Saudi Arabia’s oil minister Ali al-Naimi had an interesting quote in the WSJ recently: “Is there a black swan that we don’t know about which will come by 2050 and we will have no [oil] demand?”

That idea seems far fetched, but in reality, or more to the point, in hindsight, it is no more of a stretch than someone years ago predicting that a random suicide in North Africa would upend regimes throughout the Middle East and upend oil prices, or that the American Petroleum Institute would be running “the U.S. is an energy super power” TV commercials. In hindsight, these events all appear eminently logical, foreseeable and even inevitable.

Of course, they were and are anything but for the vast majority of industry insider experts, analysts and talking heads. It seems that the defining expertise in the oil business is an ability to miss what in retrospect is obvious.
For producers in Canada, though, there is a more interesting worry of the Cygnus genre. I’d call this a grey swan, something that should be known but has been overlooked. Not a Rumsfeldian “known unknown” but a step deeper into the Wonderland of ignored unknowns, or perhaps willful ignorance.

What if Cuba has oil?

Or more correctly, more oil than it produces from wells close to its northern coast? That is a question I asked Jorge Piñón, the leading expert on the subject back in 2008. Others elsewhere have been asking the same question.

But not, it seems, in the oilpatch.

No one knows for sure how much more oil the country has in deeper water. The U.S. Geological Society estimates an additional 4.5 billion barrels; the Cuban government of course has a much higher number. Attempts by the Norwegians, Spanish and others to drill deep water wells in 2012 turned up dry, all discouraging signs, at least initially. And with oil prices in freefall, no one is thinking about more drilling and certainly not high-risk drilling.

But eventually that will change. Demand will grow as the global middle class triples in size over the next few years, prices will rise and the E&Ps will once again be hunting for the next big play. By then, Cuba will be attractive and easier. With the lifting of U.S. sanctions, the limit of 10 per cent U.S. technology on drilling rigs will be gone, as will the potential hazard of running afoul of U.S. economic embargo laws.

Havana is less than half the distance to Houston than is Calgary. Cuba’s oil fields are even closer and Fort McMurray is even further away. And of course, the Cubans are closer still to refineries in Louisiana, while Alberta and Saskatchewan are even further away. Yes, shipping by pipeline is less expensive, but on the other hand you don’t need new infrastructure to move oil by tanker nor are their environmental reviews or protesters.

So, what happens if U.S. shale production resumes, Mexico’s energy reform has that country sending more oil to the U.S. where it is fighting for refinery space with a sudden influx of crude from Cuba?

Of course, this won’t happen overnight. If Cuba does have oil it will take some time for new production to hit refineries. But that’s not the point. Nor is the point really whether Cuba had oil. That prospect is more a parable. The only thing in the oil business that seems a certainty, or predictable, is that black and grey swans seem to be more numerous, not less.

The only way to adequately deal with this is diversification. Gaining new markets for not just oil, but all commodities that we produce is not just a matter of price arbitrage, it’s a matter of survival.

The other point to take from our recent history is that screaming headlines and breathless announcements on oil prices of “impending doom” should be taken as entertainment. No one has demonstrated, consistently, that they have a clue about where oil prices are headed – especially in the longer term. There is much that needs to be done to mitigate the current price setting.

But hyperventilating in sync with the news cycle will not help, in fact, it will be counterproductive. That energy would be better spent putting together the political courage to do what everyone knows we need to do to make sure we don’t arrive in this mess again and again and again. It is also a teachable moment about the need to accept and factor in uncertainty as a certainty.

– By Carlo Dade, Director of the Centre for Trade & Investment Policy