Trudeau and fellow politicians must dilute Canada’s energy taxing position or risk Canada’s national economic equilibrium

Mr. Buell was right! It’s all about titration!

My grade nine chemistry class would prove useful all these years later, even though my teacher would be confused at my tie-in with the politics of energy.

But Mr. Buell, it does make sense! You taught me that titration is a method where a solution of a known concentration is used to determine the concentration of an unknown concentration. To bend, or even fracture a point on the science we are looking at, it is one liquid balancing another or one that dilutes the other.

To make sense of this intro, world leaders in general, and Mr. Trudeau in particular, are trying to understand and possibly dilute Mr. Trump’s position on energy independence for the US of A this week (we’ll worry about next week’s announcement next week!).

The Trump position on OPEC – let’s call it “Trumption” – is not close to OPEC or anything resembling them. The cartel is humming and hawing over a freeze, cut, or any dance step in-between for crude oil production. This has futures prices of crude and its refined derivatives moving based on rumors in either direction.

The current US political theatre is just that – and with a lame duck president more interested in his fast evaporating legacy than confronting Trump on the Paris Agreement on Climate Change, or the resurrection of the Keystone XL pipeline.

If OPEC decides to freeze or cut, which I don’t believe will happen, then crude prices will increase. The higher prices go, the higher US shale oil production goes. With higher US production, the less relevant OPEC becomes as it loses US market share – because the cartel members have no other commodity to fall back on as export revenue; so the cartel, or at least some members, will begin to break ranks and cheat on their quotas. This drives prices back down again.

This game can go back and forth with Shale oil needing $29 to $39/bbl to cover operating costs, and looking at $50/bbl as Happy Meal time – a price that OPEC can live with as well.

So we have reached a balance in the titration equation, but this balance can be undone with the mood swings of the US President-elect Donald Trump, a trait he seems to take great pride in.

If OPEC thought they had a problem with “Trumptistics,” that’s nothing compared to the potential of what Mr. Trudeau will add to the mix. Trump is unlikely to impose a national carbon tax and will probably pull out of the Paris Agreement –and with the US out, so is the entirety of the agreement. Canada’s counter position on carbon is quite simply counter to that of the US.

The Alberta government will apply a $30/tonne carbon tax effective January 1, 2017. This will add $4/bbl to the cost of carbon intensive crude production costs and eliminate for all intents the discount WCS enjoys over WTI.

The Ontario mismanaged government will add five cents a litre to the cost of diesel fuel effective the same date and with the same effect when compared to trucking costs in neighboring US states.

My suggestion to Mr. Trudeau and the rest of the politicians in this country is to dilute your energy taxing positions while you can – before you throw our national economic equilibrium completely out of whack, and into hyper-titration, or is it frustration?

Roger McKnight

Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.

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