Chester Dawson, The Wall Street Journal

Renowned journalist Chester Dawson, based in Calgary, Alberta, recently wrote an article titled ‘Canada an Emerging Market? Yes, For U.S. Oil Exports’. Mr. Dawson talks about this articles content and how many journalists are predicting banning US oil exports will be one of the biggest oil market stories of this year.

Hegg Bakken Report: Today on The Hegg Bakken Report we get in touch with a gentleman, who is with the wall street journal, Dow Jones news wire teams in Canada. He spent a half decade in Wall Street inside the world of high finance, worked as an international financial editor at business week in New York he is also reported for Bloomberg. The AP, the Far Eastern Economic Review. He is a Harvard graduate and also studied at Ohio University and spent some time in Tokyo, Chester Dawson thanks for joining us on the show today.

Chester Dawson: It’s a pleasure to be with you.

Hegg Bakken Report: You are a busy guy you have spent time in Tokyo you have done in your career. Tell us about your experiences in Tokyo.

Chester Dawson: Well I was basically there for three stints, I studied a broad when I was a junior in college, I went back after grad school and worked for about 10 years ’93 to 2003 I came back home to the states and worked in New York for about eight years before going back to Japan for almost three years and then transferring to Calgary, Alberta a new bureau that we have here in March of last year. So, I have been dancing around a bit and a pretty big variety of cultures and cuisines down there but I hope that gives me a little perspective to issues that I wouldn’t have otherwise.

Hegg Bakken Report: You spent a couple of years covering the Japanese auto industry that had to be very, very interesting as Japan has always been at the fore front of the auto industry.

Chester Dawson: Yes it was particularly this last time I was there because so much was going so wrong for the Japanese, you had the big Toyota scandal here with the recalls, you had a big leadership reshuffling then you had if you recall that massive earthquake and tsunami which really took almost all Japanese car production offline for the better part of that, for at least six months and a lot of people thought that might be the end of it. On top of that, the Japanese currency the Yen was really shooting directly high so that meant that all those cars and the Lexus’ and infinities that they had relied on being able to export you know they weren’t earning as much on them or they couldn’t sell them competitively.

So, it was kind of a perfect storm for the industry and it was a fascinating to be there and witness them deal with that and then pretty much rebound I think almost across the board they have come back pretty strongly. So, you know the US auto industry also had its own crisis and that’s been, well reported but it was interesting for me to be half way round the world and seeing how the Japanese dealt with their own issues.

Hegg Bakken Report: You mentioned the tsunami that was devastating; I think it took out one of the largest manufacturers of fibre optic cable in the world which affected the United States greatly.

Chester Dawson: Yeah, there were all sorts of things, I mean there were even weird things you would never imagine for example the speckles in the paint, you know new cars have those kind of really shiny coats well that turns out that the entire world supply was made in a tiny little area of Japan that was directly impacted by the earthquakes so basically no global auto maker had the other kind of metallic paints that they have been planning on using on their cars so it was really, it was a matter of supply chain collapse and it was particularly hard for the Japanese manufacturers but it was pretty fascinating to watch it unfold and impact places all round the world.

Hegg Bakken Report: You are now based in Calgary, Alberta and your main focus among other things, you main focus is the energy industry and what a time to be involved in that particular industry, it’s exciting times for energy not only in Canada but also the United States as well.

Chester Dawson: Absolutely, I mean you have got, I don’t need to tell you a revolution going on in the industry, the energy industry in North America and it happening at a time when the rest of the world particularly in Asia the demand for energy is increasing by the year. Yeah you mentioned my experience in Asia it’s been fascinating for me to see how; you know energy exports have arisen as a big potential growth area for the US. You know 10 years ago people were expecting the US they need to be a net importer of things like natural gas and now all the talk is about many exporting through LNG or even having crude oil export for the first time in as many years as anybody can remember. So, I think it’s a great time to be covering it, obviously I’m a little further North that the oil produced out of Alberta and Western Canada’s oil funds is typically a much bigger great crude than the Bakken light crude but there is also quite a bit of natural gas up here and the Canadians are also thinking of exporting that to places in Asia off the pacific coast. So, just a lot of things going on here and it are a great time to be having a patch to observe and write about it and hopefully learn something and pass along a bit of that to readers.

Hegg Bakken Report: Others than the differences you just mentioned are there other things that are set, Canada sends from Bakken Crude, set them apart?

Chester Dawson: Yeah one of the interesting things is that there has been a much longer time trajectory in terms of the rollout. I mean people have known that there was oil here basically sipping up under the ground for, going back on at least a couple of 100 years. The question has been how to basically exploit that in a way where you can make some money and even as recently as you know like the mid 90’s you know some of the majors threw up their hands and walked away out of frustration. It really was and until, you know I would say into the 2000’s when a lot of these projects started to make sense and you started to see really big ticket investment and getting the industry up and going.

But you know it’s been part of this, dream of the people of Alberta going back quite some time the oil sands and even beyond that for just regular conventional oil and gas, you know Alberta has been beneficiary of that development for many, many decades you know going back to, well before World War Two really as 20’s and 30’s people were you know get well carters and that type of thing. I guess what I’m saying is that it’s a bit more like Texas North in the sense that the industry has a very long history here and it’s something that I think policy makers in the government and industry have been focused on for many, many years.

In that sense I think Alberta has had a bit more of a head start when it comes to things like infrastructure and you know getting pipelines and that type of thing. But to be honest the growth here too is pretty remarkable and even in terms of getting housing in down town Calgary it’s not nearly as bad as in Western North Dakota. But this is definitely a bit of a boom town as well and all of the social and economic impacts, the problems of growth are also felt here.

Hegg Bakken Report: I know that flooding was an issue this summer in Calgary about the time, just shortly after you had arrived you had been in Calgary just about a year now and in fact the oil industry and all the heavy rains that you received.

Chester Dawson: Well its funny that very day was the first day I had flown out to see the oil stands first hand, I left very early in the morning and came back late in the day and basically the part of Calgary I live no is on a bit of a ridge so I basically drove from the airport and East to my home on the West side of the city and really was oblivious to what was going on. I mean I had seen from some of the reports that there was flooding but not having been a long term resident here I figured well that’s you know, we are right down from the mountains no big surprises. It really was until much later that it became obvious that this was going to be a historic flood and very disruptive.

For the industry itself the damage was pretty much limited to the headquarters buildings and Calgary for most of the companies. There was very little damage you know actually out in the field, the oil patch here for the oil sands in located hundreds of miles North of Calgary and kind of the North East corner of the province. So they operate on a different, you know the climate is much colder there, you know it can be raining or snowing there and be [Inaudible 00:09:18] so, the flood didn’t have a direct impact on production per say but obviously it was tough for a lot of companies because they had to have people work from home or transfer duties to other offices while they got their offices cleaned up here.

Hegg Bakken Report: Our guest today on The Hague Baking report is Chester Dawson with the Wall street journal based in Calgary, Canada and you report another topic you are focusing on the energy industry and an article that caught our eye Chester was Canada an emerging market, yes for US oil exports. For somebody who hasn’t read it, tell us about that article, your research and your summation of it.

Chester Dawson: Well it’s still not a huge amount but its increased fairly dramatically so it was a bit eye opening when I realized just by looking at some numbers and the international energy agency also highlighted this in a recent report that in fact Canada is emerging as a bigger export market for US Crude. Now that’s interesting because as you probably know there is an effective ban on US exports of crudes to most nations that dates back, there is actually about three separate laws but essentially from the early 70’s onwards it did really has not been an option and with the increasing production now some in the industry have started to raise that as a potential issue and have asked our lawmakers in Washington to look into that.

But in the mean time Canada which is still a net exporter I mean they export much more oil to the US than they do imports but because it does have East Coast refineries and because of the booming production in places like North Dakota they are able to source crude which they use in the refineries to produce things like gasoline, much cheaper from getting it, you know, inland and middle America than from you know purchasing it at say the price of [Inaudible 00:11:27] which is at least $10 higher. So, what has happened is you had US oil displace oil that Eastern Canada was importing from elsewhere and move in there and be much more competitive and you know there will be a limited growth, there is only a couple of refineries in Eastern Canada and in fact the Canadians have started to think about piping more of their own oil from Western Canada where almost all of it is produced to Eastern Canada.

Now with that being said Canada does produce a bit of oil offshore on Atlantic coast too but the majority production is in the West. So, it just struck me as an interesting thing, people don’t think of Canada as being a big importer to the extent they think of Canada as an oil, in terms of the Oil Industry and it shows that as production in the US gets higher and higher its sipping in all sorts of anticipated directions and trying to find the best price at market.

Hegg Bakken Report: What is your opinion on what this all means to Canadian and United States economics?

Chester Dawson: Well I think its broadly good, there is concern about, you know disruption at that company’s growth but I mean essentially in this boom in the sense that the cost of inputs, you know things like power whether it’s in the form of crude oil or gasoline to power fleets of vehicles or even in terms of the price of heating buildings through natural gas. I mean the increased production has lowered cost across the board for American consumers and companies and that’s giving American companies and American economy a big edge globally.

In fact it’s actually become a big of a problem for Canada because you know Canada’s best customer for its oil and gas going back decades has been and continues to be the US but as the produces more and more of its own energy it doesn’t need it much from Canada and that has caused a bit of a problem in that, you know especially for crude oil there has been a bit of a back up Canadian producers have had more difficulty sending their oil through pipelines because of back logs in places like Cushing and potentially now in the gulf coast with the opening of the southern extension of key stone and even for natural gas Western Canada is wallowing and a lot of gas which is essentially too cheap to do anything with.

You know their American customers don’t want as much of it. So, that’s one reason why they are looking for markets overseas in places like Asia and Japan. It’s a huge fire I think number one in the world, China is raising in its demand for liquefied natural gas. So, its having all of these interesting ramifications but you know broadly speaking it’s been a tide that’s lifted a lot of board not to say of course that there aren’t some downsize to that but in terms of strict economic impacts that seems to be a pretty good thing.

Hegg Bakken Report: Yeah, I think oil started flowing in the southern end of the key stone down in Texas just this week in fact. What about the North end are we ever going to get this going in your opinion and some of the facts that you might have gathered from some of the players you have talked to?

Chester Dawson: Well it’s still very unclear and that’s you know issue number one for Western Canada. The politicians here have been shuttling down to Washington with great frequency you know in Western Canada in particular but even the federal government is very supportive of the key stone pipeline the Prime minister of Canada has highlighted that on his trips to Washington has even called it a no brainer.

The issue is just that, it’s not really up to Canada at this point it’s up to the Whitehouse to make a decision on which keeps being pushed back the delays are frustrating for people in the industry here and in government as well. It’s really anybody’s guess and what’s interesting is that Canada has got its own pipeline some of which are controversial and there is some fear in industry circles that if keystone goes down its going to have a negative impact on their ability to build other big pipelines to go places that has nothing to do with the US.

So, it’s pretty important for people in Western Canada for the US it’s an issue that, I don’t need to tell you it’s embroiled in a lot of politics and what not. So, it’s funny but I don’t think anybody in Western Canada has any more insight to it than folks in the states it really rests with a few key people in Washington.

Hegg Bakken Report: I think it was a week or so ago the media in the United States reporting that your leaders kind of took a stand I guess if you will as far as getting the key stone project pushed through with American leaders is that correct?

Chester Dawson: Yeah they certainly have been sharpening their rhetoric. I think it’s surprised a lot of people in the industry and in government and in Canada that it hasn’t been approved. I think that most people figured it was just a matter of time and as you know the second time of the Obama administration drags on without a decision I think increasingly people are wondering whether a decision is ever going to be made. So, I know the industry has put pressure on the politicians here to try to make the best case and get a deal done but again they can only go so far I mean the pipeline is essentially as you said, the Southern extension is built on something going, up through the border of Canada everything is fine, they basically cleared all the leases and already to go it was just a matter of, you know they have got you know, lots of pipeline sitting around in warehouses in the states that’s basically just rusting while they await a decision and the question is, if that’s ever going to come.

Hegg Bakken Report: Who are some of the big players in the oil industry in Canada?

Chester Dawson: You know that’s a very good question and its one that I obviously needed an answer from day one when I got here. Some of them were better known than others, but they are not generally that well known even though some of them are quiet large companies and its always a bit of a struggle for me to try to get editors in places like New York to appreciate sometimes these companies that are not exactly brand names or you know some of the innovative things they are doing or just the fact that they are pretty big fish in Canada’s oil pond.

For example probably the biggest producer is a company called Suncor energy they are a Canadian Calvary based company that is essentially a collection of a lot of other companies a lot of mergers that have come together. But they are one of the oldest producers in the oil sands, one of the largest producers and they have got pretty broad name recognition at least in Western Canada. Interestingly last year, stake in it so clearly he thinks of doing something right. Some of the other companies both X on mobiles through which local affiliates call imperial oil and shell has fairly sizeable operations up here and then there is a bunch, I mean there is a mattering of global majors from almost all around the world.

I mean Total of France if here, you have got a bunch of Chinese players which are fairly new but have taken over some midsized companies and taken big positions in the oil sense themselves and then you have got the, kind of home grown Canadian companies which are much less well known but you know here are considered pretty important players and those are the companies like Senovas, there is a company called Canadian Natural Resources on the gas side there are a couple of companies, Inkana and Talisman. Now these companies have operations all over the world in many cases, they are particularly strong in Western Canada and they tear a lot of cloud here but again they are not the kind of companies that I think most Americans would recognize and they don’t, I wouldn’t say that they are huge into PR and marketing so that’s another reason why they kind of preferred it to stay under the radar.

Hegg Bakken Report: Have you ever been to the Bakken in North West or North Dakota or Eastern Montana?

Chester Dawson: You know it’s funny you asked that, I have but I was in junior high school I took a multi week tour of the west I grew up in Ohio but this was kind of a big deal but the heart of that journey was time to spend in the bed lines of North Dakota, you know we dug up dinosaur fossils and just spent quite a bit of time there and it’s a very memorable journey for me and one that I have always hoped to go back and repeat now that I’m a bit older. So, I haven’t been there recently to see the boom that’s going on I do hope to get there sometime in the not too distant future. I do help out with the coverage of Northern US energy production. Most of our US coverage’s obviously out of Houston or Dallas but because I’m close to what’s going on just south of the border here that’s becoming part of my privilege area as well.

Hegg Bakken Report: Do you know Russell Gold, he is also energy reporter for the wall street journal, I think he is based out of Chicago if I’m not mistaking.

Chester Dawson: I think he is in Houston, he is, what can you say, he is almost a brand under himself he is our energy reporter. He has written a new book I’m sure you are familiar with and he has been a great mentor for all of us in doing energy coverage of the journal.

Hegg Bakken Report: I was telling a co-worker that I was going to be talking to you today and that you had written this person drives a Lexus and that you wrote a book, you also wrote from a Japanese phrase book and culture guide but you also Lexus the relentless pursuit and its highly rated on the source that he was looking at and he ordered a copy. Having said all that Chester are there any books that you read earlier in your career or as of late that you would recommend and maybe helped you with your journalism career or your life if you will?

Chester Dawson: Yeah I’m a big book readers and I’m still very analogue, I have attempted to keep the I-Pad away from my reading collection because I like to feel the book and you know I love to read books on a lot of topics. I would say probably the book that maybe have one of the biggest impacts on me or which I respect the most is a book called the Reckoning by David Halbastam. It was kind of about the emergence of Nissan as the global auto maker, just a very well reported book by a journalist. It almost read like a novel I mean it’s got that much tension and great character development but it’s a true story and there are some books that I read as a student that have had that big impact, one is called the Rich Nations Strong Army by a professor at a MIT by the name of Richard J Samuels and this book is about Japan’s emergence as basically an industrial power going back to the turn of the century, like you know the late, basically from the late 1800’s through the warily parts of the 20th Century.

How was is that Japan emerged from basically a poor country only producing rice and some majestic weapons like Samurai swords was able to earnest some of its strengths in manufacturing and what not and become among the leading world powers at a time when the world was dominated by the Western European countries and the US was just emerging on a global stage. So, anyway it was a very well reported book and not done in a lot of academies it’s a very approachable book and also one thing I love is that it’s got tones of end notes. So, if there is everything you are interested you can flip back to the end of the book and it’s probably got a paragraph on it and tiny so I think that’s a great thing and I have tried to do that in the books I have written too for those who want that extra little bit.

Hegg Bakken Report: Our guest today is a senior correspondent for the wall street journal based in Calgary, Alberta reporting mostly on energy but also other things. Chester Dawson if you ever decide that you want to come down to the Bakken we will find a place for you to stay a pair of steel toes a hard hat and a pair of gloves and a pickup to drive you, you are welcomed here anytime my friend.