Host Jon Liedtke and guest Markham Hislop discuss a JP Morgan report forecasting a critical drop in global oil inventories. While the chart suggests a physical “operational floor” is imminent, Hislop argues that human adaptability and rapid global electrification provide alternatives that may mitigate a total system break.

Transcript (Gemini Generated):

JON LIEDTKE: Welcome back to Kvetch and Release. I am your host, Jon Liedtke. Sometimes on this show we deconstruct the pressure cooker of regional politics or track the latest shifts in the North American industrial heartland that is my home here in Windsor, Ontario. But today, we are looking at a line on a chart that has the entire global market holding its breath—or does it? Earlier this week, JP Morgan published a projection of global oil inventories that looks less like a market forecast and more like a countdown clock. With the conflict in Iran continuing to choke supply, the data suggests that we could be months away from hitting an operational floor. A 6.8 billion barrel red line where the physical infrastructure of the global energy system doesn’t just get expensive, it potentially breaks. Joining me today to inject some much-needed analytical rigor into this apocalyptic narrative is someone who has spent his career arguing that our energy conversation is often stuck in the pipes in the wrong century. Markham Hislop is the founder and publisher of Energy Media. He is a veteran journalist, host of the Energy Talks podcast, and perhaps Canada’s most prominent voice on the S-curve of energy transition. Markham recently took a blowtorch to the fatalism surrounding this chart, calling it a fusion of prophetic certainty and technical jargon. Let’s dive in right now with Markham to break it down. Markham, are things as doom and gloom? And hello to you as well.

MARKHAM HISLOP: Well, hello to you, Jon. It’s been a while, and it’s always good to see you. Who knows? I mean, things in the Middle East are so chaotic right now that guessing what’s going to happen tomorrow or next week is—may as well play the lottery. But the scenario that we’re talking about here is one that’s making the rounds on social media—you saw it on X—where a number of analysts are doing this, and they project out into the future the absolute worst-case scenario. It’s like this apocalyptic—you know, the pipes run dry, the pumps run dry, there’s no gas, there’s no—nothing, nada, nowhere. And the whole industrial machine comes crumbling down around us and civilization then follows, you know, down the toilet. And we’re all—you know, a year from now, we’re wearing animal skins and huddled around the fire.

JON LIEDTKE: Mad Max.

MARKHAM HISLOP: Yeah. Well, that’s X, right? But I’m seeing it on LinkedIn and I’m seeing it in other places. I haven’t seen much of it in the mainstream media, which probably tells you a lot. But the point here, I think, is that humans are amazingly adaptable. And the systems that they build are, for the most part, pretty adaptable. And it would have to get really, really bad for that apocalyptic narrative to come true. And if you think about the Strait of Hormuz: 20% of LNG, 20% of oil, and then I forget the percentage of the world’s fertilizer that goes through there and other products. But even if you took that out, you’d still have 80 to 85 million, or maybe 90 million barrels of oil. And you’d still have a lot of natural gas and LNG would, you know, get to market—that 80% of LNG would get to market elsewhere. So, can we run civilization the way we have it now on 80%? Not at these prices. But I would bet that if people really had to roll up their sleeves and sacrifice and ration and—you know, like India is already—Prime Minister Modi is saying, you know, “Don’t go to work. Don’t drive to work. Conserve gas,” that sort of thing. And if we had more of that, we would get through it, but I think we’re in for some unpleasantness to be honest. Even if it doesn’t turn out to be apocalyptic.

JON LIEDTKE: That was going to be my question is: where does the human response step in? But you got ahead of me right there, so thank you with that one. The next question, though, is: you know, analysts say the system breaks at this operational floor. For those who are outside of your sphere—and from me having to learn a little bit more about this sphere as well—that’s the one the physical flow stops because the inputs aren’t there to keep the other gears going, if you will, to dumb it down. You’ve argued that modern systems are very adaptive, of course. Is there a historical precedent for an energy system bending rather than breaking under this kind of extreme stress that you’ve seen before?

MARKHAM HISLOP: Boy, that’s a really good question. And the analogy for me would be 1973 and 1979. You know, the two big oil shocks from the 70s. I mean, I’m old enough to remember—not 1973; I was a little young to be driving down to the gas pump. But in ’79 I certainly had a car, and I remember what it was like. And yeah, it was really tough. On the other hand, I think they lasted maybe six weeks, if I remember correctly. We’re going back a while, Jon. But my point here is: yes, it was difficult; yes, there was some pain. Did we adapt? Yeah. We walked instead of drove, or rode a bike, or whatever. And the—I suspect that that is probably not perfectly analogous because today’s systems are much more complex and they’re bigger and they require a lot more energy. And so those of us—those countries that are still reliant primarily on fossil fuels, mostly oil and gas, we’re going to be in trouble. Here’s the thing—here’s what isn’t, I think, it gets ignored by these kinds of arguments—is that Asia is the one that—the region that’s hurt most by the closing of the Strait of Hormuz. It’s also the region that is the furthest down the road to electrification. Like China gets 30% of its total energy from electricity, whereas Canada only gets 20%. And that’s increasing all the time. So if you’re China, or you’re India, or you’re Pakistan, or you’re Thailand or whatever, you actually have options. You don’t have to have a car to—at least a combustion car. You know, maybe you buy an electric vehicle or you buy an electric motorcycle or a—what do they call those in the Philippines? Tiktiks? Tuk-tuks? I can’t remember. I remember riding in one when I was there 30 years ago. But yeah, I mean there are alternatives to combustion technologies that weren’t there 50 years ago in the 70s. You know, when you—I mean if you didn’t have gasoline or diesel in the pumps, then you didn’t drive your vehicle. Well, now you can see, you know, people are just going, “Oh, hmm, maybe it’s time we, you know, we took a hard look at an electric vehicle or at least a hybrid”. So, and the same thing on the gas side. A little tougher because it’s, you know, you can’t just say, “Oh yeah, you know what, we’re going to toss out the gas furnace and bring in a heat pump”. We went through that process about three years ago, and it does not happen overnight. And there are some changes that have to be made. But still, my point here is that we have the technology that is an alternative to oil and gas combustion technology. And we’re already seeing countries like China speed up their transition. So I—my guess in this is that yes, it’s going to hurt, and yes, we’re also going to see people adapt by adopting new technologies.

JON LIEDTKE: It’s—you’re always just one ahead of me right now and just scratching off questions that I wanted to ask.

MARKHAM HISLOP: As per usual, Jon, as per usual.

JON LIEDTKE: That’s great, I love it. So okay, though, I’ve got others. So this chart assumes that we must have this oil to survive. You obviously posit a different outlook. We’re not suggesting to eliminate this oil specifically, but there are alternatives. Based on your work studying and analyzing renewables in your sector more broadly, how much of that missing 20% of global supply could realistically be offset by existing alternative capacity in a four-month window?

MARKHAM HISLOP: Almost none of it. This is part of the problem. Whether we’re talking about oil and gas or we’re talking about electrification, electric technologies—both the generation, you know, wind, solar, batteries, or on the demand side, electric vehicles and heat pumps would be the two big ones—they take time. They have to be manufactured, they have to be installed, they have to—I mean, you’ve got to get the inventory, you know, from usually from China. So yeah, we have a problem and it plagues us in Canada because we’re talking about building a pipeline to take Alberta crude oil over to China. Well, it takes us five years to build a pipeline. That’s an optimistic schedule. So we have a short-term problem, a short-term pain—I mean, and some severe pain coming—and all the solutions we have are medium to long-term. And it doesn’t matter whether you’re building a new pipeline to get a new supply of oil to some place or you’re having to manufacture electric vehicles and solar panels. It’s still the same problem. So we—I guess what I’m saying here is that yes, we’ll adapt, yes, we’ll eventually recover, depending on how severe this all turns out to be, but it’s going to take time. And it’s not going to be easy, I would guess.

JON LIEDTKE: Or as Donald Trump would say: short-term pain for long-term gain.

MARKHAM HISLOP: Well, you know, when you live in an apartment—I don’t know if you’ve seen the pictures of Donald Trump in his New York apartment; everything is gold, everything is gilded. And so I would imagine that if your toilet seat is gilded, that you probably have a little different perspective on what short-term pain for long-term gain actually means.

JON LIEDTKE: I’m writing a piece right now that’s trying to compare Donald Trump to being the love child of Lucille Bluth—”It’s a banana, Michael. How much could it cost? $10″—with Grandpa Simpson yelling at the clouds in the sky. Somewhere is what Donald Trump is. You mentioned that the fusion of prophetic certainty and technical jargon can be dangerous. I mean, I think you and I have spoken about that before on air as well. How should energy journalists specifically—I mean, like yourself—cover a chart that comes from a very reputable source like JP Morgan? You can’t dispute the numbers here, but you don’t want to fall into the trap, of course, of this apocalyptic doomerism determinism. This is not written in stone. These are not decomposed dinosaurs that we’re using for a fuel millennia from now.

MARKHAM HISLOP: Well, that’s a very good question and I’m not sure that I have an easy answer for you because we’re kind of grappling with that ourselves here at Energy Media. And one of the points, I think, is to—well, you know, we’re pointing out that there are alternatives. And so, you know, what we’re seeing—China exported 50% more EVs last month than it did the month before. So clearly, you know, EVs—not in China… now this is an interesting point. I was just reading—I think it was a Bloomberg story today—that the April numbers for China EV sales in China fell by 17%. Why would that be? That seems crazy. But keep in bear in mind that China had been basically supporting much of the global oil market for the past year before the Iran conflict by building up its reserves. It was buying, you know, cheaper oil and sort of stocking it away. Millions—you know, I forget… nobody really knows how big China’s strategic petroleum reserve is. Probably hundreds of millions of barrels. I have no idea. But anyway, quite a lot. And so China had—it’s almost like China had planned for this. You know, they got together with Iran and said, “Hmm, you know, if this happens, maybe we should, you know… what do you think?” So, and by the way, you know, China’s a big customer of Iran; buys a lot of its oil. So this is part of the rejoinder to JP Morgan is: okay, but hang on a second. Where is their adaptability within the system? So okay, so the Americans have a strategic petroleum reserve; China’s got one; Europe’s got one, I think, pretty sure they have; and there’s—we’ve been releasing some, but still there is more. And Canada doesn’t need one because we export way more than I think we consume. We produce a little over 5 million barrels and we consume about a million and a half, and then the rest goes, mostly to the US, but increasingly we’re sending some to Asia. So there’s kind of some cushion built into the system as it were, so that we probably have more time than the JP Morgan graph indicates. And how much of that do we have? Because we don’t really know in the cases of countries like China. So, you know, that adds some uncertainty. But I think there’s enough of that and enough adaptability within societies, whether it be market societies or market economies, or whether it be more command-state capitalism kind of economies, people will adapt. Now, if we had the exact same situation today, a year from now, and all of the cushion is driven out of the system and people—you know, there’s a limit to how much you can adapt for how long. Is it theoretically possible? I suppose. I just think it’s unlikely that it would be as bad as maybe that chart suggests.

JON LIEDTKE: Well, it’s not a good chart, that is for sure, though. So you’re following this sector, of course, the energy sector very closely; it’s your day job. How does a global inventory freefall affect your view on the long-term infrastructure projects like pipelines? Is the fear of a system break—does that make assets like these more valuable, or does it prove that they’re actually part of a fragile, outdated model? This is where I’m having a really hard time wrapping my head around. I don’t know if we should be doubling down on what worked before but in a different capacity, or if we should be shedding it and jettisoning it and going, “No, we’ve got to be doubling down on the future.” Or is it a mix of both? Is it a hybrid model, if you will?

MARKHAM HISLOP: I would argue for the hybrid model, and let me explain why. So there was just a story out today—I was just on a radio interview talking about it where the Alberta Premier Danielle Smith, they’ve been negotiating with Prime Minister Mark Carney and the federal government over this memorandum of understanding they signed last November that included a pipeline in return for emissions reductions and some other things. And so Smith was in the media saying, “Oh yeah, yeah, things are going really well. We think we’re going to have an agreement in a couple of days”. Now I pointed out to the host, Mike Smith, that Smith talks like that all the time, right? I mean, that’s just her… she’s a very good communicator. She spent nine years as a talk show host, so she knows how to communicate. So I discount a lot of what she says. Experience—history shows that that’s the proper way to approach her. But it’s entirely possible that the federal government and the Alberta government come together on an agreement, but then they’ve got to go get the BC government and First Nations on board in some way. And that’s hard, really hard. And the only way that I can see is everybody’s got to benefit. So if the Prime Minister came to Premier David Eby and said, “Hey, you know what? I think that we could build you a whole bunch more LNG plants on the West Coast, and that would be—like I did the math one time—just like $300 billion by the time you build the pipelines and the plants and increase gas production in the northeast of BC. You know, if you support this pipeline, we could probably do that”. Then you go to the First Nations and you say, “Well, you know, I understand your concerns, but how about if we let you own half the pipeline or a quarter of the pipeline or whatever it is?” So if everybody gets a pretty good taste out of all of this, I could see the parameters of a deal for a pipeline. But a private sector proponent still has to step up to build it and operate it. And you still have to have markets somewhere, presumably in Asia, where the oil sands companies will step forward and say, “Okay, we’re going to invest tens of billions of dollars in increasing our output in order to fill up that pipeline”. And those—never mind the logic of it, what the numbers say or what’s going on in Asia—but I’ve been talking to and interviewing some folks inside the industry, you know, like Richard Masson, who’s an energy economist, and he’s very skeptical that the pipeline will ever be built. And one of the reasons is the oil sands industry really doesn’t want to go out on a limb like that. And you know, because think of it: in order to fill up a 1 million barrel a day pipeline, you need 700,000 barrels a day of new bitumen. Because it’s so thick, it’s like peanut butter, right? So it’s not going to flow in a pipeline and you dilute it with a light hydrocarbon like something like gasoline, right? It’s just like a whatever it is, a diluent. Which means that 30% of your pipeline is filled with a product that has no value that you’re not selling to the refinery at the end of the day; in fact, they turn around and they ship it back often to Canada. So it’s cost to you. So if you’re going to increase the oil sands supply by 700,000 barrels a day—goodness gracious, that’s a lot of money. And you probably have to do what’s called greenfield, which is where you build new plant and infrastructure, and then your break-even costs are like $60-$70. And by the time you tack on the cost of the—getting it over to your market, you’re probably not competitive. So, you know, everybody’s talking a good game until they get the pencil out and start doing the math and you go, “Well, you know, you’ve got to squint to make it work”. That’s why there’s not a stampede of industry support for this. It’s because there’s a lot of moving parts that have to fall just right in order for the pipeline to get built and for the oil sands to expand and produce enough supply to fill that pipe. Now, Jon, there is a, I think, a better way to do this.

JON LIEDTKE: Let’s hear it.

MARKHAM HISLOP: So, the Trans Mountain expansion pipeline added another 590,000 barrels of capacity. And it’s almost—mostly dilbit. But by increasing the power of the pumps along the route of the pipeline and using friction-reducing agents to make it slicker inside—less friction—they think that they can increase that capacity by another 300,000 barrels. So now you’ve got 890,000 barrels. And the government of Canada’s already paid for this; we paid $35 billion, right? So this is—the cost of optimizing that pipeline to get more is a lot less than building a new pipeline. So there’s 300,000 barrels. Now there’s another technology that was just getting off the ground under NDP Premier Rachel Notley in Alberta in 2018 called “partial upgrading”. And they had a program and there was already a couple of companies come forward, and then in 2019 Conservative Premier Jason Kenney had won the election and he cancelled it. But the idea behind partial upgrading is you take that peanut-buttery bitumen and instead of diluting it, you partially upgrade it. And you turn it into either a medium grade or a heavy grade that will flow in the pipeline. So not only do you add $10 or $15 to the value of your barrel, but now you don’t need any diluent. So you get the full—you don’t get the full 100% of the pipe, you get much more than 70%. But let’s assume for sake of argument that it is 100%. So now, instead of getting 70% of 890,000, you get 100% of 890,000. And really, you know, you haven’t gone out on the limb and spent $50 billion to get that capacity. So there’s another, I don’t know, off the top of my head, 300,000 barrels, 400,000 barrels. On top of that, Enbridge, which has the main line down to the US, has said that it wants to optimize its pipelines—which is over 2 million barrels a day currently—and add 400,000 barrels a day of capacity. So now you’ve got 700 or 800,000 barrels, which is essentially what you’d get if you built a new pipeline. And the private sector has built it—well, I guess Trans Mountain expansion is actually a crown corporation. But be that as it may, it’s at a much lower cost than building a brand new pipeline. So my point here, Jon, is we can be clever and we can do more with what we have, and we can add that capacity incrementally and a lot quicker than building a new pipeline. Or we can just throw caution to the wind and, you know, the taxpayer comes in and de-risks it and puts up tens of billions of dollars to, you know, so the private sector will go ahead and do it, which is why we always do things. So we can be clever or we can just, you know, do what we always do. Now which do you think would be the more prudent approach to this?

JON LIEDTKE: Well, what does my opinion have to do with any of this? But no, I hear you and that’s a frustrating thing. I’ve got one last question for you. I know you’ve got to go to prep for that next segment you’ve got coming up. But it would be remiss also if I didn’t mention—I really, really do like the Tin Lizzie you’ve got behind you there, a Model T. That’s gorgeous on the shelf.

MARKHAM HISLOP: Oh, well let me tell you the story about that. So my grandfather was an interesting character. He grew up as a farm boy in Ontario oh, early 20th century. And when he was a teenager, he lost his leg, I think from the knee down, and he lost it in a hay mowing accident back in the day when they had hay mowers. And so he became—he still farmed as an adult, and he was a blacksmith and he had an implement agency, which was a big deal back in, you know, the 20s and 30s. And so that little model is something that he would have got as a promotional toy to give away back in the day. Sort of like the McDonald’s kids’ meals where you get a toy. So that’s what they would give away. And when he died—I forget how many, maybe in the 70s—anyway, it kicked around the family and I got it and I think it’s just the coolest darn thing, you know. It’s cast metal of some kind and yeah, it’s one of my most cherished possessions.

JON LIEDTKE: I’ve got my grandfather’s—they’re just about five feet out of my reach right now as well—but Henry Ford Wagon Works, that was about ten blocks away from where I am right now where those wheels were put on, and that’s how they brought—tariffs again—the only way that Henry Ford was able to bring the cars into the country was to assemble the cars in the country, so he created the Wagon Works in Canada, imported the full vehicle except for the wheels, put the wheels on in Canada. Welcome to the Commonwealth. Okay, last question for you, and this is the killer one for you, okay? If the supply side is a line that’s crashing towards zero and the demand side is the story of rapid adaptation, where do these two meet? Is there a version of the next six months, Markham, where we experience potentially a deep recession but the physical failure never materializes?

MARKHAM HISLOP: Boy, that’s—that’s a tough one. And if I were an economist instead of a journalist, I might have a better answer for you. I would say—and this is just my guess based on talking to real experts—I would say probably no. And remember that a lot of what goes on—on the one hand, we’re connected in this global economy in a way we’ve never have been before, you know, the globalization of the world economy. On the other hand, the energy transition is very asymmetrical in that Europe was leading for a while, and then 10 years ago, 15 years ago, China caught up, and then China invested, I mean hundreds of billions of dollars in developing EV industry and a battery industry and solar panel manufacturing and so on. So it has built up its manufacturing capacity for those clean energy technologies way beyond current demand. And if you remember a year ago, a year and a half ago, there was a big debate going on about China’s overcapacity, you know, and how they were dumping cheap solar panels on the market, which is prohibited under the World Trade Organization rules. So China’s perspective on that was, “Well, we don’t have overcapacity; we just build in anticipation of demand”. Because we’re a state-directed economy and we’ll subsidize it so we can get away with that. So now here is China, which last year built 34 million cars—which is like three times what the Americans built, they came in number two. So China’s already gobbled up the global auto industry. It’s so disrupted it’s hard to believe. But they actually could build 50 million cars, most of which would be electric vehicles. And they have capacity to build, I think, like two or three times as much battery as many batteries and solar panels. So I don’t know if they’re going to do this; it’s just too early to tell. But if you’re sitting there with all this manufacturing capacity and you’ve got a global—the mother of all energy shocks going on and all this stuff is, you know, energy-related, you might want to increase manufacturing and just export like a son of a gun and cash in if you can. So what does that do to the two lines crossing? There’s so many variables here that giving you even a best guess—well, my best guess is I haven’t a clue. But I see that—but here’s another thing: despite all the chaos, the basic fundamental trends in the global energy system have not changed. And that trend is that oil and gas is slowly sort of creaking to a halt—demand growth is creaking to a halt. On the electric side, the adoption of solar and wind and batteries is running rampant in Asia and Europe, as is on the demand side, transportation. My guess is that those trends will continue, but they’ll accelerate. And the march to peak oil demand or peak gas demand that we thought was 2030 or 2035 is going to come quicker. And this—and this is something Canadians have not got their heads around. Energy security to you and I means being able to buy enough gasoline or diesel when we need it at a reasonable price. Energy security in China means: I buy solar panels and we build a solar farm and I pay for it once and I never pay for it again for 30 years, maybe 50 years, who knows? And because it didn’t have to be replaced every day. We don’t have to import oil and LNG all the time. And so the idea of energy sovereignty is a new one. And do you have control over the energy that powers your economy? And increasingly, because we’re exporters of oil and gas, we don’t—we haven’t even talked about the idea. But in Asia and Europe, that’s a big debate that’s going on. And that’s something that your viewers should keep an eye on is energy sovereignty and the extent to which that idea catches on in markets where Canada wants to export, and that’s primarily Europe and Asia.

JON LIEDTKE: Markham, thank you so much for the insight into all this. I won’t take up any more of your time. I know you’ve got more interviews that you’ve got to do today. It’s a really complex topic that’s outside of the wheelhouse of most people, but it affects absolutely everyone. And as much as Donald Trump likes to say everything’s going fine, I don’t care who you are, when you drive by the gas station and you see the price right now and you know that it’s been going up and up and up and it doesn’t seem like it’s going to be stopping anytime soon, that’s why we go to the experts to have it broken down for us. Markham, you are that expert today. Energy and climate journalist and commentator, CEO and publisher of Energy Media, Markham Hislop. Thank you so much.

MARKHAM HISLOP: Well, thank you very much for having me, Jon. We always appreciate our conversations.

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