CANADA

Personal insolvencies 'moving up the income curve': study

Jordan Fleguel, BNN Bloomberg

Consumer insolvencies rose sharply in 2023 as Canadians racked up credit card debt to keep up with the high cost of living, according to the results from a new study.

The annual “Joe Debtor” study from insolvency trustee firm Hoyes, Michalos & Associates, published Monday, found that even higher-income people are now having difficulty managing their debts.

Doug Hoyes, co-founder of the firm that conducted the research, told BNN Bloomberg that the results marked a shift away from people using payday loans and rapid loans to make ends meet.

“Last year, the story was that now they're using credit cards,” Hoyes said in a Monday interview with BNN Bloomberg.

Canadians with access to a line of credit typically have better paying jobs and a higher credit profile than average insolvent consumers in the past, he noted.

“We're seeing insolvent people, in effect, moving up the income curve,” he said.

Debt picture

The study, which examined consumer insolvency data and trends across Canada, found insolvencies rose by 23 per cent nationwide last year compared to 2022.

The average debtor owed $54,084 in unsecured debt last year – up nearly 10 per cent from the year before.

This year-over-year pace of debt accumulation was the highest since Hoyes, Michalos & Associates published their inaugural bankruptcy study in 2011, and it was “primarily driven by a resurgence in credit card debt,” the firm said.

“Credit card debt emerged as a notable concern, with 91 per cent of insolvent debtors filing with outstanding credit card balances, averaging $17,816— an increase of 12.8 per cent,” the firm said in the study.

“Insolvent debtors across all age groups saw a rise in credit card debt, with the most significant increase among debtors aged 18 to 29, whose balances increased 34.5 per cent in 2023.”

'It just gets worse and worse'

Elevated inflation and the record-high cost of living were the main reasons why Canadians accumulated credit card debt last year, Hoyes said, rather than irresponsible spending.

However, he noted that consumers can only live outside of their means for so long.

“The cracks are already starting to form, and I think it just gets worse and worse and worse,” he said.

Homeowner insolvencies up

The study found that homeowner insolvencies, which describe insolvent consumers who own a home, saw a sharp rise in 2023.

“While still historically low, the percentage of homeowner insolvencies doubled in 2023 to four per cent,” the firm noted in the study.

“Insolvent homeowners had nearly double the unsecured debt of the typical insolvent debtor, as homeowners resort to credit cards to meet rising mortgage payments.”

In Monday’s interview, Hoyes noted that many mortgage holders are set to renew at higher interest rates in the coming years, and he expects that will begin to affect insolvency numbers as people contend with higher payments.

“I think we're going to see increasing numbers at least for this year and perhaps for the next two or three,” he said.

Average insolvent debtor

Using insolvency data collected last year, the study created an “average insolvent debtor” to demonstrate what a typical indebted Canadian might look like.

“The typical insolvent debtor in 2023 was 43 years old, relatively evenly distributed by gender, and half lived in a single-person household,” the firm said in the study.

The study found that debtors in their thirties still made up the highest percentage of personal insolvencies, accounting for 31.7 per cent of all filings.

It also found that 82 per cent of insolvent debtors were employed at the time of filing. Hoyes said that is consistent with what he sees in his practice.

“That's kind of one of the myths, that if you're going bankrupt, it's because you've got no income and you have no choice,” he said.

“The reason you file a bankruptcy or a consumer proposal is that you’ve got a lot of debt, but you’re working and you don’t want the creditors to take you to court… so it's the person who is employed and who has something to protect that is filing.”

Methodology:

As required by law, Hoyes, Michalos & Associates gathers information about each person who files a consumer proposal or personal bankruptcy with the firm. The firm examines this data to develop a profile of the average consumer debtor who files for relief from their debt. The firm uses this information to gain insight and knowledge as to why consumer insolvencies occur.

Its 2023 consumer debt and bankruptcy study reviewed the details of 3,400 personal insolvencies in Ontario from January 1, 2023, to December 31, 2023, and compared the results of this profile with study results conducted since 2011 to identify any trends.

We.riseup.net

https://we.riseup.net/assets/393727/David+Graeber+Debt+The+First+5+000+Years.pdf

David+Graeber+Debt+The+First+5+000+Years.pdf 

... Debt : the first 5,000 years I David Graeber. p. em. Includes bibliographical references and index. ISBN 978-1-933633-86-2 (alk. paper). 1. Debt-History. 2.

CANADA

Business funding on climate action needs to 'rise exponentially': RBC report

Ian Bickis, The Canadian Press

Business funding for climate action needs to "rise exponentially" for Canada to be on track for net zero emissions by 2050, said a report out Tuesday from RBC. 

The RBC Climate Action Institute report said that while money coming from public and private sources has grown by almost 50 per cent since 2021 to $22 billion, funding needs to reach $60 billion a year for the rest of the decade to hit emission reduction targets.

"Public markets, private equity and venture capital will need to step up and channel more of their capital into green investments," said the report, noting the segments made up only eight per cent of the capital flows into climate efforts since 2021.

It says private markets are generating more than sufficient capital to finance more of the transition, with only six per cent of new capital financing going towards climate and cleantech efforts last year.

Provincial and municipal governments will have to ramp up efforts, the report said, and consumers will also have to change their spending patterns, as the federal government has so far supplied much of the funding and is reaching its fiscal limits. 

The report estimates that supply-side spending needs to double from recent levels of about $22 billion a year, while consumer spending needs to reach $13 billion a year.

While the report notes that the oil and gas industry needs to see the largest emission reductions, pointing out that its carbon intensity is around 37 per cent higher than producers like Saudi Arabia and Russia, it said that consumers need to change their habits as well.

"We will need to see much more change in consumer demand, individual choice and community action."

In terms of sectors, the report estimates it will take about $50 billion to reduce oil and gas emissions by 84 megatonnes, $50.8 billion to reduce transportation emissions by 11 megatonnes, and $15.9 billion to cut 39 megatonnes from buildings, among other sectors.

The inaugural report from RBC's climate institute comes as environmental groups increasingly urge all of Canada's big banks to direct more funding toward climate efforts, and away from fossil fuel expansion projects.

Several climate advocacy groups said the report represented "greenwashing," and a distraction from RBC's roughly US$250 billion in fossil fuel funding since 2016 and its relatively minor funding of clean energy.

“RBC is asking consumers to spend their thousands of dollars differently while it won’t change how it puts hundreds of billions into fossil fuels,” said Keith Stewart, senior energy strategist with Greenpeace Canada, in a statement.

RBC didn't immediately respond to a request for comment, but has said that it's committed to achieving net-zero in its lending portfolio by 2050, and is working with its clients to support their plans to bring their emissions down, not just to get them off its books.  

This report by The Canadian Press was first published Feb. 6, 2024.

EXCLUSIVE: 

Manitoba Premier Wab Kinew on his net-zero economic vision

Daniel Johnson, BNN Bloomberg

Manitoba Premier Wab Kinew says he wants his province to be an example of what a net-zero economy can look like.

In an interview with BNN Bloomberg’s Amanda Lang airing Friday, Kinew outlined the path he envisions for Manitoba to lead the way to a low-carbon future. Through investment, he said the plan can grow the province's economy while adding middle-class jobs.

If the plan is successful, he said it could act as a model for other regions in the country.

“What we need now is the right mix of economic policymaking at the provincial and federal levels, along with private investment decisions, to really unlock this potential in a way that … would make Manitoba a showcase for what a net zero economy can look like with advanced manufacturing in a way that benefits Manitoba, but also Canada,” he said.

Critical minerals

Kinew, who leads an NDP majority government, was elected Manitoba premier in October 2023, making history as the first First Nations premier elected in Canada.

Part of his plan to grow Manitoba’s low-carbon economy will involve mining critical minerals, which he called “a very important priority for our administration.” 

“I think that our government will be able to make a really positive contribution to helping industry understand the best way to engage with Indigenous nations so that they can get projects online,” said Kinew.

The best way to move forward on mining project discussions with an Indigenous nation is to receive the “enthusiastic consent” of that nation, he added.

“The best way for that consent to be expressed is with a business relationship,” Kinew said.

In addition to expanding mining of critical minerals, he said his government is also looking at increasing secondary processing of critical minerals in Manitoba. 

Campaign promises

One of the Manitoba NDP’s biggest campaign promises was to improve health-care through investments in staffing, which Kinew said is “foundational” to the overall health of the economy.

In the interview, he also pointed to affordability measures his government has taken like cutting the provincial fuel tax.

Balancing the budget and economic growth

The economy is one of the government’s main focuses, Kinew said.

“We really have to grow the economy here in Manitoba, and I think we have some good opportunities to do so,” he said. “We're spending a lot of time on that.”

Manitoba’s 2023-24 Second Quarter Report, released in December 2023, said real gross domestic product (GDP) in the province is expected to slow to 0.8 per cent in 2024 from 1.4 per cent in 2023.

The government is also prioritizing moving toward a balanced budget, he said, which will involve creating the right economic environment.

“Unless we have a balanced budget in the foreseeable future here in Manitoba, we're always going to be coming back asking for more,” Kinew said.

“That's not right given the current affordability challenge that people are living through. So we’ve got to be fiscally responsible, but we also have to be balanced.”

In December 2023, the Manitoba government outlined steps it has taken to address the $1.6-billion deficit it inherited from the previous government, including cutting spending on projects it characterized as wasteful.

Kinew said his long-term goal is to transition Manitoba “from being a have-not province to a being a have province.”

Immigration

Kinew says he hears from small and medium-sized businesses about challenges with labour shortages, and he thinks immigration is part of the solution.

“Immigration is very important to allow our economy to continue to grow. At the same time, we do know that housing is an issue,” he said.

Kinew said it’s necessary to carefully consider immigration policies to they support ensure economic growth and adequate housing supply.

The full Taking Stock interview with Kinew 

Athabasca, Cenovus close creation of new Duvernay Energy Corp. joint venture

Athabasca Oil Corp. and Cenovus Energy Inc. have closed a previously announced deal creating a new joint venture stand-alone company called Duvernay Energy Corp.

The new Duvernay Energy is a privately held subsidiary of Athabasca that consolidates the two companies' assets in the prolific Kaybob Duvernay resource play in northwest Alberta.

Athabasca owns a 70 per cent equity interest in Duvernay Energy with Cenovus owning the remaining 30 per cent equity interest.

Athabasca Oil says current production from the Duvernay Energy assets is 2,000 barrels of oil equivalent per day, and the company expects to grow that to 6,000 barrels of oil equivalent per day in 2025.

The company says it has the potential to grow Duvernay Energy's production to 25,000 barrels of oil equivalent per day by the end of the decade.

Athabasca will manage Duvernay Energy through a management and operating services agreement.

This report by The Canadian Press was first published Feb. 6, 2024.

Canada Looks To Capitalize As U.S. Pauses LNG Export Licenses

By Haley Zaremba - Feb 06, 2024

• President Biden's LNG export review is aimed at assessing the impact on domestic energy security, consumer costs, and the environment, creating potential for Canada's natural gas sector.
• 
  
• The pause may shift LNG buyers, particularly in Asia, to consider Canadian alternatives, which boast lower carbon intensity.
• 
  
• While some view the pause as an economic risk, others see a chance for the U.S. and global markets to pivot towards more sustainable energy practices, with Canada potentially benefiting from its climate-forward approach.
• 
  

The Biden administration’s decision to pause approvals of new licenses to export liquefied natural gas (LNG) is making major waves both at home and internationally. While there is much hand-wringing about the economic implications of the deal for the United States and its energy trade partners, at least one man, Canadian Energy Minister Jonathan Wilkinson, sees an opportunity for his country’s natural gas sector.

On Friday, President Biden announced that during this pause the U.S. Department of Energy will review and assess whether the nation’s considerable LNG exports are “undermining domestic energy security, raising consumer costs and damaging the environment.”

For Canada, the pause in approvals and what is sure to be an ensuing slowdown in United States natural gas exports offers its own export sector an invaluable window of time to catch up. While the United States has busily built out it’s natural gas industry, and is just slowing down now to pause, reflect, and potentially move toward less emissions-intensive practices, Canada has taken the opposite approach. The growth of the Canadian natural gas sector has been much slower because they approached climate considerations early on thanks to much stricter national policies. 

“I think there’s an opportunity,” he said when asked what Biden’s decision means for Canadian gas for an article published by Bloomberg Green on Tuesday. “But it’s on the basis of Canada offering the lowest carbon intensity natural gas in the world, and ensuring we’re linking it to the displacement of heavier hydrocarbons like coal.”

The hope is that some of the Asian nations that rely heavily on United States LNG imports to keep their own economies running may pivot to Canadian imports as they are temporarily frozen out by the Biden administration decision. In the wake of Biden’s announcement, LNG buyers in China and Japan rushed to review alternative options, “including new talks with already-licensed projects in the US or suppliers from other nations,” Bloomberg reports. 

Where Wilkinson sees a silver lining, however, others see economic doom and gloom. “I think U.S. allies and trade partners will have some concerns about this, because in the past two years U.S. L.N.G. exports have been a real boon to global energy security,” Ben Cahill, a senior fellow in the energy security and climate change program at the Center for Strategic and International Studies, a Washington-based research institute, told the New York Times this week. 

While Wilkinson’s stance suggests that Canada has already done much of the important climate-conscious legwork that the United States is just now addressing, and should now be bullish about taking a slice of exports, industry insiders question how that will be possible without the use of U.S. export terminals. "LNG facilities on the U.S. Gulf Coast are also offering Canadian producers an opportunity to export their natural gas globally," said The Canadian Association of Petroleum Producers president and CEO Lisa Baiton in an emailed statement on Friday. "Given the highly integrated nature of the North American energy market, CAPP is disappointed in the White House decision." 

On the other hand, others feel that the U.S. pause places pressure on their neighbors to the north to follow the same tack. Already, a coalition of environmental groups has pressured Canadian leadership to adopt the same pause-and-reflect approach.

The Biden administration’s decision has already caused some anxiety in Europe as well. The European Union is still reeling from its energy sanction war with Russia against the backdrop of the ongoing war in Ukraine. When Moscow illegally invaded Ukraine in February of 2022, the EU was dependent on Russia for 41% of its natural gas. While the bloc has managed to pivot to alternative energies and LNG sources in the past two years, their newfound energy security is still wobbly. As such, any limitation to free-flowing U.S. LNG is viewed as a threat. 

However, the United States’ controversial natural gas export pause may yield long-term economic benefits for all. In October, The International Energy Agency’s flagship annual World Energy Outlook report warned that the world is on track to create a global LNG supply glut, with an "unprecedented surge" in LNG projects slated to come online from 2025, adding more than 250 billion cubic meters (bcm) per year of new capacity by 2030. A pause, and perhaps a pivot, from the United States’ own large LNG sector may ease the severity of this outlook. 

By Haley Zaremba for Oilprice.com

U.S. Refiners Should Brace for Trans Mountain Pipeline Launch

By Irina Slav - Feb 01, 2024

• Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023.
• 
  
• U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring.
• 
  
• Canadian oil producers are preparing for the 890,000 bpd in takeaway capacity growth.
• 
  

When Kinder Morgan first announced its plans to expand the capacity of the Trans Mountain oil pipeline from 300,000 bpd to 890,000 bpd, it probably thought it was another major project.

Several years later, the company had given up on the project and sold it to the Canadian federal government for less than $4 billion. For a long time, it seemed like Trans Mountain would never be completed, plagued by opposition and regulatory snags.

Despite all this, it seems the pipeline is about to go into operation this year. And U.S. refiners used to cheap Canadian oil might need to reach deeper into their pockets to keep buying it.

The idea behind the Trans Mountain expansion was to turn Canada into a true oil exporter, reaching international markets rather than just the U.S. market, massive as it is. One reason this took so long was that the government of the province that was to host most of the pipeline was dead against it.

The John Horgan government was very environmentally minded. It would rather have Alberta stop all oil flows to British Columbia than endure the construction of the expanded Trans Mountain pipeline. That set back the project by months, and so did environmental protests against the pipeline. 

Amid all this, the discount at which Canadian crude normally trades to WTI deepened and hardened. Canadian oil was going to the United States—all the way to the Gulf Coast—and only from there could it reach international markets. It was a complicated situation.

Then, when Kinder Morgan had enough and sold the project, the Trans Mountain expansion got a new lease of life—ironically, from a federal government that has made no secret of its distaste towards the oil industry. And it paid for that distaste. From an original $3.4-billion price tag, the Trans Mountain expansion bill swelled to over $23 billion.

Inflation and supply chain problems were among the reasons for the sixfold increase in the cost of the project, as were construction challenges due to the geology along the route of the pipe. Oil producers have not exactly welcomed the cost overruns—there were suspicions that to make up for these, Trans Mountain Corporation would charge them higher fees for carrying their crude.

Even so, producers began ramping up production in anticipation of the launch. Canadian Natural Resources said earlier this year that it would boost output in 2024 by 40,000 barrels of oil equivalent daily. Cenovus Energy announced plans to spend more on production growth as well. Oil producers are preparing for that 890,000 bpd in capacity.

Prices have responded, too. Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023. The current discount is about $16 per barrel.

This means that U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring—assuming the project does not hit yet another snag. You never know, after in September the Canadian Energy Regulator gave TMC the go-ahead to change the route of the expanded pipe due to challenging terrain.

Just a month later, the same CER ordered TMC to stop work on the pipeline on the grounds of non-compliance with environmental and safety regulations. A month later, the regulator decided it could not allow TMC to go ahead with the route alternation after all because of opposition from the Indigenous community through whose land that section would pass. By December, however, the CER had changed its mind and granted TMC the permit it needed to continue work on the pipeline.

These sorts of setbacks made it really hard to believe the Trans Mountain pipeline will indeed see the light of day as an operating pipeline, but it seems it might happen after all. And that means more expensive oil for U.S. refiners. They’re about to encounter some international competition for Canadian crude.

By Irina Slav for Oilprice.com

Montreal airport project secures $90 million in federal funding

The Canadian Press

The consortium behind an airport overhaul in the Montreal area has shored up funding for the effort thanks to a $90-million loan from the Canada Infrastructure Bank.

The Crown corporation, which backs revenue-generating projects deemed in the public interest, says it has reached a deal with the partnership of Porter Aviation Holdings Inc. and Macquarie Asset Management.

The owner of regional carrier Porter Airlines and the subsidiary of Australia’s biggest investment bank are working with the Montreal Metropolitan Airport to develop a new terminal, which broke ground in August.

Formerly known as the Montreal Saint-Hubert airport, the site is on track to grow from a small airport to a commercial aviation hub, comparable to Toronto's Billy Bishop but farther from downtown, in the suburbs south of Montreal.

The nine-gate terminal would serve up to four million passengers a year and provide another airport for the rapidly expanding Porter in Canada's second-biggest city.

The expected completion date has been pushed back to fall 2025 from late 2024, with Porter planning to fly to major Canadian cities and local carrier Pascan Aviation focusing on regional flights.

This report by The Canadian Press was first published Feb. 6, 2024.

Kurdistan Oil Flows Not Expected to Resume Anytime Soon

By Simon Watkins - Feb 06, 2024

• Crude flows from Iraqi Kurdistan to Turkey have been disrupted for almost 11 months now.
• 
  
• EU source to Oilprice.com: Baghdad has no interest at all in agreeing to any of Turkey’s terms or in Iraqi Kurdistan resuming its independent oil sales either.
• 
  
• A letter sent by foreign oil firms in Kurdistan to the U.S. Congress asking for help in having the export oil embargo lifted won't have much of an impact.

Perhaps no subject in the complex world of global oil involves so many intricate moving parts as the extraordinary relationship between the Federal Government of Iraq (FGI), based in Baghdad, and the government of Iraq’s northern semi-autonomous region of Kurdistan (KRG), centred in Erbil. It is only when something such as the suspension of major flows of oil from Kurdistan to Turkey occurs, as began on 25 March 2023, that many analysts start trying to unravel what has caused it. And they find themselves entering an Alice In Wonderland world in which anything is possible, but nothing is as it seems. In this world, it is very easy to lose sight of the wood for the trees sometimes, and this appears to be what has happened in a letter sent by foreign oil firms in Kurdistan to the U.S. Congress asking for help in having the export oil embargo lifted.

Ironically, in fact, it is only towards the very end of the letter from the Association of the Petroleum Industry of Kurdistan (APIKUR) that the group, which largely comprises the oil interests of several foreign firms directly or indirectly, inadvertently hits on the precise reasons why a full, clear, and transparent lifting of the embargo is unlikely to happen soon, if ever. The letter highlights that the halt in exports that affects between 400,000-500,000 barrels per day (bpd) of oil from Iraqi Kurdistan must be lifted because it puts at risk over US$10 billion of U.S. and international investments in Kurdistan and because it is severely impacting the region’s economy and stability at a time when regional tensions are already heightened. Bingo!

“By keeping the West out of energy deals in Iraq – and closer to the new Iran-Saudi axis - the end of Western hegemony in the Middle East will become the decisive chapter in the West’s final demise,” said a very high-ranking Kremlin official at a meeting with senior government figures from Iran, just after the 10 March 2023 signing of the Iran-Saudi Arabia relationship resumption deal, brokered by China. The comment was exclusively relayed to OilPrice.com, just before the 25 March oil export embargo from Iraqi Kurdistan by a senior source who works closely with the European Union’s energy security apparatus, and we passed it on to our esteemed readers. Nothing whatsoever has changed to modify the view of either the Iraqi central government in Baghdad, or the senior figures in Tehran, Moscow, and Beijing who are helping to implement the ‘One Iraq Plan’ as it is referred to behind closed doors. If anything, the rising uncertainty in the Middle East emanating from fears of a dramatic escalation in the Israel-Hamas War are serving to expedite key elements of the plan, with the U.S.’s focus on that War.

In essence, the bare mechanics of the ‘One Iraq Plan’, as broadly delineated by the senior Kremlin figure, are to cut off all sources of external revenue from the government of Iraqi Kurdistan – most significantly from independent oil sales by foreign companies operating there – before absorbing it into the rest of the country, under the sole rule of Baghdad, as analysed in depth in my new book on the new global oil market order. If that is understood, then everything that has subsequently happened in Iraq since the 10 March relationship resumption deal between Iran and Saudi Arabia makes perfect sense. The basic reason for this is that Iraqi Kurdistan has long been regarded by Russia, China, and Iran, as a key U.S. ally in the Middle East, and this will no longer be tolerated, which gives rise to two further choices.

The first is to give Iraqi Kurdistan its independence and sever all links between it and the rest of Iraq. This, though, is not an option on the table for three key reasons. One is that the main northern overland export route into Europe for all of Iraq runs through the Kurdistan region and into Turkey. The original Iraq-Turkey Pipeline (ITP) – controlled by the FGI in Baghdad - consisted of two pipes (a 40-inch one started up in 1977, and a 46-inch one started up in 1987), from the Kirkuk oil fields (also nominally owned by the FGI) on the border of the Iraqi Kurdistan to Ceyhan, which had a combined nameplate capacity of 1.6 million bpd. The FGI-controlled pipeline’s export capacity reached between 250,000 and 400,000 bpd when running normally, although it was subject to regular sabotage by various militant groups. The Iraqi Kurdistan’s KRG, in response to the regular attacks on the FGI pipeline, completed its own single-side track Taq field-Khurmala-Kirkuk/Ceyhan pipeline in the border town of Fishkhabur. This was part of its drive to raise oil exports above 1 million bpd. Clearly, Baghdad will never give these vital oil export links away.

The second reason is that giving Iraqi Kurdistan independence would set a dangerous precedent for all other large Kurdish groups in the region to ask for the same. Iran’s Kurdish population is around 9 percent, Syria’s 10 percent, and Turkey’s about 18 percent. It is highly apposite to note in this context that the U.S. had privately assured the Iraqi Kurds in 2014 that in exchange for their Peshmerga armed forces taking the principal combat role against a surging ISIS, they would eventually be given their own independent country, as also detailed in depth in my new book on the new global oil market order. On 25 September 2017, then, a vote did take place in Iraqi Kurdistan, in which the 92.73 percent voted for full independence. It was immediately followed by elements of Iran’s military rolling into Iraq Kurdistan, including the prime oil-rich areas. Additionally, very senior officers from Iran’s Quds branch of its Islamic Revolutionary Guards Corp, and from its Vezarat-e Ettela’at Jomhuri-ye Eslami-ye Iran intelligence service, made it clear to several of Iraq Kurdistan’s leading politicians that it would not be in their best interests to continue to push for independence from Iraq.  At the same time, Major General Yahya Rahim Safavi, a top military adviser to Iran’s Supreme Leader Ali Khamenei, called for a blockade on Iraq Kurdistan’s land borders. Turkish President then as now, Recep Erdogan, also threatened to invade the Iraqi Kurdish area. He added that Turkey could also cut off the ITP export pipeline.

The third reason is that having a fractious would-be breakaway region with ties to the U.S. makes the administration of Iraq’s massive oil and gas sector much more difficult for China and Russia. Moscow specifically took control of Iraqi Kurdistan’s oil sector just after the abortive 2017 vote for independence to maintain a grip over the region with a view to reintegrating it back into the rest of Iraq, as also analysed in depth in my new book on the new global oil market order. In tandem with this, China has been building up its influence in southern Iraq, through multiple deals done in the oil and gas sector that have then been leveraged into bigger infrastructure deals across the south. The apotheosis of Beijing’s vision for China is all-encompassing ‘Iraq-China Framework Agreement’ of 2021. This, in turn, was an extension in scale and scope of the ‘Oil for Reconstruction and Investment’ agreement signed by Baghdad and Beijing in September 2019, which allowed Chinese firms to invest in infrastructure projects in Iraq in exchange for oil.

Back in early April last year, OilPrice.com highlighted that oil exports from Iraqi Kurdistan would only go ahead with the full blessing of Iran, Russia, and China. That has not been given, so there is no reason to expect it to end in any sustainable fashion any time soon. Conversely, however, the move to destroy any last vestiges of Iraqi Kurdistan independence remain in full swing. A clear statement on 3 August last year from Iraq Prime Minister, Mohammed Al-Sudani, highlighted that the new intended unified oil law – run, in every way that matters, out of Baghdad - will govern all oil and gas production and investments in both Iraq and its autonomous Kurdistan region and will constitute “a strong factor for Iraq’s unity”. As the senior E.U. source reiterated exclusively to OilPrice.com last week: “Baghdad has no interest at all in agreeing to any of Turkey’s terms or in Iraqi Kurdistan resuming its independent oil sales either.” He concluded: “As Baghdad does not see an independent Kurdistan in the future of Iraq, it sees the best solution as keeping the independent oil sales stopped and the Kurds financially paralysed.”

By Simon Watkins for Oilprice.com

Will U.S. Oil Boom Keep Booming?

By Irina Slav - Feb 04, 2024

• Most of the production gains last year came despite a consistently lower rig count and no meaningful increase in spending on new production.
• 
  
• The EIA recently estimated the change in production over the last two weeks at a hefty positive 700,000 bpd, which would signal that U.S. production growth is still going strong.
• 
  
• If the Dallas Fed Survey is any indication, we may well see a slowdown in the rate of output growth this year.

When last October Hamas attacked Israel, oil prices jumped higher, as always happens when armed conflict breaks out in the Middle East. Just a week or so later, however, prices had retreated.

Even as the war spread and lit up surrounding countries, oil prices remained stubbornly range-bound, with analysts predicting that it would take an actual supply disruption for traders to start caring about geopolitical risk.

All this was made possible by one factor: U.S. oil production. That expanded surprisingly strongly last year. And many traders and analysts alike seem to assume that this year will be the same. But will it?

Earlier this month, Saudi Arabia ordered Aramco to stop work on The Kingdom’s oil production capacity expansion. That work would have raised Aramco’s maximum production capacity from 12 million bpd to 13 million bpd. It turned out, however, that Riyadh had reconsidered the plan. Bloomberg was quick to note the role of U.S. shale as the Saudis’ “nemesis for much of the past decade.”

The suggestion appears to assume that U.S. shale production will continue growing at last year’s robust rate, which surprised most industry watchers who had expected production to reflect drillers’ newfound capital discipline and focus on shareholder returns and debt repayment.

The reason for this assumption is quite simple. Most of the production gains last year came despite a consistently lower rig count and no meaningful increase in spending on new production. They came from efficiency gains such as longer laterals in horizontal wells and improved drilling technology. The question some are asking is whether these could be maintained at last year’s rate. The more important question is, however, will drillers want to do that?

Reuters’ John Kemp posed the first question in a column this week, in which the market analyst noted that the strong increase in U.S. oil output last year had interfered with OPEC’s expectations from its own output cuts.

“The critical question,” he wrote, “is how much longer efficiency gains can keep driving significant output growth without an increase in prices and drilling.”

If the Dallas Fed Survey is any indication, we may well see a slowdown in the rate of output growth this year. In the latest edition of the survey, the Dallas Fed noted waning optimism among producers and a significant slowdown in the growth rate of production over the final quarter of the year.

Indeed, figures from the Energy Information Administration support this. While for much of 2023, production grew by leaps and bounds—with the occasional slight monthly drop—in the three months between September and November, growth slowed to around 100,000 bpd, with October even seeing a slight dip in output growth.

On the other hand, the EIA recently estimated the change in production over the last two weeks at a hefty positive 700,000 bpd, which would signal that U.S. production growth is still going strong. It bears noting, however, that estimates are not the most accurate of figures, and final data, such as the production numbers for September, October, and November are much more reliable as indicators of future production.

The question of whether producers would want to continue expanding their output as strongly as they did last year is an interesting one. The short answer is yes, in the context of surging exports amid the Red Sea crisis. That crisis has been a boon for U.S. oil as it has hampered the movement of crude from the Middle East to Europe, forcing Europe to look west for supply.

The longer the crisis lasts, the longer Europe will remain an extra-big market for U.S. crude, motivating production gains. But countering the strategy of constant output growth are suspicions about future demand and the merit of investment in new production capacity—because sooner or later, efficiency gains will not be enough.

There is also the issue of finite resources. There is an argument against the finite nature of hydrocarbons, but that argument rests on the recognition that not all oil is economical to extract at any price. In other words, there is still plenty of crude untapped in the U.S., but tapping it requires a certain price level that hasn’t yet been reached. In short: dripping sweet spots are running out. At some point, drillers will need either higher prices or lower output

So, while the assumption that U.S. oil production will continue growing at a breakneck speed seems to be quite popular, it might not be the safest assumption out there. For now, it is being fed by last year’s surprising output gains and a perception that these will continue because they don’t require additional investments.

On the other hand, however, we have traders fretting about demand amid Chinese manufacturing activity updates and IEA forecasts about peak oil demand, even though these are based on massive assumptions themselves. These factors are keeping prices subdued. And U.S. producers can’t keep pumping more with ever-longer laterals alone. At some point, they would need to start spending more to produce more—but only if it’s worth it.

By Irina Slav for Oilprice.com