The National Interest Part 4: Price-Fixing, Petro-Politics & Petro-Propaganda
The astonishing story of how oil companies collude with OPEC to drive up prices and profits, while blaming everyone else. In just two years, it cost every single Canadian $4,405.
I was midway through writing this piece when I came across this astonishing piece of news - that US oil companies worked with OPEC to drive up the price of oil.
The impact was incredible, as Matt Stoller writes - it caused 27% of all inflation increases in 2021 in the U.S.. According to Stoller,
“The jump in profits in 2021 was about [US] $730 billion, or $2,100 per person.”
Of course, these high oil prices were felt everywhere across North America, including Canada.
Scott Sheffield, founder and longtime CEO of a leading American oil producer, attempted to collude with OPEC and its allies to inflate prices, federal regulators alleged on Thursday.
The Federal Trade Commission said Sheffield, then CEO of Pioneer Natural Resources, exchanged hundreds of text messages discussing pricing, production and oil market dynamics with officials at the Organization of the Petroleum Exporting Countries, or OPEC, the oil cartel led by Saudi Arabia.
Regulators say Sheffield used WhatsApp conversations, in-person meetings and public statements to try to “align oil production” in the Permian Basin in Texas with that of OPEC and OPEC+, the wider group that includes Russia.
The price crash of 2014 wasn’t a “natural” market event - it was Saudi Arabia and OPEC having a price war to punish producers in shale oil for horning in on their racket - which is to set oil prices at whatever price they want.
“At an important dinner in 2017, the then-OPEC General Secretary Mohammed Barkindo “dined with about two dozen U.S. shale executives,” which had never happened before. Another OPEC official confirmed coordination, telling journalists that everyone had “compared notes on our experiences in this cycle [i.e., the recent price war] which everyone agreed was the most injurious.” From the U.S. side, Scott Sheffield of Defendant Pioneer stated, “I’m seeing a series of meetings where OPEC is reaching out and spending more time with US [I]ndependents than I have seen over my entire career.” OPEC and U.S. shale were now sharing “how much they [U.S. shale] are investing and their projections” as as to “avoid volatility.’” The U.S. private firms had started to work with the global cartel. Said one domestic shale CEO anonymously, "we now have a seat at the table on pricing."
… Over the course of the next four years, OPEC and the shale producers came to an informal working arrangement. In November 2020, EOG Resources' CEO Bill Thomas confirmed shale producers had allowed OPEC to get back in control of pricing: "In the future, certainly we believe OPEC will be the swing producer – really, totally in control of oil prices. . . . We don't want to put OPEC in a situation where they feel threatened, like we're taking market share while they're propping up oil prices." In 2021, when oil prices spiked, the domestic oil industry didn’t invest to increase production, as they had traditionally done. Pioneer’s Scott Sheffield, for instance, said that “everybody's going to be disciplined, regardless whether it's $75 Brent, $80 Brent, or $100 Brent.”
Stoller points out that the tell-tale sign of collusion meant that while prices were staying high, firms weren’t investing in more production.
Exactly the same thing happened in Canada. Companies did not invest in new production, and chose to reward shareholders instead, as this CBC article reports:
The industry currently faces a bit of a conundrum, said Jeremy McCrea, managing director of energy research with financial services firm Raymond James: The world's energy consumption is rising, but companies are reluctant to ramp up spending to dramatically boost oil and natural gas production.
It was pure profit-taking, because they could, because the oil industry still has us as customers over a barrel. An oil barrel.
There is no question that the price of oil drives inflation, because it is included in what constitutes inflation.
As I wrote in earlier chapters, Canada’s economy has endured a series of massive shocks. The rising price of oil and the global financial crisis rocked our economy in the 2000s, and we lost hundreds of thousands of good manufacturing jobs, then money poured into the oil patch, then drained out again. Lots of people went from having great jobs to no jobs, and no way to pay their massive mortgage - and because the price of real estate dropped, if they sold their house, they would be left with less than nothing - debt, and nothing to show for it.
This crushing economic reality wasn’t adequately recognized, and there is a genuine ideological problem here, as well as one of perception.
Going from feast to famine like this is brutal for the people affected, but when a province and an industry has been soaring, when it crashes people aren’t always sympathetic.
This is exactly the kind of crisis that Keynesian economics exists to deal with. However, the political and economic culture in Alberta and Saskatchewan as well as the Canadian Federal Government were all on the same hardcore fiscal conservative page. As a matter of conservative ideology, the idea is that government can’t act to spend or run deficits (although the ideology tends to be flexible - it doesn’t seem to apply when a conservative government in power.
As a matter of fiscal and economic reality, it is a financial problem that needs to be addressed with financial actions. However, if it is going to work, the relief needs to be targeted to where the economy is collapsing in on itself, and lowering interest rates to “stimulate the economy” does not do that.
The boom and the bust are concentrated in two or three provinces, and within those provinces, the work is concentrated as well. Lowering interest rates to 2% does not help oil workers who have just lost their $300,000 a year job as a diesel mechanic.
The idea that lower oil prices would bring relief or “stimulate” the economy also ignores that sustained years of high oil prices and high Canadian dollar exchange rates contributed to hollowing out the export-manufacturing economy that was built and whose contracts were crafted on the expectation of lower energy prices and a lower exchange rate. The companies that were supposed to help the economy “bounce back” weren’t always there anymore.
All of this completely contradicts the narrative being pushed by the MacDonald Laurier Institute in The Hub, a Canadian media outlet that recently ran a piece that is at best, “high end concern trolling”
Exner-Pirot’s piece is one of several is an alternate-universe look at Canada’s economy that barely mentions the plunge in the price of oil, or that a pandemic occurred.
Its omissions are colossal: it is a hyperpartisan attack that blames federal government environmental policies for the oil industries own machinations.
Exnor-Pirot is the “Director of Energy, Natural Resources and Environment at the Macdonald-Laurier Institute, a Special Advisor to the Business Council of Canada, and a Research Advisor to the Indigenous Resource Network.”
The Macdonald Laurier Institute is a think tank. The Business Council of Canada is a lobby group. The Indigenous Resource Network is part of a network of pro-oil advocacy groups.
I don’t have a problem with business organizations or industries promoting themselves, to the public or to politicians, but this is outrageous disinformation.
It gets basic facts wrong, and is bending history to suit their political narrative.
The price of oil started to drop in 2014, not 2015. The reason is dropped was because of a deliberate, publicly announced and reported choice by Saudi Arabia to drive the price down.
I do not understand how this remotely qualifies as analysis, and it has been shared by prominent conservative leaning media figures. It is astonishing that people are just ignoring one of the most important global economic events in the last decade: the plunging price of oil.
It’s not as if it were a secret. Here is an article in Vox in November 28, 2014, about the fact that Saudi Arabia and OPEC were starting a price war on oil.
That’s just one part of the story that The Hub and Exner-Pirot are getting wrong.
The entire premise of the piece is that federal government policies since 2015 are to blame for a lack of investment - regulations, requirements that Indigenous consultation take place. Bear in mind that under the previous government, Canada’s environmental protections for lakes and rivers dating back to 1867 were eliminated - and it still didn’t buoy up the price of oil.
It is pure fantasy to calculate how much more investment Canada would have had, had the level of investment not dropped off.
We know from media reports that in 2022, even as profits were at record highs, the oil companies were choosing not to invest in new production, because U.S. oil companies had cut a deal with OPEC to keep oil and gas prices high.
From Statistics Canada:
In 2021, oil prices reached their highest level since 2015. As a result, the industry looked to recover the losses that were incurred during the COVID-19 pandemic. Total gross revenue in the oil and gas extraction industry increased 85.7% to $174.0 billion in 2021 from $93.7 billion in 2020. According to the Raw materials price index, the price of crude oil and bitumen increased by 70.8% from 2020, while the price of natural gas increased by 15.8%. Total production for crude oil rose by 6.2%, while total natural gas production increased by 3.9%.
In 2022, total revenue for the Canadian oil and gas extraction industry rose 53.6% to $269.9 billion, following an 87.5% increase in 2021. The 2022 increase was attributable to increased economic activity and increased demand for energy products.
As this has happened in Canada, everything has been blamed on the federal government’s actions as part of a propaganda campaign. Inflation has been blamed on the federal government spending, when it was oil companies hiking prices. Lack of investment has been blamed on the federal government, when oil companies were refusing to invest. The fact that oil and gas jobs weren’t returning, even though prices and profits were at record highs, was blamed on the federal government.
All when it was all the result of the machinations of the oil industry.
We’re highly dependent oil and gas for all the benefits they bring, but that comes with a real cost - we can’t do anything without them. We all know exactly how vulnerable we are to oil price shocks - if a war breaks out, or Saudi Arabia decides to cut production, there is nothing we can do.
And those oil shocks mean financial shocks for whole economies. In fact, it’s a way to hurt a country like the United States or Canada, or Europe, by driving up inflation. It really is a kind of financial warfare, because it undermines whole economies.
The knee-jerk response from central banks in developed nations has been to raise interest rates on populations already teetering on the brink of insolvency - because they think “too much money is chasing too many goods” when a global cartel is at work manipulating the price oil.
This has all been creating extraordinary economic pain - worldwide - as voters in a crucial election year plead for relief, while more or less centrist leaders are being challenged by far-right candidates with contempt for the rule of law and democracy.
Believing Your Own PR: Canada as an “Energy Superpower”
In 2006, Conservative Prime Minister Stephen Harper was elected Prime Minister. Harper is from Alberta, though he was born and raised in Toronto. His father was an accountant with Imperial Oil, or ESSO, which is owned by Exxon.
The new Canadian government intended to turn the country into an “energy superpower,” Harper told the influential audience of more than 300. The unconventional petroleum beneath the forests and muskeg of his home province offered “the most attractive combination of circumstances for energy investment of any place in the world.” Its extraction and refining represented a “monumental challenge,” he said, yet one Canada was prepared to meet. “It is an enterprise of epic proportions, akin to the building of the pyramids or China’s Great Wall. Only bigger.”
If this sounds like hubris, consider the next line in the article:
It has to be said, I was surprised to learn that the Prime Minister, who was from Alberta, and had been a Member of Parliament in the 1990s, had never visited the oilsands.
The article frames the article as being a collision course between two personalities. It is also a collision course between political parties who serve totally different constituencies.
In Canada, the Conservative Party is a petro-party, with oil money in Alberta funding a whole series of think tanks, citizens’ groups.
Matt Stoller writes that
Democrats are skeptical of “Big Oil,” while the Republican coalition is built around fossil fuel firms, Wall Street private equity who finance it, and Saudi wealth that benefits from expensive oil.
And it is quite deliberate, on the part of BRICS countries, who are seeking to create another international currency as an alternative to the U.S. Dollar. Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates.
Paleo- and Petro-Conservatives
Another sign of hubris was the clearly stated goal of Harper and the Conservatives to reshape Canada and permanently tear down the “welfare state” as opposed to some idealized libertarian or far-right state, which will return countries to some 19th century ideal of social organization.
On July 26, 2010, Stephen Taylor, a Conservative organizer, wrote “The beginning of the end of the Canadian welfare state” in the National Post where he was completely up front about Harper’s goals, and he explained the Conservative government’s decision to cancel the long-form census.
The essence of Taylor’s argument is that without data to back up claims of grievance and discrimination, people won’t be able to make them. This is odd - not least because mistreatment and harm happens whether people are measuring it or not. If the pain and hurt is real, and it very is, then pretending it’s not happening or refusing to measure does not mean people will stay silent.
However, Taylor is crystal clear about Harper’s goals - to diminish or destroy the Liberal Party to replace them with the Conservatives as Canada’s default choice for government.
How will this be done?
“Through initiatives such as financial starvation via election finance reform and ideological force-feeding on the policy front.”
This is not normally the way we think of politics. We think about elections in terms of campaigns, platforms, and policies, contests of ideas and debates, in order to form government, and deliver policies. This is different. This is about governing with the goal of destroying your opponent and finding ways to silence opposing ideas. In a democracy, that’s highly questionable.
It has also become standard operating practice for various political parties, whose intention, once elected, is to kick away the ladder for rivals.
“Top Conservative politicians met with oil-industry executives at a private conference to map out strategy for ousting Justin Trudeau’s Liberals in a sign of growing collaboration between the Alberta-based sector and its political backers ahead of the federal election this fall…
Attendees included Michael Binnion, CEO of Questerre Energy Corp.; Patrick Ward, CEO of Painted Pony Energy Ltd.; Perpetual Energy Inc. CEO Susan Riddell Rose; and her husband, Mike Rose, head of Tourmaline Oil Corp, according to a copy of the confidential agenda that was obtained by The Globe and Mail.
All are board members of the advocacy group, which says it aims to “shift the conversation” on energy so that Canadians embrace “the miracle of modern hydrocarbons," according to its website. They are also governors of the Canadian Association of Petroleum Producers (CAPP), which represents the sector’s largest companies; only Mr. Binnion responded to a message seeking comment.
The agenda makes clear the event was highly political.
Federal Conservative Party Leader Andrew Scheer delivered a keynote address, the document showed. His national campaign director, Hamish Marshall, and veteran Conservative organizer Mark Spiro spoke on a panel about “rallying the base” by using friendly interest groups that operate independently of the party.
Oil and gas lobby groups plan to participate actively in the coming federal election to push an agenda that includes more pipelines, lower taxes and less regulation. In February, Mr. Scheer spoke at a rally on Parliament Hill after a convoy of protesters arrived from Alberta to condemn Prime Minister Trudeau’s energy and immigration policies…
One session at the conference focused on deploying “litigation as a tool” to silence environmental critics and featured U.S. opposition researcher Mike Roman, who served as special assistant and director of special projects and research under Donald Trump until last year. He spoke alongside Arthur Hamilton, a lawyer with Quebec-based Resolute Forest Products, the agenda showed. Mr. Hamilton is also a lawyer for the federal Conservative Party. Resolute has waged a long-running and largely unsuccessful court battle against Greenpeace.
Another panel was dubbed “Paths to federal election victory" and was led by an executive for polling firm Ipsos Public Affairs who was introduced by CAPP president Tim McMillan.
That’s a lot of names - but a few deserve special focus, because of their further connections.
Mike Roman. In 2019, Roman was director of special projects for Trump, and this article in The Tyee details more of his background. Roman has been indicted in Georgia for his role in the 2020 election denial of Donald Trump.
Roman’s indictment alleges that in late November 2020, he urged other campaign officials to contact state legislators in Georgia to encourage them to appoint Trump electors — after Trump had clearly lost the election.
Roman also organized speakers for a Dec. 10, 2020 hearing before a Georgia house committee to spread false information, namely that the state’s vote was riddled with fraud. Giuliani, also indicted under the same racketeering statute as Roman, was the star of that s*** show.
But Roman’s role was even bigger. According to testimony before the select congressional committee probing the Jan. 6, 2021, attack on the U.S. Capitol, Roman handled most of the organizing of the fake electors scheme in seven battleground states…
At the time of Roman’s participation in that closed-door meeting in Alberta, the Republican operative was closely associated with an organization named the International Democrat Union. Roman first shows up as the organization’s treasurer, later as assistant chairman. The chairman of the IDU was then, and is now, Stephen Harper.
And on February 15, 2022, Mike Roman tweeted this from his account. Apparently he was in Ottawa during the Convoy Occupation.
All of this - all of this - demands an explanation. Canada has a foreign election interference inquiry. Our security services named Russia, India, and China - but not the U.S. Canadians generally need to understand the extraordinary lengths to which political operatives will go, and they do so by abusing people’s trust and confidence.
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