The well-worn trope that every crisis presents an opportunity holds up well in present circumstances.  The stalemate between Iran and the US over control of the Strait of Hormuz would seem to indicate a potential windfall for oil and LNG (liquified natural gas) as prices start to spike.  The potential spike is important, because oil and gas production prices are 3-5 times higher than in the Middle East; data indicate only Brazil and the UK are higher cost producers than Canada.  Similarly, in LNG, Canada is one of the highest cost producers, according to an independent analysis.  In fact, shipping natural gas is around 4-5 times more expensive than LNG, according to the World Bank.  In 2022, I co-authored a working paper on the competitiveness of Canadian LNG, finding that there are far cheaper producers that can ship pipeline gas to the primary import markets of China, such as Russia, Kazakhstan, and Malaysia, and the EU, such as Norway, North Africa, and Azerbaijan.  Even if there is a supply shortfall for NG due to the war in Iran, then, it’s more likely to be filled by more mature and cheaper producers than Canada, including the US.  The reality is that a new pipeline or LNG project requires a 25-40 payoff, and there is little appetite in the private sector for taking risky bets on a market that is impossible to predict.

Both short-term and long-term forecasts portend a downward trend for oil prices.  The reasons are clear, Russia and the Middle Eastern states are cheaper producers, closer to markets, and see the need to pump out oil as quickly as they can, before the market starts to shrink.  The market will shrink as EV mandates and adoption kick in across Canada, the EU,........

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