with $50/b for the foreseeable future, but not $30 – the absolute worst case scenario.

Barnes’ next question was of the gob smacking variety: “Given that Alberta was referred to as the most – the most – geopolitically unstable jurisdiction in the world due to high royalties, high taxes, and high uncertainty and given that the rapidly increasing deficit and debt only serve to unnerve investors, who fear
a pending drastic tax increase…”

The person doing the “referring” is Bob Geddes, CEO of Calgary-based Ensign Energy Services, who made the remark – which is preposterous on its face – after his company’s AGM Monday.

Let’s unpack Geddes’s nonsense.

For starters, he didn’t say Alberta is one of the “most geopolitically unstable” nations in the world, he said Canada. And Geddes claimed Canada is even worse than Venezuela, which stands on the cusp of economic collapse and anarchy.

“Canada is a stable liberal democracy. As one of the most stable liberal democracies in the world, it ranks as one of the least corrupt states of the 215 independent jurisdictions in the world,” political scientist Keith Brownsey, University of Mount Royal, said in an email interview.

“Simply put, Canada’s political system provides the foundations for a thriving business climate.”

Geddes told reporters, “[We’re] arguably the highest-cost basin in the world and it’s not because of inefficient operators or equipment. It’s the high royalty structure, the high tax rates and the uncertainty…”

I turned to Dinara Millington, VP of research for the Canadian Energy Research Institute, for a response to Geddes:

I don’t necessarily agree that the Western Canadian Sedimentary Basin is “high cost.” The basin has deposits [in BC, Alberta, Saskatchewan] so depending where you drill and how far away the location is from road access already built and other infrastructure – which drives the costs of production – either you’ll be competitive with current prices or not. We can’t generalize and say that the whole basin is a high-cost producing area. I think it would depend quite significantly where you’re drilling, what type of well you’re drilling, and whether you’re drilling for dry gas, liquids-rich gas in northeast BC or tight oil in the Bakken of southeast Saskatchewan.

The government has changed some of the parameters around the conventional oil and gas royalty framework, so that’s no longer prohibitive. The corporate tax for Alberta has been raised in comparison to Saskatchewan, but it’s not at a level where it’s driving down activity. Other policies that deal with the environmental aspects of oil and gas – the carbon taxes, the CO2 emissions – when you calculate the supply cost share, those are still not significant enough to drive away investments, in my opinion.

One final fact check on Barnes, from his last question to Ceci: “Obviously, poor budgeting is just one more thing that Albertans can add to the long list of reasons capital investment is skittish or fleeing.”

Oil and gas capital is not fleeing Alberta, as I’ve demonstrated in several columns (here and here). Yet this remains a talking point in the Petroleum Club and the swanky steak houses of Calgary, reinforced no doubt by Barnes repeating it ad nauseum in public.

In fact, almost nothing Barnes said in his questions to Ceci stand up to scrutiny.

It’s like fact checking a Donald Trump speech: it sounds plausible to the gullible who don’t know better, but turns out to be patently false.

Unfortunately, just as in certain quarters of Trump’s America, there is a big market in Alberta for oil and gas canards, mendacity, and deception.

And Drew Barnes has become a walking talking point for all of them.