The Loonie Hour #89
In this week's podcast, we discuss higher central bank rates, an elusive global recession, housing and how fossil fuels are here to stay.
Crude oil is super useful. Each day, humans consume approximately 100 million barrels of oil (with one barrel equivalent to roughly 159 liters). However, the notion that humanity can swiftly and painlessly transition away from crude oil and liquid fuels is detached from reality. The ability to convert fossil fuels into energy and useful products is a technological miracle without which human beings would be materially worse off.
No matter how much you care about Climate Change or Global Warming, it serves nobody to ignore an objective reality of our modern world; fossil fuels play a vital role in the global economy. Climate rhetoric obfuscates what a marvel of engineering and science the exploitation of fossil fuels is and how cheap energy has been vital to emancipating the world’s poor.
The growth in crude oil consumption is due to the maga uptake in emerging markets - the world’s poorer countries. G7 oil consumption has been flat for 30 years.
And G7 emissions have been flat for 50 years!. BRICS emission have skyrocketed…
…because of Chinese coal power plants.
The outlook is not good either. In 2022, the permitting, construction, and announcement of new coal power plants in China saw a significant acceleration. The country added an average of two new coal power plants per week, reaching the highest level of new permits since 2015. Moreover, the coal power capacity under construction in China was six times larger than the combined capacity of the rest of the world.
In contrast, US emissions have significantly decreased due to the exploitation of fossil fuels and a surge in natural gas usage. Is natural gas perfect, no, it is not but burning it is 50% less carbon intensive than coal. As part of a transition to nuclear power and renewables, countries like the UK, the Netherlands, and other energy-rich nations could tap into their natural gas resources to expedite the cessation of coal consumption domestically. Additionally, they can export the surplus to China and Germany, thereby contributing to the global reduction of emissions. They are doing the opposite.
However, despite the fact crude oil is here to stay, there is some good news in terms of renewables. The growth is wind and solar generation is nothing but remarkable.
While the aggregate numbers may be small, the growth rates are exponential. In terms of energy independence and emission reduction, these numbers are unambiguously positive.
With any luck, the Global South can leapfrog the need for further full-scale fossil fuel dependency, much like mobile phone technology obviated 20th-century telephone poles. However, problems of intermittency inherent in the energy source remain unsolved.
Canadians should come to grips with the fact that their economy, their standard of living is dependent on natural resources. This is not going to change any time soon, it can't. A cursory look at Canada’s Balance of Payments makes this painfully clear. Canada sells Energy to pay for everything else.
At 23% of the total, energy products are Canada’s largest single export, and together with other extractive industries, forestry and agriculture, natural resources make up roughly half of total exports. Canadians should be so lucky.
As the world’s 4th largest producer of crude oil, selling fossil fuels has allowed Canada to live well beyond its means. Nearly all of the oil produced (97%) is exported to the US in exchange for hard currency. This large, stable injection keeps Canada’s balance of payments above water. Without oil, Canada’s Current Account deficit would be huge. Given Canada’s record of poor productivity growth, enormous debt burden, a negative balance of payments coupled with persistent government profligacy, would mean an unsustainable “Twin Deficit”, crisis and ultimately, devaluation - either internal (cuts to wages and public expenditures) or external (lower currency).
Moreover, by building more liquified natural gas liquefaction plants and facilitating an increase in refining capacity, Canada could simultaneously help its allies, lower global emissions, and reduce its dependence on the US. Sadly, the federal government is hostile to the sector and is adamant that Canada can painlessly shift its economy away from producing and exporting fossil fuels.
Click below to listen to this week’s episode!