Energy Articles

Canada’s petroleum sector will reinvent, not fold, and the world will be better for it

The petroleum sector is, to put it mildly, used to wild swings in its circumstances. Not just swings in price, but changes in market demand, or new play types, or the advent of new technology such as horizontal multistage fracking – rolling with the punches and innovating is part of the game.

In the current environment though, it really is different this time – the industry simply can’t get product to market. Canada is nearly paralyzed in an ocean of red tape and handwringing, bizarrely worried about our global reputation to the point that self-sacrifice is part of the government’s strategy, and is in the process of passing legislation that will seize things entirely (when a project has to spend more than half a second discussing “man camps”, you know it is doomed).

The oil pipeline battle is beyond well-documented, and the cost to the country every single day is incredible. Fewer are aware of the dumpster the natural gas business is in though, for similar reasons – a lack of market access. True, part of the natural gas problem lies with the antics of the near monopoly gas transporter. TransCanada Pipelines, or, what did they change their name to… NotCanadian Pipelines? Oh yes, TC Energy (10,000 shipping crates full of “TransCanada” logo-ed golf shirts heading for Africa, as we speak). Anyway, the elephant that is trying to hide by pulling a shrub over itself, via a name change that excludes the word “Canada”,  is running the country’s natural gas pipeline system like the Soviet Union used to manage the potato harvest, with random trainloads getting through and just as many left to rot in some remote rail siding.

So while the world is asking the petroleum industry to change directions, to get more environmentally friendly, and also to, well, kill it off outright, the Canadian energy industry’s ability to reinvent itself is being hamstrung by the abolishment of its cash flow. It’s not pretty.

In ordinary circumstances – such as when product can actually reach hungry markets – reinvention is somewhat easier. Shell is doing a considerable job of it, pushing a progressive agenda along with continuing to ensure a strong production base. But they are global, and are demonstrating these new visions pretty much anywhere in the world except here.

Canada’s petroleum industry is in for more of a challenge, given that it has to fight its own government, but that doesn’t mean reinvention is not happening. Amid the gloom of the empty office towers, the old can-do attitude is reappearing here and there like a plucky flower through a crack in the concrete.

Some of the reinvention is simply overdue processes, such as the firm that is recycling plastic liners from frack water tanks (Rundle Eco Services). Their vision is, like the best of the industry, a vision based on the principle that these initiatives need to be profitable and not supported by government largesse.

Others are more complex and technically challenging, but with absolutely monster potential payoffs. Stantec, the big engineering firm that is not SNC Lavalin, worked with Alberta Innovates on a “Bitumen Beyond Combustion” project that outlined potential uses for bitumen including use in carbon fiber, asphalt, and batteries of all things. Initiatives like this are game-changers, because, if they get off the ground, are indications that we have moved beyond the “haul your commodity to market and see what it gets” mentality. Canada has an abundance of raw materials; it is imperative that we find new ways to use them.

Critics of the industry are quick to throw rocks because the industry isn’t moving fast enough or doing enough. These critics, while a diverse group, have one near universal thing in common – they’ve never built anything. Or, put another way, they’ve never been responsible for developing, funding, planning, and executing major projects, reasonably on time and budget, under a bewilderingly difficult and time consuming regulatory process, and then making a profit at them. To them I offer a sincere STFU until they have.

On top of that, the world is beginning to see just how hard it is to change energy courses. After more than $4 trillion in renewable investment, the world’s energy sources remain stubbornly above 80% reliant on fossil fuels – a number unchanged in 30 years. As such, the middle ground of Canada, the 80% that is open to rational energy discussions, will realize that Canada’s petroleum sector is a well-run industry that will and should be at the forefront of any energy transition plan.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Reducing GHG emissions is abstract, reducing comfort levels is not, and don’t even think about the latter

I once volunteered to help administer a prize of some sort for an organization I can’t remember the name of (there are good reasons for the hazy memory, some sort of repression I think). The prize on offer was for an organic yard weeding – to whip someone’s yard into shape without the use of herbicides. The contest winner lived on the edge of the city on an oversized lot, and we arrived one fine evening to see an ocean of dandelions in bloom, for (what seemed like) as far as the eye could see (but was actually more tennis court-sized). The homeowner came out, and we told him why we were there, and he gave us a dubious “Really?” look, sort of sorrowful and puzzled, like one might give to a beginner-class boxer that won a title-shot fight against Mike Tyson in his prime. He said we didn’t have to do it, which was sort of like telling a grocery store clerk not to worry, that he didn’t have to solve world hunger. The volunteer crew, two or three of us, worked for an hour or so and cleared a patch that a good-sized dog could have covered. The remaining 99.9 percent of the dandelions met their fate in the usual chemical way, I presume; I did not return because I had other things to do with forties.

I was recently reminded of that warm evening and its accompanying feeling of pointlessness when reading some comments from the head of the International Energy Agency. Fatih Birol, at a conference in Vancouver, pointed out the realities of where we are at in the effort to reduce emissions by moving away from fossil fuels. Thirty years ago, 81 percent of the world’s energy mix was from fossil fuels. Last year, after over $4 trillion in renewable energy investment, fossil fuels make up…drum roll please… 81 percent of the world’s energy mix.

Peter Tertzakian penned an excellent analysis of the report, noting that “The gap between what we perceive, what we aspire to, and what is reality is already wider than the Pacific Ocean. And it’s getting wider… In fact, industrializing regions of the world are so demanding for all sources of energy that even the ‘approvals of conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth,’ says the IEA.”

Further buttressing this message was the annual BP Statistical Review of World Energy, a goldmine of energy information that the world needs desperately to comprehend but never will, because only nerds are unafraid to tread here. In the introduction, BP CEO Bob Dudley commented: “the data compiled in this year’s Review suggest that in 2018, global energy demand and carbon emissions from energy use grew at their fastest rate since 2010-11, moving even further away from the accelerated transition envisaged by the Paris climate goals… The strength in energy consumption was reflected across all the fuels, many of which grew more strongly than their recent historical averages… Despite the continuing rapid growth in renewable energy last year, it provided only a third of the required increase in power generation, with coal providing a broadly similar contribution.”

And that’s where we are now. A few decades of ever-spiraling climate warnings, trillions spent, massive renewable energy development, and we are moving further away from climate targets. It should be stunningly clear that the movement to isolate/strangle/destroy the fossil fuel industry is not working; all the war is doing is reshaping it – production is moving from regions where comfortable activists can attack it to regions of the world where people welcome it. Furthermore, the world’s energy demands simply expand when our income levels expand – we fly more, travel more, buy more, etc. Almost no one will sacrifice their standard of living in any meaningful way. Yes, we’re terrified of a climate apocalypse, and we’ll get right on that right after this trip to Europe.

The conclusion of these reports is inescapable, and hopefully one day soon policy chieftains will pay attention. The current agenda of the UN, as administered by the Canadian government, is acting completely irrespectively of the continued rise of fossil fuel usage. Forceful tactics aimed at limiting the size of Canada’s (or the US’, in the latest news) petroleum sectors is simply moving global petroleum production to other parts of the world that have lesser environmental standards. These tectonic shifts are resulting in a world that is getting fossil fuels from jurisdictions that have lower environmental standards than the ones in the countries that are being strangled.

It is also irrefutable that those who are using the fear of climate change as a means to reengineer the social order are not throwing in the towel; they are simply doubling down. The Extinction Rebellion movement will surely spread, if for no other reason than the band Radiohead decided to donate all proceeds from a new release of material to the group. Sales from a band of Radiohead’s stature will surely buy a lot glue for the XR warriors to attach themselves to immovable objects. But no matter what they adhere themselves to, the other 7-billion-odd people are in unison offering a collective and unmistakable “meh” when the latest firebrand pending-doom end-of-the-world scenario hits the web.

With this inevitable meltdown of climate-thwarting expectations should come the awareness that many, many strides are being made in all sorts of industries to lower emissions. It is impressive to pick up any technical journal for almost any industry and read about the efforts being made to reduce environmental footprints. We therefore should not be completely dismissive of environmental fears; genuine concern for the environment has sparked much thought and action to do what is realistic to reduce our footprints. We are on a decent trajectory, though not the one that some of the more exuberant activists want.

At the end of the day, that is all we have – emissions levels can be reduced, but 7 billion people are making it abundantly clear that it will happen gradually, and only if we remain comfortable. Efforts to upend the existing order, to “get off fossil fuels immediately”, are fools errands that will lead only to acrimony, divisiveness, and probably bloodshed. That might sound melodramatic, but it is probably literally true; ask the Extinction Rebellion woman who glued her breasts to the street – I’m betting there was blood shed as that fiasco was disassembled. Let’s hope that the coming injuries are limited to that sort of thing.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

UK Government Proposes Backdoor Subsidies to Onshore Wind and Solar

The UK’s Renewable Obligation and Feed-in Tariff have now, thankfully, closed. Unfortunately, the Department of Business, Energy and Industrial Strategy has announced an attempt to restore subsidies in a covert form, via the mysteriously named “Smart Export Guarantee” (SEG).

On the 9th of June BEIS released documents relating to upcoming secondary legislation, The Smart Export Guarantee Order 2019, a proposal to amend the Electricity Supply Licence to require large electricity suppliers (i.e. retail providers of electricity with more than 150,000 domestic consumers) to offer specifically designed off-take tariffs to renewable electricity generators up to 5 MW in capacity. This has been mistakenly reported by the British media as relating principally to “small scale” generators, with the Telegraph, for example, illustrating its story with a photograph of PV panels on the slate roof of a country cottage.

However, 5 MW is sufficient for 20 acres of ground-mounted solar panels, or 2 wind turbines of 150 metres in overall height, and in fact it is such far-from-micro generators that are the most probable beneficiaries of this scheme.

Examination of the government’s detailed proposals shows that the SEG is designed to establish a camouflaged backdoor route by which subsidies to onshore wind and to ground-mounted solar can be restored.

This contravenes the Treasury’s ruling that there should be a moratorium on new subsidies for the sector until the total consumer cost starts to fall, which is not expected until the mid to later 2020s. The Chancellor and his colleagues should be furious at this attempt to evade stated public spending limits.

Superficially, the level of the tariff offered is left to individual suppliers to decide, although it must be positive at all times, meaning that renewable generators will never have to resort to negative pricing, whereby a generator pays to dump their unwanted electricity on the markets.

However, in spite of the absence of a mandatory tariff level, the Department’s “Consultation Response” makes it very clear that government will be applying pressure to ensure that the rates are “appropriate”. Ofgem is to provide “guidance” (see p. 18 of the Consultation Response), and in a thinly veiled threat BEIS writes that “Government will consider reviewing these tariff setting arrangements, if it becomes clear that small generators are not able to access a competitive range of export tariff options.” (p. 15, and also see p. 13).

Indeed, at one point BEIS observes that:

“We will consider reviewing the tariff setting arrangements if we consider that offerings are not reflective of market values or unreasonable discounts are being factored in.”

In other words, the SEG proposal forces suppliers to offer a positive tariff to renewables, leaving them free to set the tariff at any level they like so long as Ofgem and BEIS agree that it is “rational”. They can offer any tariff they like so long as it is above the market rate, or “reflective of market values” to use BEIS’ euphemism. Of course, given the uncontrollable output of wind and solar, the actual merchant value of their electricity is low, well under that of the wholesale price commanded by dispatchable, generators responding to market demand, so even a guarantee of the wholesale price would constitute a subsidy of a significant kind.

BEIS repeatedly refers to the SEG as a “market-based solution” or “market driven” instrument. In truth, the real-world result of the Smart Export Guarantee will be to put suppliers under pressure to offer above market rates to renewables. The Department of Business Energy and Industrial Strategy, not the market, will decide what price is reasonable.

BEIS will deny it, but this is obviously a veiled market coercion backed up with the threat of punishment if suppliers don’t do what, with a wink and a nudge, they are told. The Smart Export Guarantee is a support mechanism, a subsidy under another name. Indeed, it is State Aid.

Strikingly, there is no closure date for the SEG programme (p 18), so without a clear decision from a future government it will apply in perpetuity. In some ways this makes the Smart Export Guarantee worse than the Renewables Obligation or the Feed in Tariff which, though foolish, were at least time limited. A generator had a limited number of years of entitlement to subsidy, and the schemes delivering those entitlements had clear closure dates. The SEG tariffs, on the other hand, will probably be available to a generator for as long as they wish to stay in the market, and the SEG itself would remain a mandatory regulatory requirement on suppliers until a future government decided to cancel it.

In spite of the powerful market distorting character of the intervention, BEIS has decided (pp. 7, 37) that there will be no central and public register of the SEG contracts, the spurious justification offered being that it would “create additional burdens while offering limited benefits” (p. 7). The convenient outcome of this decision is that the consumer cost of the SEG policy will be almost impossible to calculate. Her Majesty’s Treasury, for example, will have no idea how much the SEG is distorting the market, and the costs will not appear in the Office for Budget Responsibility’s calculation of the burden of environmental policies. Futhermore, the general public will be unable to determine how much the SEG is costing consumers through increased prices and bills.

In point of fact, as the Impact Assessment itself admits, it is not possible to estimate the cost of the policy since the tariffs to be offered are not known and the market response is “uncertain”. The policy is uncosted and uncostable. That is surely unacceptable.

However, the Impact Assessment does present some estimates of the policy’s consequences, but these are misleading. Without any justification, the department predicts (in Table 2) that net effect of the tariffs will be to encourage the construction of only trivially, small quantities of new capacity, 1.6 MW per year of wind, one medium sized wind turbine, and 11 MW per year of solar, a handful of sites. These are ludicrous estimates, and if they were true, then the SEG would be an absurdity, a heavy bureaucratic imposition on energy suppliers for, in effect, zero benefit.

In fact, and BEIS surely knows this, with favourable tariffs uptake could be very high, as it was with the Feed-in Tariff (FiT), which delivered 6,000 MW of capacity in few years. The SEG could easily encourage solar and wind capacity as rapidly and on a comparably large scale, and if it does there will inevitably be significant consumer costs. The FiT is now adding £1.5 billion per year to consumer bills. The Impact Assessment does not address the clear possibility, indeed likelihood, that the SEG will result in similar or even greater consumer burdens.

Indeed, it appears that this entire scheme has been expressly designed in order to conceal the probable costs and subvert any reasonable public oversight of and control over the scale and allocation of these new subsidies for renewable generation. Mr Clark, Secretary of State at BEIS, has made many questionable decisions during his tenure. The Smart Export Guarantee could easily prove to be one of his worst.


About the Author

The Global Warming Policy Forum is a London-based think tank which conducts campaigns and activities which do not fall squarely within the Global Warming Policy Foundation’s remit as an educational charity.

Who’s not taking emissions seriously? Globe-trotting climate delegations not fit to lecture a vastly-improving energy sector

Ever been a visitor to a seniors’ home, or even a hospital, visiting a sick loved one or perhaps someone you have injured, and heard in the background one of those humans that relentlessly whines and complains about everything? And you observe that the care workers are seemingly oblivious to the irrationality and ceaselessness of the griping, even when us mortals are casting our gaze about for a pillow that is, at a minimum, face-sized, and you realize that in some settings that is one’s lot in life – to support and keep alive people who are not just ungrateful but in full attack mode because in their belligerent addled minds they know how to do it all better?

And we’ll return to that thought in a bit, but first let’s consider the world from a different angle, and talk about chickens. Well, indirectly anyway, and not talking about chickens qua chickens (as the philosophers say), but from the perspective of vested chicken interests. No, don’t go there either, I’m not talking about “vested chicken” interests, but “vested chicken interests”, people that make their living from the poultry industry.

The poultry industry has banded together to talk about the value of chicken, to help educate average citizens as to the realities of their industry and how well it is run. They’ve set up a web page to discuss explicitly the “Environmental Performance of Canadian Chicken”. The site has valuable eco-information such as that the environmental footprint of Canadian Chicken has been reduced by 37 percent from 1976 to 2016.  

Whether you are dazzled by that statistic or not is up to you, but consider the very existence of that web page, and the content it confers. Canadian chicken farmers are standing up to point out the contributions they are making to reducing their environmental footprint, and it is undoubtedly substantial. Ten or twenty years ago, that would not have happened.

In fact, many organizations are stepping up to improve environmental stewardship, and while few have historically mentioned these achievements, they are now starting to do so because no one notices otherwise. Chicken-ranch emission levels don’t often come up at dinner parties, unless the banality of small-talk is driving me around the bend and I make it an issue to amuse myself. But people – and the media – sure as hell will notice if any business puts an environmental foot wrong. But improving things doesn’t make news. Just ask the poor “Let’s talk chicken” group how hard it is for that topic to go viral.

Similarly, the energy industry is making some truly staggering progress on the environmental front. Starting with the biggest fish, Canada’s oil sands producers agreed, a few years ago, to a voluntary cap on oil sand emissions of 100 megatonnes (Mt). That achievement did not get the green credit it deserved, because it should have convinced the world for once and for all that the oil sands would not single-handedly flood the world with dangerous emissions. Recently Shell announced that the Quest carbon capture storage project has stuffed 4 Mt of CO2 into the ground, the equivalent of the emissions of a million cars in a year. In the US, a Canadian company – Carbon Engineering of Squamish, BC – is in the engineering phase of building a carbon sequestration project that is expected to include multiple sequestration plants capable of removing 1 Mt per year, each.

Speaking of Carbon Engineering, the company is co-owned by none other than Murray Edwards, who also founded what has become one of the largest petroleum companies on the planet. Canadian Natural Resources is a powerhouse in Canadian oil and gas, and also is a relentless proponent of reducing its GHG and environmental footprint. CNRL has decreased GHG emissions intensity by 18% since 2013; if the rest of the world had followed suit the world would be well on its way to meeting whatever global target the UN set up (though one suspects that would be a moving target, as with the endlessly updated “end of humanity” temperature bogey).

There are countless other examples that can be found easily enough if people are interested in actually finding out. Any knuckle-dragger can find similarly successful projects on Google, if they choose to look. This progress, from the chicken guys to Carbon Engineering to CNRL, is amazing stuff, and the world needs to take notice. But before that will happen, Canada needs to change its narrative, starting with the top.

The federal government and their Gregorian-chanting doom acolytes keep saying that “Canada needs to do something” or, “it’s not good enough, we need to do more.” Well, some parts of Canada ARE doing something. And some parts aren’t, even if they’re just as loud and belligerent as the angry geriatrics who tirelessly shout how they could run the whole place a damn sight better.

How about jet-setting climate activists? And not just them, but anyone else that climbs on a plane. Flying is the lowest of the low hanging fruit – no one needs to fly, ever, except in medical emergencies. But even amongst that crowd, the mindless hypocrisy of the climate activist crowd is nauseating. Flying 20,000 people to exotic locations to attend climate change conferences (and lord, do the activists like exotic locations for conferences) only reinforces the point that cutting emissions materially is unbelievably unpopular. It’s not just the climate travellers; air traffic has grown from 1.5 billion passengers in 1998 to 4 billion in 2017 – and is expected to grow to over 8 billion annually by 2037. That is an incredible amount of fuel that’s going to be burned. (A glaring question arises as to why video conferencing won’t work for those people; businesses are adopting it hand over fist.)

It is high time to end this BS narrative that Canada “isn’t doing anything” to fight global emissions, like Minister McKenna likes to say (louder and louder, because, well, you know…people will “totally believe you” when you shout at them right?). It is patently untrue. It is also an unacceptable narrative to demand that Canada become a low per capita emitter, when it supplies the world with an outsized portion of its resource requirements. Metals, minerals, food, lumber, and hydroelectric power don’t leap out of the ground upon command; it is embarrassing that our politicians can’t seem to realize or articulate that. If they can’t or won’t, the rest of us must. Don’t let loud-mouthed fools get away with it, at the next dinner party – you don’t have to obliterate them with logic, though that can be fun, but don’t shy away from standing up for a continuously-improving Canadian petroleum industry that is crucial to the world’s standard of living.

What is glaringly true though is that the people that are shouting these things the loudest are carrying on with consumptive lifestyles just like everyone else (I’m dying to see an activist-circulated pledge to quit flying forever). Once Canadian business figures out the social media freak show, maybe we can start explaining to the world that they’ve been sadly and severely misinformed.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Quebec feels Alberta's pain, so why keep blocking pipelines?

As Quebec continues to face it’s own “dirty energy” export problems, their politicians should understand the pain Albertans are going through, but they are still deciding to oppose pipelines.

Last year, Hydro-Quebec generated nearly $15 billion by selling more than 200 TWh of electricity. Despite these high sales, Quebec produces “too much” energy and Hydro-Quebec must regularly let water flow away without generating electricity, resulting in millions of dollars of lost revenue.

Eager to reach new markets — a feeling Albertans appreciate — Hydro-Quebec has pushed to build new export lines through New Hampshire and Maine to reach customers in Massachusetts.

Unfortunately for Quebecers, the province has been getting a dose of its own medicine.

“(Hydro-Quebec) has met fierce environmental resistance by U.S. interest groups, First Nations and some municipal authorities, who say its proposed transmission lines would be disastrous for ecologically sensitive areas,” describes Jesse Snyder, writing for the Financial Post.

In 2018, New Hampshire’s site evaluation committee voted unanimously to reject Quebec’s export line to Massachusetts, which could have generated $10 billion over 20 years, according to Hydro-Quebec.

Quebec’s second route to Massachusetts also faces challenges. While Maine’s Public Utilities Commission has granted a key certificate to the transmission line going through the state, the project is still under review by the Maine Department of Environmental Protection, the Land Use Planning Commission and the U.S. Army Corps of Engineers. The project also faces opposition on the ground where numerous opponents are vowing to fight at every step.

U.S. opposition to Quebec’s hydro-electricity is eerily similar to the sentiments Quebec politicians have expressed towards oil pipelines coming from Alberta.

“The people of New Hampshire rejected the unreasonable burden of international transmission lines proposed by Eversource and Hydro Quebec,” states a Sierra Club release following New Hampshire’s rejection of Quebec’s export line. “This decision gives Governor Baker the perfect opportunity to pick better clean energy projects … Wind and solar power within New England would do more to provide the affordable, reliable, and truly clean energy that we need.”

Sound familiar? Here’s what Quebec’s premier said about pipelines.

“There is no social acceptance for a pipeline that would pass through Quebec territory,” said Quebec’s Premier François Legault. “I am not embarrassed to refuse dirty energy while we are offering clean energy at a competitive price.”

But there’s a key difference. While U.S. opposition has been directed at foreign production, Quebec’s politicians are driving a stake through the heart of our national unity. And it’s costing Canadians big time.

Because governments, including Quebec, have opposed pipeline development within our borders, Canadian businesses have lost out on billions of dollars, Canadian workers have lost out on thousands of jobs and Canadian taxpayers have lost out on billions of dollars worth of government services.

According to analysis from the Canadian Taxpayers Federation, taxpayers lost $6.2 billion between 2013 and 2018 and can expect to lose another $3.6 million every day until 2023 if governments continue to get in the way of pipelines.

That means between 2013 and 2023, a lack of pipeline capacity could cost all provinces and territories at least one new hospital or 25,000 fully funded new teachers for 10 years. With that money, all residents in Quebec City could be exempt from all federal taxes for two and a half years.

Nobody wins when governments get in the way of development. It’s time for Quebec’s politicians to follow the golden rule, allow resources to flow through their borders and help all Canadians pay for more important services.


About the Author

Franco Terrazzano is the Alberta Director of the Canadian Taxpayers Federation and Renaud Brossard is the Quebec Director. The CTF is Canada's leading non-partisan citizens' advocacy group fighting for lower taxes, less waste and accountable government.

Conservatives pitch a Cross-Canada energy corridor in election platform

In a campaign policy speech this week, Canadian Conservative Leader Andrew Scheer announced that if he wins this October’s federal election, he will work toward establishing a cross-country “energy corridor” dedicated to rail, power lines, and pipelines – an idea that has been around for over fifty years. In the past, energy infrastructure proposals have failed to secure approval due to tough regulatory processes and community concerns over environmental impacts.

Mr. Scheer said planning for the route would be done up front, in consultation with provinces and Indigenous communities, and a right-of-way would make it easier to lower environmental assessment costs, improve certainty for investors and increase the chances more projects will be built.

Recently, a handful of academics and senators have recommended the federal government give the corridor concept a serious look, including a 2016 University of Calgary paper that offered possible solutions through a northern corridor for transportation and infrastructure. G. Kent Fellows, who co-authored the report, said the right-of-way could be used for roads, rail, pipelines, electricity transmission lines and telecommunications. The study’s proposed 7,000-kilometre corridor would also serve communities well north of the existing east-west routes that run closer to the United States border. In concept, a main line and offshoots would connect ports in northern British Columbia and the Northwest Territories to Churchill, Man., eastern Quebec and Labrador. Mr. Fellows said dedicated infrastructure corridors have had success in other jurisdictions, including Europe and Australia. Mr. Fellows estimates the creation of a corridor could take decades, upwards of half a century, and a preliminary calculation estimates a cost of CAD $100 billion.

Reviewed by a Senate committee, they published their own report in 2017 and called the corridor idea a “visionary, future-oriented infrastructure initiative” that would create significant economic opportunities for Canada and help develop northern regions. The Senate committee report said, “Because an initiative of this scale and scope would likely take decades to complete, the federal government — on a priority basis — should ensure that a feasibility study on the proposed northern corridor is undertaken.

The committee report credited a 1971 report written by Richard Rohmer, an air-force veteran of D-Day who became a prominent land-use lawyer with the ear of Governor General Roland Michener, who proposed the development of a “mid-Canada” corridor and recommended federal, provincial, and territorial governments make it an urgent priority. The report was presented then-Prime Minister Pierre Trudeau but the committee said his government never moved forward on the idea.

When serious climate-change news is funnier than satire, is it the end of the world or the rebirth of common sense?

Promoting a book is not easy, in large part because to do so successfully requires full participation in the foul world of social media. It looks simple but simple mistakes can cost you an arm or a career (ask Howard Dean, a US politician who obliterated his political career with a singular yowling noise he brought forth in a speech; a fatal error in the speed-of-light digital era). I made a rookie mistake on Twitter recently, and was fortunate to emerge unscathed – I was not savaged for the error, nor did it go viral. Going viral is a delicate affair – in a positive way it is the key to modern success; going viral in a negative way is like inhaling a whole envelope of anthrax.

So, what happened was that I noticed a tweet in the endless stream from one of the sharpest minds I’ve encountered on the web, a fearless jouster known as DawnTJ90. She (I assume, who knows) posted a link to a story about how climate change is making sharks right handed. I marvelled in a quick comment that these parody sites are getting very creative and funny. Then I followed the link, read the story, and realized that it was serious – yet another group of grant-harvesters was “studying” this climate-change consequence and had actually published research on it, with a straight face. I therefore hastily deleted my tweet; can you imagine being such a social media loser as to be unable to tell the difference between a parody site and the real thing? I have no interest in following Howard Dean’s career down the toilet, and luckily there were no further humiliating consequences.

Shortly after, much wiser now, I stumbled across another article entitled “Situation Worsens In Venezuela, Bolivia, U.S., Japan, Mexico, Iraq, Spain” which inflicted some eye-rolling at yet another “countries that are warming faster than others” climate-change catalog of horrors. Even the most sober and solemn new sites are full of such goose-stepping analyses nowadays. I read through it to see what the catastrophe was this time.

But damn it I got it wrong again. That headline, as it turns out, emanated from The Onion, self-billed (with tongue firmly in cheek) as “America’s Finest New Source”.  You can judge that for yourself (I tend to agree) by pondering a few of their other recent headlines: “New MLB Rules Limit Number of Mound Conjugal Visits”; “Panicked Man completely out of things to talk about 5 minutes into marriage“; “Proud Business Owner tapes first Customer to Wall“; “Doctor Alarmed by How Little Time Family Needed to Decide to Pull Plug on Grandfather” and so on and so forth. The article I read was cut from similar cloth, listing unnamed ailments from virtually every country on earth as some sort of pointed commentary on how dumb those types of articles have become.

So, where does this leave us? Well, the movement to save the world has extrapolated from a simple “a warming planet may imply gradually shifting local climate characteristics”, which is reasonable and science-y enough, to teeth-rattling bombast about how any theoretical scenario imaginable that is bad is coming straight down the pipe. It’s true that we don’t really know if right-handed sharks are going to create problems, other than that they may be more analytical and less artistic, but through the lens of climate change, all that matters is that this is bad.

This is all very funny, until it’s not. The spreading fog of lunatic climate predictions springs forth from a group that also has the noose out for the petroleum industry, and they’re waddling relentlessly forward in that molten, smothering, revolutionary-but-unthinking communist way, oblivious to the fact that they are trying to strangle the source of their livelihood. To point out that the industries they wish to annihilate are keeping them alive is to be no different than an 80-year-old on crutches standing in the path of ten thousand stampeding buffalo.

This mass hysteria isn’t unprecedented; in fact, mob rule is a common human habit that has popped up through the ages. We are steps away from another mob takeover, a potentially massive one; we have loons gluing themselves to roadways in Europe to protest something or other (despite the sounds coming out of their mouths, they aren’t protesting for what they say they are, or they would never fly or use fossil fuels again). Other vacuous climate-saving tacticians climb over pipeline-facility fences to mindlessly start turning valves, which they apparently believe to be some sort of earth thermostat.

The lunacy is not a nightmare, it is all real, and it is a revolution fuelled by true believers who think they are saving civilization. The consequences are going to be fascinating, particularly since the world’s thirst for hydrocarbons grows every day, every year.

We can expect to see more strangulation of global capital supplies, meaning that any new petroleum infrastructure in the western world will become harder and harder. As a consequence, any entity that owns quality petroleum assets, and has the ability to get them to market (sit down, Canada), is going to be in excellent shape as petroleum prices rise (increasing demand and shrinking supply will do that). Some parts of the world that aren’t as worried about public environmental pressure (stand up, Russia, Middle East, Africa) will become more dominant in petroleum supplies, but there is not much we can do about that.

While that is going on, the public will reach the crossover point, just as I did, where it can no longer tell the difference between parody and the news. We are very close. At that point, the world will smell a rat with respect to all the climate doom predictions, once people realize that they aren’t dying as quickly as they are supposed to be, that their world has not been turned into a desert or been submerged, and that shark bites feel exactly the same whether the beast throws with its right fin or left.

Once we reach that phase on a large scale in the mass media, where it is obvious to all that the whole fear-machine has turned farcical, the activists will disappear into the tall grass like rats fleeing a burning building, and we will finally be able to discuss potential changes to the world’s energy systems in a coherent manner. Until then however, good luck trying to differentiate between climate change news articles that terrify you and those that make you laugh.  It’s getting really hard.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Pay for a Green New Deal by removing “fossil fuel subsidies”? Can anyone possibly be that financially illiterate?

Recently, while wandering through the often-wondrous but sometimes-brainless world wide web, I came across an article about how to pay for a Canadian Green New Deal. Normally, except for Harry Potter, I am not much interested in fantasy literature, but this one caught my eye because it dredged up an old chestnut that I hadn’t seen for a while –  that green social schemes could be paid for by eliminating fossil fuel subsidies. “IMF economists calculate that Canada pumps a shocking $58 billion per year into propping up coal, oil and gas companies,” the article fumed.

Little work has been done in unplugging that philosophical toilet lately, so let’s revisit the “fossil fuel subsidy” landscape. The article relies heavily, almost exclusively, on an IMF Working Paper that tries to make scientific an argument not unlike who is stronger, the Hulk or Hercules. In the interest of fairness, I plowed through the paper for as long as I could endure in order to see if my assumptions about the vapid concept would stand up to the juggernaut of financial acumen that a group of IMF economists can muster. They did not let me down. Oh lord, what an academic slough the document is.

I wasn’t able to make it through the whole thing for fear of developing some sort of tumour, but here is an analysis of the fundamentals underpinning the work.

Firstly, the analysis starts with an example of what the group calls a subsidy – the difference between what oil/gas is sold for relative to what it would get in the export market. As the mock-scientists put it, “For products traded across regions, such as gasoline and diesel, this can be measured by the international reference price as reflected in the cost faced by importers or the revenue foregone by domestically consuming rather than exporting the product.”

Now it gets really funny. Consider that in the Dogwood article above the author rages at the subsidies the Canadian industry receives. Included in this “subsidy” then, by their definition, is the difference in value between what Canadian oil and gas fetches compared to what it would receive if sold on the export market (they call open-market values “efficient pricing”). Please take a second to think of the complete and utter obtuseness of that rationale. Activist lunatics destroy market access for Canadian oil and gas, then have the effrontery to include this lost value in the “fossil fuel subsidy” bucket. You know when you buy something like a meat grinder and it comes with a warning sticker that says “do not insert fingers in the meat grinder”? Those stickers are for these people. (Yes, I do promote civil dialogue – with those who want it. For those who devote their professional lives to disinformation…next.)

Then the economists tackle climate change by applying a “social cost of carbon” (SCC) to fossil fuels, declaring that to be a subsidy. The value of this social cost is calculated as the average of 3 measures: a cost derived from an estimate of what it would cost to keep global warming under 2 degrees (which is unknown and unknowable but through the miracle of modelling deemed to be $40-80/ton); an “assessed” value consistent with countries’ mitigation pledges, which are 100% unrelated to reality (because pledges are voluntary, quasi-measurable, and mostly theatre), but nevertheless deemed to be $35/ton; and a third measure defined as, and I quote, “some recent assessments suggest an SCC of around $35 per ton for 2015 emissions (in U.S. $2015), though estimates are contentious.” Based on this rock granite mountain of evidence, the grant-harvesters announce that “Based on this summary, the estimates discussed below assume, common across all countries, an illustrative value of $40 per ton.” Sure, why not, because who could possibly see any difference between Cameroon and Monaco and India and Canada? I know it’s meant to be an average, but is it meaningful to add, by country, the number of dogs to the number of apples to the number of prostitutes, and create economic policy based on the average country score? In the hallowed halls of academia, they solemnly nod yes, it is. 

This number is then applied to all fossil fuels consumed, and deemed a “subsidy”, despite the fact that life as we know it would cease to exist without these fossil fuels. By this measure, food is a “subsidy” to your life. If you insist on piling this fictitious cost on fossil fuel consumption, then it is a tax. But it is not a subsidy.

I could not take much more of this garbage, but I will leave you with one final dumpster of tortured logic. The last sentence under the section “Definition of fossil fuel subsidies” notes that “Subsidies for non-fossil fuels are excluded from our calculations” and this is footnoted. Given that the whole point of the article is to smear fossil fuels, it would make sense that the authors excluded this, but the reason given in the footnote is something else: “Renewables subsidies in power generation, for example, were $140 billion worldwide in 2016 according to IEA (2017). Note, however, that efficient fuel pricing would remove one of the key motivations for renewable energy subsidies.”

In other words, the phrase “efficient pricing”, a concept (as used in this paper) that is so daft that only economists utter it, is used to calculate “subsidies” for oil and gas that are not allowed to reach markets in Canada, and are excluded from the calculation of renewable subsidies because to use the same yardstick would discourage adoption of renewable energy. You cannot make this sh_t up.

On the Canadian front, if we step away from the loaded diaper that is this report, we find the Dogwood people thundering at Canadian-specific subsidies that include purchase of the TransMountain pipeline and accelerated write-offs of oil and gas investments. This is even more depressing; the IMF economists at least try to hide behind a veil of academic superiority; the Canadian bashers simply don’t understand what they’re talking about, like simpletons mocking a judge for wearing funny clothes.

Buying the TransMountain pipeline was not a subsidy for anything. It changed nothing for the energy business; the exact same volume flows down it every day (and it is an exquisitely perfect amount; a single barrel less and BC will sue Alberta; a single barrel more requires an unacceptable expansion. Saving the planet is an extremely precise science.)

Accelerated write-offs of capital expenditures are universal across every industry, as opposed to straight line methodology. If the zealots who want to remove fossil fuel subsidies want to tackle this one, they need to explain what the appropriate write off rate should be, because every business gets to write off its expenses. That is how business works.

However, understanding how business works is clearly not something the Dogwood crowd is interested in. As a final capitulation to brainlessness, the author declares that the money used on fossil fuel subsidies could pay for the Green New Deal. But even this cursory inspection of the components of “fossil fuel subsidies” shows that the “money” is actually an illusion, mostly a bunch of theoretical penalties that would not exist if applied because the ground would change underneath. A missing “social cost of carbon” is not a stuffed bank account. In other words, there is no pot to raid to pay for the Green New Deal here. The whole Dogwood argument is a vapid pile of hateful nothingness.

Having said that, given the sway that environmental advocates have over society via the fear hammer, there is a reasonable chance that some sort of disastrous policy like a Green New Deal could be enacted in some doomed country. If/when that happens, do try to catch the spectacle. These fools will make Venezuela look like Switzerland.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Economic Report | Part 5: Leveraging Opportunities, Diversifying Canada's Oil and Natural Gas Markets

CAPP’s Vision for the Future of Canada’s Oil and Natural Gas Industry

For more than 150 years, Canada’s oil and natural gas industry has been a reliable and affordable supplier of energy for all Canadians, and has improved the future of our nation. From spurring economic growth to developing major nation-building energy projects, our country’s energy sector is woven into the fabric of our nation, and is as much a part of Canada as the maple leaf.

The Canadian Association of Petroleum Producers (CAPP) represents an energy industry that is looking to the future – one that values sustainable development practices and lower-carbon processes. With a growing world where many emerging economies need a variety of energy products, we want to help create a vision for Canada’s oil and natural gas industry that recognizes the significant role our resources play in the world’s future energy mix.

Canada has taken a leadership role in becoming one of the world’s most responsible oil and natural gas producers, recognizing resource development needs to be done in a responsible manner. The onus is on all Canadians to ensure we remain the world’s energy supplier of choice.

Our joint vision for the future needs to look at the big picture – a global view of the long term that includes access to world markets, effective regulatory outcomes, commitments to innovation, global climate leadership, and enabling a strong, reliable and dynamic fiscal framework.

We need collaboration between industry and all levels of government to rebalance the playing field and restore our country’s competitiveness to benefit all Canadians, not just the oil and natural gas industry. We can satisfy the world’s demand for energy but to do so we need to work collectively to create an ambitious plan for the future.

Together we can provide the world with the energy of tomorrow.

Sincerely,

Tim McMillan

President and CEO, Canadian Association of Petroleum Producers



About the Author

The Canadian Association of Petroleum Producers (CAPP) is the voice of Canada's upstream oil and natural gas industry. We enable the responsible growth of our industry and advocate for economic competitiveness and safe, environmentally and socially responsible performance.

American shale oil is the world’s second cheapest source

Norwegian energy research and business intelligence company Rystad Energy says North American tight oil is emerging as the second cheapest source of new oil volumes globally, just shy of the Middle East onshore market. They estimate that total recoverable resources from North American tight oil has more than tripled since 2014. Four years ago, United States’ shale oil was the world’s second most expensive oil resource.

According to Rystad Energy’s global liquids cost curve, North American shale ranked as the second most expensive resource in 2015, with an average breakeven price of USD $68 per barrel. The average Brent breakeven price for tight oil is now estimated at USD $46 per barrel, just four dollars behind the giant onshore fields in Saudi Arabia and other Middle Eastern countries.

Head of Upstream Research at Rystad Energy Espen Erlingsen said, “As the majors are struggling to replace conventional liquids, a wealthy source of additional resources is tight oil. The North American tight oil industry has changed considerably since 2014, as it has proven to be a competitive supply source in a low price environment. While costs for tight oil have been reduced, the resource potential has grown considerably over the last four years.”

For oil companies struggling to replace conventional resources after years of disappointing exploration results, tight oil simultaneously offers a base for growth, increased flexibility, and attractive returns. Whereas offshore normally needs seven to 12 years to recover costs, tight oil typically requires only two to four years.

Mr. Erlingsen added, “Tight oil is a short cycle investment with a relatively brief lead time from the sanctioning of new wells to the start of production. This gives E&P companies the flexibility to adapt to market conditions and easily change activity levels. In the ever-changing oil price environment, this implies tight oil investment has less uncertainty compared to offshore.

Chinese natural gas consumption up 10 percent in 2018

A ResearchAndMarkets report shows that in China in 2018, the consumption of natural gas for power generation, household use, and industrial purposes increased significantly while the consumption of natural gas in the chemical industry decreased slightly. Preliminary estimates show that the consumption of natural gas in China exceeded 27 million cubic meters in 2018, registering a year-over-year increase of more than 10 percent.

In 2018, the Chinese government introduced several environmental protection policies to further prevent and control atmospheric pollution and replace coal with natural gas in key areas, which pushed up natural gas consumption in China. In 2018, the consumption of natural gas in provinces such as Hebei, Jiangsu and Guangdong all saw an increase of more than 3 billion cubic meters.

Restricted by reserves and exploitation conditions, the report determines that the production volume of natural gas in China has little growth potential. Insufficient domestic production forces China to import a large quantity of natural gas to meet domestic demand. In recent years, China's reliance on natural gas imports is rising sharply with the rapidly growing import volume of natural gas. In 2018, China surpassed Japan to become the world's largest natural gas importer.

LNG dominates China's natural gas imports. According to the report, the import volume of LNG in China reached 53.78 million tons in 2018, increasing by 41 percent year-over-year. Natural gas importers in China have signed many LNG procurement contracts with global natural gas suppliers. For example, in 2018, China National Petroleum Corporation (CNPC) signed LNG import contracts with Cheniere, Qatargas and Exxon Mobil; China National Offshore Oil Corporation (CNOOC) signed LNG import contract with Petroliam Nasional Berhad (PETRONAS). In addition, CNOOC's LNG contract with British Petroleum (BP) will be honored in 2019, which means that CNOOC's new LNG contract volume will exceed 10 million tons/year.

China is also building long-distance pipelines to facilitate the transportation and allocation of natural gas on the domestic market. At the end of 2018, the total length of China's long-distance natural gas pipelines was close to 76,000 kilometers, including the Erdos-Anping-Zhangzhou Gas Pipeline, Inner Mongolia-Shanxi Gas Pipeline, and Chuxiong-Panzhihua Natural Gas Pipeline (a branch line of China-Myanmar Pipeline), China-Russia East-Route Natural Gas Pipeline, and the Qianjiang-Shaoguan Natural Gas Pipeline.

Since natural gas is environmentally friendly and easy to transport and use, its demand in China is expected to continue rising from 2019 to 2023. As the growth rate of the production volume is far lower than that of the demand, the import volume of natural gas in China will keep growing from 2019 to 2023.

As global natural gas usage rises, NE USA cuts supply to the detriment of its citizens

Natural gas, or methane, is the primary affordable, non-polluting fuel for heating, cooking, industry, and electricity generation across the world. However, American states including New England, New York, and a handful of other nations around the world are cutting their use.

Despite water vapor being the largest waste product from methane combustion, New England states have decided to curtail the use of gas to reduce greenhouse gas emissions – Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont now pursue decarbonization targets that call for a 75 to 85 percent reduction in emissions by 2050. Adopting a policy of “strategic electrification”, these states aim to eliminate natural gas and propane from home and water heating applications by replacing them with electric appliances and heat pumps that use electricity from wind and solar systems.

With negligible environmental benefit, the most significant impact of eliminating natural gas and propane for heating will be the incredible increased cost for New England residents. In 2015, the US Department of Energy determined that 58 million Americans use natural gas as the primary heating fuel, and this is highest in New England, where hydrocarbons are the primary fuel for over 80 percent of homes. A 2017 study by the New York State Energy Research and Development Authority found that only four percent of the state’s heating, ventilation, and air conditioning load could cost-effectively switch to heat pumps.

To proceed with their “strategic electrification” agenda, New England policymakers have blocked construction of new gas pipelines. As a result, New England now faces critical shortages. In January, utility Con Edison announced a moratorium on new natural gas customers in Westchester County, New York. That same month, Holyoke Gas & Electric of Massachusetts also announced that it can no longer accept new natural gas service requests due to a lack of supply. Particularly in winter months, New England residents pay high prices for heating and electricity and shortages can push residential gas prices up by as much as 400 percent.

Between 1965 to 2017, global natural gas consumption increased nearly six times, from 631 billion cubic meters to 3.7 trillion cubic meters per year. Gas use in North America doubled, increased in Europe by a factor of 14, and skyrocketed in Asia Pacific by a factor of more than 100. In 2017, natural gas delivered 23 percent of the world’s energy, up from about 15 percent in 1965. Today gas provides nine times as much global energy as wind and solar combined.

In 2017, the Netherlands’ government called for elimination of all natural gas usage by 2050. Despite the fact that 90 percent of Dutch homes are heated by natural gas, the government proposed that 170,000 gas lines would be disconnected every year, to be replaced by geothermal and heat pump systems. Last year Amsterdam announced a phase-out of natural gas in favor of more “sustainable” sources of energy.

Internationally, in contrast to efforts to curtail gas use in New England and Netherlands, global shipments of liquefied natural gas (LNG) are exploding to help satisfy growing demand. World LNG trade increased 12 percent in 2017, 10 percent in 2018, and is projected to increase by another 11 percent in 2019. LNG demand is growing the fastest in China, South Korea, and Pakistan, and Japan and South Korea remain the world’s largest importers of liquefied natural gas. This LNG supply is dominated by shipments from Australia and the shale gas in the United States.

A (second, less cranky) open letter to Victoria’s Mayor

Dear Mayor Helps,

A few months ago, Canadians noticed in the news that Victoria was considering a lawsuit against petroleum companies to hold them accountable for the effects of climate change. The story broke soon after Whistler’s mayor signed a letter to oil companies asking for compensation for same, and the one-two punch was too much for Canada’s energy industry. The howls of outrage were heard across the land, and no one howled louder than I did.

In early April, my shrieking subsided a bit when I read a news article in which you mused that “fighting lawsuits is probably not the best way to spend our time.” My ears perked up a bit; this was unexpected given the strength of the pro-lawsuit campaign.

Then, it was with extreme pleasure that I heard that you would actually come to Alberta to visit an oil sands production site. And then you really did! Furthermore, while other famous stars have visited, denounced, and returned to a gloriously clueless life of hypocrisy, what you had to say sounded incredibly statesmanlike: “I feel like I’ve come and looked at a different paradigm… a paradigm that oil and gas extraction is going to happen for the next 50 years at least, there’s long-term investments in this industry. I live in another paradigm where there’s a desire to phase off of fossil fuels in the next 20 to 30 years and to move to a zero-carbon prosperity. Those are two different paradigms, but at least now I have a foot in both and understand both.” A subsequent news article quoted you as saying about your trip to Alberta: “It was extraordinary. I knew nothing about the sector or very little about the sector…There’s nothing like actually standing in the field to dispel some of those myths.” 

The entire energy business in Canada, from Manitoba to BC to the Arctic Ocean to eastern Canada, has been desperately waiting to hear a politician say something so sensible. Why on earth can’t Trudeau or McKenna or Horgan spend a day like you did? Were you aware that your sensibilities shame theirs?

That is the part that has been dumbfounding and enraging Canada’s energy sector for so long. All it takes is a day’s time to actually see this other paradigm – and they refuse to do so. They refuse to even look.

Now, we should be clear as to expectations. I don’t think anyone, certainly no one I’ve talked to, expects you to go back to Victoria and say climate change is a load of crap and that you now welcome unfettered fossil fuel development. You were clear to reiterate your intense work on developing leadership plans to “phase completely off fossil fuels by 2050 at the latest.”

Let me emphasize a point that might surprise you: no one here objects to your efforts to do just that. That is your right and no one wants to stop you. Where we diverge in opinion is the feasibility of achieving that objective, because we take what you are saying literally: we in the energy business do not see any conceivable way to end a reliance on fossil fuels in that time frame. Notice the critical distinction – limiting fossil fuel usage to achieve something like net-zero emissions is not in any way the same thing as being off fossil fuels completely. Fossil fuels dominate the production of everything in your (and our) habitat. You may line the streets with electric buses and banish internal combustion engines, and so might every other city, but the demand for fossil fuels will remain massive because our entire world is empowered by them. You will find that your objective, taken literally, is difficult beyond belief.

However, thanks to your visionary visit, we can at least get onto the same page and begin a discussion. Thank you for the wisdom you showed in turning down the advice you’d received about how launching lawsuits is a good way to start a discussion (thanks for that gem, West Coast Environmental Law). As I pointed out (often) in my book, I agree that we will be transitioning away from fossil fuels at some point, because the cheap stuff is disappearing (global oil consumption exceeds 35 billion barrels per year). Once oil rises to a certain price level, market economics will kick in and we will see a transition unfold that is workable. Once Victoria realizes how hard it is to be entirely “off of fossil fuels”, we will all find ourselves on the same page and develop realistic plans accordingly.

At the end of the day, what we do hope is that, as you discuss initiatives with your colleagues, you can describe to them a paradigm that they are ignorant of. It’s hard to say that in a way that doesn’t sound disrespectful, but unfortunately that’s what it is – a void of knowledge that can only be truly known by willing to immerse one’s self a bit.

There is a perception among environmental groups that petroleum people don’t care about the environment, that they would sacrifice anything to make profits, etc. That is an extremely unfortunate narrative that has been promoted because a) the creation of a stark enemy empowers some groups; and b) the petroleum industry has a history of not worrying about public opinion. The latter is the industry’s mea culpa, but the lack of concern about public opinion is the same for all price-takers of commodities. Gold miners produce gold, and have no link to the weird places that stuff winds up. Wheat farmers are not, on a daily basis, overly concerned about the obesity problem their wheat might cause. Petroleum producers get their product to market, and it fuels the world. That has been happening for a very long time.

Now, in a sea of ignorance, we see the Mayor of Victoria stand tall as someone who sought to understand. It is saddening that this phenomenon is so rare that we have to make a big deal about it. You and your colleagues may be baffled by this grateful response or doubt that it is truly so. But it is. The energy industry is under an unprecedented attack, with everyone from Swedish school girls to the United Nations to California billionaires (and even the father of the “Hummer” vehicle movement in the US – Arnold Schwarzenegger) demanding an end to fossil fuel usage. The dominance of the narrative has morphed from a normative desire to an ill-conceived command.

Now you have seen exactly why that narrative is troublesome. A great deal of effort goes into producing fuel that the world demands every day, and, as you saw, the care and diligence exercised by Canadian energy workers is second to none.

It’s not that energy people don’t want a cleaner future, or don’t care about the environment. But Canada’s energy business, every day, is faced with the challenge of getting the world the fuel that it needs to exist in the lifestyle it demands. It is an incredible challenge every day to do that. We are extremely grateful that you took the time to see that in person. If every other politician that shares your paradigm would do the same, we would be on a wonderfully productive road going forward. You have provided a lesson in wisdom and statesmanship (statespersonship?) to all, and for that we thank you.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Carbon is not a synonym for carbon dioxide

From the very day that Al Gore signed his name to the well known book, An Inconvenient Truth, the general population was told that carbon emissions were going to destroy our planet. Gore, more or less, coined the term “carbon footprint” (while always hiding the enormity of his own footprint). Gore and his cohorts were never actually talking about carbon. They were talking about carbon dioxide.

Initially they understood that most people recognize that they exhale carbon dioxide and plants absorb it in order to live. Not a dark thought. So in a universally evil desire to scare the populace, they seized on using the term carbon as a synonym for carbon dioxide knowing it would conjure up visions of soot, lamp black and coal dust none of which were warm and fuzzy. Carbon is a solid. Carbon dioxide is a colorless, odorless gas, which while containing a single atom of carbon, bears no other resemblance to elemental carbon.

The public around the world has unwittingly accepted it without realizing their minds were being manipulated toward negative thoughts. It is possibly the best example of subliminal brain washing mankind has encountered.

Those desiring to delude the public make no concession to this fact because it is not really their goal to mess with the planetary weather, but rather it is their goal to do as H.L, Mencken, the sage of Baltimore, once said “the whole aim of practical politics is to keep the populace alarmed and hence clamorous to be led to safety by menacing it with an. Endless series of hobgoblins, all of them imaginary.” Global warming has been among their very best hobgoblins .

Perhaps the most diabolical of all the aspects of this deception is how major Fortune 500 companies have jumped on this band wagon to show there greenness in an effort to remove the life blood of our planet from our planet. Currently, every day on radio and TV you can witness Exxon-Mobil touting their efforts to make their industrial plants like real plant, plants that absorb deadly emissions from the very products their companies produce, petroleum.

It will be a cold day in hell when we buy their products in support of the blatant lies they are using to promote their company. Surely one of the biggest fossil fuel companies in the world knows they are conning the public just as everyone is who is using the term carbon in place of the totally different carbon dioxide. Deceit is the name of the game.


About the Author

Dr. Jay Lehr is Senior Policy Analyst with the International Climate Science Coalition and former Science Director of The Heartland Institute. He is an internationally renowned scientist, author and speaker who has testified before Congress on dozens of occasions on environmental issues and consulted with nearly every agency of the national government, as well as many foreign countries.

CFACT is a respected Washington D.C.-based organization whose voice can be heard relentlessly infusing the public-interest debate with a balanced perspective on environmental stewardship and other important issues.

One bear does not a crisis make

News outlets from Britain to Biloxi, from Flanders to Australia and from Delhi to Ottawa ran an Associated Press story about one hapless polar bear that got lost in Russia and turned up looking tired in Tilichiki, 700 km south of Chukotka where it belonged. Why? Because somebody from Greenpeace blamed it on climate change. So it’s official. Not that one polar bear makes a crisis any more than one swallow makes a summer, but that the press have lost all credibility on this issue.

You wouldn’t think one muddled bear getting lost would be global news. But when it’s climate change, any straw will do.

The “money quote” in the story is “’Due to climate change, the Arctic is getting warmer, hunting environment gets smaller and less convenient,’ said Vladimir Chuprov of Greenpeace. ‘The ice is receding, and polar bears look for new ways to survive. And the easiest way is coming to people.’” It glitters. But it’s counterfeit currency.

For starters, if it were a pattern there wouldn’t be just one bear. The story also said “Environmentalists said the bear could have lost its sense of direction while drifting on an ice floe.” But if you believe no bear ever got turned around while drifting on an ice floe until humans released GHGs, we have some prime real estate in Kamchatka to show you.

The misrepresentation went on and on in predictable fashion. The bear was described in the story as cute and cuddly: “Locals were making the bear feel welcome, giving it fish, media reported. Videos posted online showed the animal moving past residents, showing no aggression.” Which they often don’t until their tummy rumbles and they woof you down. Because in the real world, polar bears are ferocious top predators not given to displays of anxiety since to them everything is a potential meal.

As for reality, the AP story buried the observation way down that “Polar bears’ dependence on sea ice makes them highly vulnerable to global warming. Shrinking Arctic ice cover could increasingly deprive them of their usual prey, seals.” As so often, the devil is in the conditional here. The story blares that something is happening then later softly whispers that it “could” happen. Not that it is.

Or indeed that it’s looking likely. Because interestingly, there was a pseudo-related story two months ago about a crisis in Russia’s “remote Arctic” Novaya Zemlya archipelago which was invaded by polar bears on an unprecedented scale and “’They have literally been chasing people.’” So, not so cute and cuddly. Also not so lost or extinct. If you have Google you’ll notice that Novaya Zemlya (which rather boringly means “New land” is way the heck and gone north (71 degrees and worse). And those polar bears didn’t look tired or hungry, just plentiful and aggressive.

Now the weird thing about polar bears in Novaya Zemlya is… there’s nothing weird about polar bears in Novaya Zemlya. Wikipedia notes in an unguarded moment that the weather there stinks and the place is lousy with them. Or rather “The ecology of Novaya Zemlya is influenced by its severe climate, but the region nevertheless supports a diversity of biota. One of the most notable species present is the polar bear, whose population in the Barents Sea region is genetically distinct from other polar bear subpopulations.”

So one bear staggers south and it’s global warming. A horde of bears surges north and it’s… global warming. No bears? Global warming. All bears all the time? Global warming. Bears where they’ve always been? Global warming.

Whatever.


About the Author

Dr. John Robson is Executive Director of Climate Discussion Nexus. He holds a Ph.D. in American History from the University of Texas at Austin and has worked as a historian, policy analyst, journalist and documentary filmmaker for three decades. He has been examining the climate change issue for many years, including both the science and the policy debates.

Canada’s Moral Obligation to the World

It’s common to hear an opinion on Canadian energy exports phrased something like this: “How can Canada in good conscience develop its natural resources for export when it should be leading the way in reducing emissions and developing renewable energy? Any project that increases Canada’s emissions should be halted!” The counter-argument usually rests on some variant of, “But we need the jobs!” With passions high on both sides, it’s unlikely the two groups will ever agree. Perhaps everyone could consider a different question: “What if development and export of Canada’s natural gas in the form of LNG could make the world a better place by offsetting emissions growth from coal-based energy development in emerging economies?” If this could be done, there’s a strong argument that Canada has a moral obligation to the rest of humanity to do so.

Energy demand is growing enormously in rapidly developing emerging countries. The Asia-Pacific region’s energy use in 2017 was equivalent to that of the entire world in 1975. And growth isn’t slowing. Between 2011 and 2013, China used approximately 1.5 times as much cement as the United States had used in the prior 100 years. In 2017, Canadians used about 20 times as much electricity per person as people in India. Yet just the growth of India’s electricity generation over the past decade – 76 percent of which is coal-fired – was equal to Canada’s current total electricity generation. If India and China consumed as much primary energy per capita as Canada, all else equal, it would triple global energy consumption. A scale this large is world-changing.

The factors driving what is likely to be massive demand growth in emerging countries are pervasive and highlight the benefits of access to plentiful, affordable energy. For example, India is five times hotter than the United States yet has just one-twentieth the level of air-conditioning ownership. Too, there is well-documented demand impact from the widespread use of new technology such as smartphones. In other regions, the disparity and potential for growth are even starker. Africa’s 1.2 billion people use, on average, a mere 1 percent of the energy consumed by the average Canadian. Statistics like these clearly illustrate the vast potential for energy demand growth and quality of life improvement.

In the past, such statistics and comparisons would have been largely academic, for Third World poverty seemed intractable due to exploding populations and stifling government policies. Over the past three decades, however, economic improvements in dozens of countries have been astounding. Often unmentioned is that this trend depends fundamentally on access to energy. There is an immutable relationship between energy use per capita and GDP per capita, as well as energy use per capita and the UN’s Human Development Index, which reflects lifespan and standard of living. Continuing growth in the production, distribution and consumption of affordable energy is inseparable from improving quality of life and escaping poverty.

The challenge lies in how this hunger will be met. Most likely it will be via the most cost-competitive or entrenched source. For the foreseeable future, this will continue to be predominantly coal, which is cheap and plentiful in numerous countries including India. Next in line would be fuels such as natural gas – but only once low-cost access is achieved. In terms of baseload renewable power, hydro-electricity continues to grow, but is less of a factor and its overall potential is finite, while the social obstacles to nuclear will likely stymie its medium-term development. As for solar, wind and other alternatives, beyond their unreliability, they remain expensive outside of ideal geographic conditions.

Energy economics and resource availability have driven the proliferation of coal, among other things resulting in India’s air quality today being even worse than China’s. And it is likely to get worse. By 2040, 80 percent of India’s coal-fired generation is expected to come from plants that have yet to be built. A new coal-fired plant built in Asia is estimated to generate approximately twice the full-cycle greenhouse gas (GHG) emissions of an LNG-fuelled plant, while coal-related pollution results in an estimated 10 times as many deaths per unit of power output as natural gas. Clearly there would be large benefits in meeting the need for high-volume, low-cost new energy supply using sources other than coal.

That brings us to Canada and its potential role. Thanks to the astounding technical and commercial success of formerly “unconventional” gas sources like shale and tight sands reservoirs, Canada today has the world’s fourth-largest natural gas reserves and produces 16 billion cubic feet per day of gas. These molecules are being sold at the lowest gas prices on Earth while being developed under industry-leading social and environmental standards. Of note, Canadian LNG could reach Asian markets in half the time as U.S.-sourced LNG travelling from the Gulf Coast and through the Panama Canal, reducing costs, transportation emissions and safety risks. As well, a B.C.-domiciled facility could be powered by hydroelectricity rather than drawing on piped-in gas supply as most LNG facilities do, which could make it one of the world’s most environmentally friendly LNG facilities.

Canadian LNG could assist the world’s transition away from coal. This shift is not going as well as many news reports suggest; in fact it’s going in the opposite direction. Although the U.K.-based Financial Times in 2017 proclaimed, “Coal’s days numbered as countries pledge to end use,” the article included an asterisk disclosing that the countries making this pledge represented just 2 percent of global coal consumption. In April 2018, HSBC announced it would “stop providing financing to new coal-fired power plants”. This policy, however, quietly excluded Vietnam and Indonesia, currently the world’s 9th and 15th-largest coal consumers.

Incredibly, Vietnam and Indonesia alone have 58 coal-fired plants of 30 MW or greater capacity under construction and another 142 in various pre-construction/permitting phases. That is more plants, and likely more capacity, than Canada ever had in total, and is in addition to the 611 plants announced or under construction in China and India. A few weeks after HSBC’s announcement, it financed half-a-dozen new coal-fired plants in Vietnam and Indonesia. The “global fight against coal”, in other words, is equal parts fantasy, hypocrisy and dishonest virtue signalling.

Given what is actually happening around the world, Canada has a real shot at improving the global environment while supporting the social and economic development of emerging countries. Unfortunately, too many Canadians seem oblivious to the realities of global energy economics and the role natural gas could play. Some evidently believe Canada operates in isolation, i.e., that cuts to GHG emissions must take place here. Consequently, we have chosen a path of increasing regulatory complexity and shifting rules, making it very challenging for pipelines and projects to be built. But this contradicts our national pride in advancing global human rights and health. Ambient air pollution is said to contribute to more than 10 percent of all deaths worldwide. That’s more than HIV, tuberculosis and malaria combined. In addition to an economic development imperative and a business opportunity, is there not a moral obligation as well?

Canada’s green lobby doesn’t think so. Consider Mike Sawyer, a Calgary native and long-time activist now living in B.C. who is greatly “concerned about the environmental, climate and social impacts of LNG development.” He previously challenged the now-cancelled Pacific Northwest LNG project and is currently focused on shifting regulatory oversight of the Coastal Gas Link pipeline, which would transport gas to Shell’s LNG Canada project, from the provincial to the federal level. That would almost certainly delay the project. Sawyer claims full-cycle LNG emissions are 2-27 percent higher than from a coal-fired facility. At time of publication, Sawyer had not responded to a two-month-old request for a source backing this claim. He also claims negative impacts to wildlife, water and Indigenous communities, yet numerous First Nations strongly support LNG development.

The LNG Canada project’s likely environmental impact can be viewed in different ways. The “for” camp might point out that the B.C. government estimates it to represent only 5 percent of B.C.’s GHG emissions. The “against” camp can just as plausibly state that this could mean an 80 percent increase to the province’s oil and gas-related CO2 emissions (B.C. gets much of its electricity from hydro). Both statistics are technically correct – and both sides are emotionally charged. For us, the critical question is, are we providing a net benefit to the world by allowing a currently coal-based economy to import Canadian gas, reducing overall global CO2emissions but, in doing so, effectively “exporting” the remaining CO2 to Canada? Or should we just say no and focus solely on our domestic environmental performance?

A common version of the no-LNG argument goes something like this: Canada is a global leader in renewable energy, with about 81 percent of its electricity generated from non-GHG-emitting sources. While projects like LNG Canada create jobs and could help developing countries reduce their reliance on coal, the environmental costs to the communities and environment around the LNG facility, in the gas-producing areas and along the pipeline corridor are simply too high. Far better that the country invest its resources, capital and time in leading-edge technology, true renewable energy, increased energy efficiency and conservation. The latter would include things like LED lights, discouraging air travel, promoting local tourism, or subsidizing e-bike penetration in cities.

While this argument seems seductive, it greatly sells short the benefits of exporting LNG and ignores its moral component. Focusing only on domestic energy policy surrenders Canada’s role in the world. And that world is refusing to stand still. Economies are developing, energy consumption is zooming and pollution is worsening in many countries. Canada can help. That help can have a moral dimension – but it must go beyond mere moralizing. It has to work. Canada must look beyond its borders and build for LNG export. While global energy transition is coming, that transition will take many decades. It needs to begin with the displacement of coal, which today fulfills approximately 27 percent of global energy demand. That ratio has barely moved in four decades, during which time overall energy consumption has risen dramatically.

The now decade-long denial of resource projects in Canada is turning away much-needed investment capital in our country at a time when the world needs all the energy molecules it can find. A recent study showed that annual foreign investment in Canada has declined by 55 percent since 2013 and shows no sign of an upturn.

There is a global opportunity cost to Canada’s energy policy choices. Our reluctance to develop and export our energy reduces the near-term alternatives to coal development. The opportunity cost for Canada is also enormous as we willfully restrict ourselves to just one foreign purchaser of our natural gas. This single-market system is incurring an estimated $15 million in lost revenue daily, industry-wide across B.C. and Alberta, or about $5 billion per year.

Canada has a chance to help the world environmentally, socially and economically via LNG export – while also greatly helping itself. We need to get there. Future generations indeed depend on it.


About the Author

Steve Larke, CFA, is a former top-ranked energy equity analyst who has been writing about Canadian and global energy trends for institutional clients for over 20 years. He is a former Managing Director of Peters & Co., and most recently was an Advisory Board Member at Azimuth Capital Management.

Adam Le Dain, CFA, is an Associate at Azimuth Capital Management and the founder of a Calgary-based non-profit called Game to Give.

About those “stranded petroleum assets”…a new catch phrase that Canada subscribes to but no one else

I’m sure everyone is aware of the current state of renewable energy, because you’d have to live in the Mariana Trench not to be. The great god Google makes this clear; searching for “wind energy” coughs up 420 million results; “solar energy” finds 620 million references. Poor old “fossil fuels” yields only 88 million, despite being the backbone of the world. While that is a sign of the times, fossil fuels, no matter what one wants to hear, still dominate the global landscape, and attempts to diminish that through words alone are unhelpful to say the least.

A new narrative has popped up in the mainstream, continuous references to “stranded petroleum assets.” This is the second half of a bigger strategy, whereby activists are dissuading the world from investing in fossil fuels, and based on the success of that project, trying to embed in the public’s mind the concept that petroleum assets will be “stranded”, that they will rapidly become worthless, so invest at your peril. This devious tactic is applied full force with Canada’s oil sands; blockade market access by any means necessary and then declare the oil sands “stranded assets” because they are uneconomic. As with many of eco-activist campaigns, it is strategic, extremely well executed, ethnocentric, and almost comically misguided. But that never gets in the way of a good strategy. So let’s look at what’s really happening in the great big world, and when you hear the phrase “stranded assets” again maybe we’ll be able to see something other than the illusion being perpetrated.

The International Energy Agency recently released 2018 data showing that “demand for all fuels increased, led by natural gas, even as solar and wind posted double digit growth.” US natural gas consumption rose by 10 percent in 2018. Coal-fired power plants emitted more than ever in 2018 as “a fleet of relatively new coal plants located in Asia…led the way toward a record for emissions from coal-fired power plants – exceeding 10 billion tons of carbon dioxide for the first time.” Some news outlets posted weird environmentally celebratory headlines such as “global coal plant pipeline shrinks for third year” as can be read here but apparently some adult stepped in to calm the frothing/propagandizing headline writer and replace the title with a more fitting “Global coal plant construction rises in 2018,” as it now appears on the website.

Meanwhile, back at the well head, much of the world continues to act in accordance with these growth statistics. Ivory Coast “seeks to increase crude output amid rising interest from super-majors…seeking to diversify an economy whose exports are dominated by [cocoa] and gold.” European energy company Eni reports a major oil discovery offshore Angola, the country being a key country in Eni’s growth strategy, along with developments offshore Indonesia. Total is busy starting production from giant Egina field offshore Nigeria. Swedish E&P company Svenska Petroleum is drilling the first-ever deepwater well offshore Guinea Bissau. Not to be outdone, fellow Scandinavian oil fanboy Equinor is drilling in the North Sea again, in multiple areas. Fellow Norwegian company Aker Energy last month reported successful drilling results offshore Ghana, and ExxonMobil is active in offshore Guyana (and let’s hope the ex-pats are able to keep Ghana and Guyana straight when booking flights). Finally, it hardly seems necessary to point out what is happening in the US petroleum sector; in the past decade, the US has added more production than Canada’s total output, for both oil and natural gas. All that petroleum, not just for the US but every other jurisdiction, has managed to find a route to market. To add a comical footnote to that circumstance, recall that Pakistan and India (arch-enemies that shoot at each other periodically) joined forces with Turkmenistan, Afghanistan and, incredibly, the Taliban (who shoot at everything periodically) to build a natural gas pipeline.

Now, with all that going on, we know what’s happening in our own back yard. A quick scan of the energy headlines for Canada shows us, here we go: “Canadian oil industry takes fresh hit with key pipeline delayed.” Over on BNN Bloomberg the wet blanket news continues: “Canada’s energy crisis: BNN Bloomberg’s 2018 Story of the Year.” Investor groups are warning Prime Minister Trudeau that “investors and companies will continue to avoid the Canadian energy sector unless more is done to improve market access.”  Wonder why they’d think that? Oh here’s a clue in Canada’s national newspaper the Globe and Mail: “It’s time for an exit strategy from oil and gas.” 

That last article sums it up, in our own Canadian let’s-tie-our-shoelaces-together-and-try-to-catch-the-bus way. Three factors are at play here: first, an overarching, overwhelming desire for the world to reduce greenhouse gas emissions. Second, it’s not happening; global energy consumption continues to rise as the world strives to improve its standard of living (and the west – all of us – show little interest in lowering ours). Third, the whole world is reacting to market forces by building pipelines and energy infrastructure, and bringing new petroleum products to market. Countries that are at the forefront of the climate change movement like the Netherlands, who shut in their own large gas field, are simply now importing more gas from Russia via new pipelines.

We do things differently in the Great White North. Through some bizarre combination of shame at our own resources and determination to be the world’s boy scout, we are pretty much the only place on earth that is buying into the concept of “stranded petroleum assets.” We are saying to the activists of the world, oh, you mean like this? As/if/when commodity prices rise, capital will flow to develop resources wherever they may be, with one notable exception.

Canada stands alone, a pariah and a sap at the same time. Making that point crystal clear is the picture above, showing what Canada is “saving” relative to what is happening in the world. The red markers are oil tankers in transit at a recent point in time. If it seems like a lot, remember that over 50 million barrels per day is moved safely on waters, every day. If it weren’t so serious and harmful the image would be the funniest thing since SCTV.

From a global emissions perspective, we can see where priorities should lie. Coal remains the biggest problem from an emissions standpoint, The IEA in the 2018 report noted that coal “remains the largest source of electricity and the second –largest source of primary energy in the world.” Between reduced coal usage and sensible efficiency promotion – such as hybrid vehicle promotion rather than pure electric vehicle mania – the world could go a very long way towards meeting emissions targets. But where’s the fun in that when the second largest nation on earth markets itself as a piñata?


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Youth, technology and sustainable energy development: this is the exciting future

Young people, we need you! The world needs you.

Not to protest, but to build. Not to complain, but to solve. Not to panic, but to overcome.

A movement has swept the world, stating that the future of humanity is threatened by climate change. You’ve seen it on the news, students have taken to the streets to protest environmental inaction. Greta Thunberg, the fearless 16-year old Swedish leader, has challenged the world’s elite to stop stalling, to “feel panic like I do.”  What’s that about? Should you be out there too? Should you feel the same way?

Hey, you can if you want, but think about this – you, Canada’s young and interested energy citizens, have a HUGE advantage Ms. Thunberg and the student protesters do not – you are at the #futureofenergy and you’ll get to see a world they never will, a world that is the most important part of transitioning to a greener world.

The world is going to be mostly renewable energy, some day. Today however, oil and natural gas completely dominate our world, and in developing countries coal is still a way of life. There’s no getting around that! Sadly, that view isn’t obvious to 16-year-olds from Sweden.

What makes #futureofenergy so exciting then is that this transition rests with people who see and understand the WHOLE chain – where it is now, where it has been and where it is going, and what it will take to get there. We can’t wish problems away. Wishing doesn’t get you a XR iPhone, and it doesn’t get us a green-energy world either.Just as importantly, panic doesn’t help one little bit, as you no doubt learned long ago. Panic is not a strategy for any situation, but education and calmly understanding the situation is a productive one.

Think of this opportunity then. The world does not understand at all how much we rely on fossil fuels, and you will get a reminder of that at “Young GPS” at the Global Petroleum Show in June. Only by understanding that reality can provide a foundation for the future to be mapped out in an intelligent way, and not a panicked one.

So welcome to the new world, where your generation owns and will spearhead the transition. You, the leaders of tomorrow who understand the world we live in, who understand where we want to go, and who can fully utilize the latest technology to get us there. Congratulations, you are on the cutting edge of Canada’s and the world’s future of energy!

For further information about Young GPS, please click here.


About the Author

Terry Etam is an independent senior consultant for small and midsize oil and gas companies. His website Public Energy Number One is dedicated to energy education and he is the author of The End of Fossil Fuel Insanity.

Skipping the Test

If you point out that an April snowstorm hardly feels like global warming you get the patronizing lecture about the difference between weather and climate. And if you ask “Then why is hot weather touted as proof?” they declare the science is “settled” and shut down the discussion. Well if it is then I want to know what’s going to happen ahead of time, not after the fact.

I know the difference between weather and climate. But I also know the difference between science and flimflam. One observes data, forms hypotheses about causal relationships, then tests them by making predictions about the future and seeing if they succeed or fail. The other distracts, distorts and blusters.

Testing theories is a complex process involving a good deal of intuition about what hypotheses to test and what constitutes confirmation or refutation. If we’re too ready to abandon theories in the face of anomalies, we just get confused. But if we’re too stubborn, we get dug in.

I can’t count the number of news stories I’ve read saying climate science is settled. Or the number rationalizing any and every weather event as somehow being consistent with the theory. But if the theory really is so settled, let’s hear what wouldn’t be consistent with it.

If some alarmists are willing to say it’s not that simple, fine, provided they’ve been busy shooshing the politician who uses one wildfire as proof that we’re on the brink of annihilation or the celebrity who says California’s droughts will never end because we’re on the brink of annihilation. Let’s hear them admit that it’s complicated when it hurts their argument as well as when it helps it.

For instance a number of us believe the sun has a strong influence on climate so if it’s now entering a significant quiet period, temperatures are liable to flatline or even drop. (And if you want to see a real climate catastrophe, try some cold on Canada’s agriculture.) If temperatures do drop over the next, say, decade, alarmists could claim it’s just a short-term cooling laid on top of a still-worrying long-term trend of human-GHG-driven warming. But how would you test that theory, if up-trends and down-trends can both be rationalized?

Blaming the sun for a short-term temperature drop in the 21st century would require also attributing some previous warming to its 20th century intensification (which the roughly contemporary warming on Mars, Jupiter, Triton and Pluto surely points to), in which case CO2 caused less of the warming than the models say and is less dangerous than the alarmists say. So they don’t want to test that theory. But at the Climate Discussion Nexus, we do.

Then there’s the oft-repeated idea that man-made global warming is causing glaciers to retreat. When a glacier advances instead, like Jakobshavn in Greenland, they tend to go oh that’s weird then resume beating the warming drum. But what about the fact that most glaciers have been retreating for centuries? Wikipedia’s article “Retreat of glaciers since 1850” cheerfully attributes the phenomenon both to the natural end of the Little Ice Age and to man-made GHGs. But as with Mr. Sun and CO2, there’s only so much warming to go around. And I’m at a loss to know how to test a theory that says the retreat was natural until 1970 and not since. But if it’s science, there must be a way.

As for the argument we heard during the brutal winter conditions of early 2019, that overall warming pushed Arctic weather systems south leading to cold weather, it’s easy to be snide about the vaguely Orwellian claim that cooling is warming. But it’s not impossible. The problem again is, how can we test a theory that can never be proved wrong by events after they’ve occurred? The answer is predictions. Don’t tell us afterwards that obviously warming caused the cooling, duh, because a theory that can explain anything after the fact but can’t predict Christmas in December isn’t science, it’s rationalization. A.k.a. flimflam. So here’s my challenge to alarmists.

Tell us beforehand what kind of summer to expect in 2019: a cool dry one, a warm wet one etc. Tell us how much extreme weather to expect, and where. And what will winter 2019-20 be like, in North America, in Europe etc? If you can’t or won’t offer such predictions, then don’t show up afterwards claiming whatever happened was consistent with your theory.

Now if you respond by demanding a prediction from me you might be disappointed because I don’t know what next winter will be like. But as my theory is that climate is too complicated to model my prediction is that nobody’s predictions are any good. And the way to prove me wrong is make ones that work.

So go ahead. Predict something. I don’t care what. A warm winter. A cold one. Glaciers retreating. Glaciers advancing. More rain or less. Forests ablaze or green and verdant. The sky turning purple. I just want some way to tell if your settled science has any validity.

What’s that? You can’t? Gosh, a minute ago you seemed so certain.


About the Author

Dr. John Robson is Executive Director of Climate Discussion Nexus. He holds a Ph.D. in American History from the University of Texas at Austin and has worked as a historian, policy analyst, journalist and documentary filmmaker for three decades. He has been examining the climate change issue for many years, including both the science and the policy debates.

Collateral Damage Caused by the Supreme Court of Canada’s Decision to Overturn the Redwater Decision

The release on January 31, 2019 of the long-awaited court decision (the “Appeal Decision”) by the Supreme Court of Canada to the appeal by the Alberta Energy Regulator (the “AER”) of the May 2016 ruling by the Court of Queen’s Bench of Alberta that provincial regulations are in conflict with the federal Bankruptcy and Insolvency Act (the “Redwater Decision”) was publicly lauded by many observers as the correct “social” decision.  The public-at-large generally accepts the “polluter pays” thinking that was behind the decision as being the correct outcome.

In this lengthy article we will not touch on the social issues resulting from the Appeal Decision.  We will focus instead on the broader implications of the Appeal Decision which we believe will inflict significant collateral damage on oil and natural gas companies, bankers, receivers, the AER and ultimately, and most importantly, the Orphan Well Association (the “OWA”), the very organization that the Appeal Decision was indirectly designed to protect.

Background

Before discussing the broader business implications of the Appeal Decision, it is worth clarifying some of the background issues.  One key point to note is that the assets of an oil and natural gas company are unlike those of a mining company, or almost any other industry which would be impacted by the Appeal Decision.  A non-oil and natural gas company typically has a very small number of assets which might lead to future environmental obligations.  An oil and natural gas company, on the other hand, might have hundreds or even thousands of such assets.  Of note is the much-discussed receivership of Lexin Resources Ltd. et al (“Lexin”), which left behind approximately 1,500 licenced wells and approximately 1,500 licenced pipelines and facilities.  Most of these licenced assets were eventually dropped into the lap of the OWA.

If an insolvent entity with a relatively small number of assets goes into receivership (“Receivership”), it is relatively straightforward for the court-appointed receiver (the “Receiver”) to deal with the very small number of assets, as compared to handling the thousands of discrete assets that result from the insolvency of an oil and natural gas company such as Lexin.

Subsequent to the Redwater Decision and prior to the Appeal Decision, the Receivers of insolvent oil and natural gas companies, generally acting on behalf of the most senior secured creditors, i.e. the creditor with the most to lose (which could be a chartered bank, a mezzanine finance lender or any other secured creditor (the “Creditor or Creditors”)), worked to monetize some of the assets from the insolvent companies which could be sold (the “Saleable Assets”) in order to recover some of the funds owing to all of the secured creditors.

Until the Appeal Decision was announced, any unsold oil and natural gas wells, pipelines, facilities and equipment (the “Residual Assets”) were disclaimed by the Receivers and ultimately delivered to the OWA, the industry-funded organization mandated to “safely decommission orphan oil and gas wells, pipelines and production facilities …”

As very publicly reported over the past several months, this resulted in a significant increase in the OWA’s orphan well count.  This has led to much public discussion, discussion which generally points the finger at the big bad Receivers acting on behalf of the socially insensitive Creditors to saddle the public with the financial burden of dealing with the resulting environmental obligations of the Residual Assets.  As a related aside, rarely does it get reported that the oil and natural gas industry, not the public, funds the OWA.

The Reality

We believe that the Appeal Decision will ultimately result in more Residual Assets being delivered to the OWA for further handling than would have been the case if the Redwater Decision was not overturned by the Supreme Court.  Further, the Appeal Decision was believed to be a method to provide much needed cash to the OWA to handle the liabilities, by directing the proceeds of any dispositions of Saleable Assets to the OWA.  We do not see how this can happen.

The sale of an insolvent entity’s assets through a Receivership can only occur if there is a party which is willing to fund the costs of the Receivership.  These costs are very real and they can quickly become significant.  Included in the costs of a Receivership are the costs of the Receiver’s time, the Receiver’s third party costs, legal expenses, court filing fees, selling agents’ fees, etc.  The Creditor will typically advance funds to the Receiver at the start of a Receivership process to cover these costs only if it is believed that the recovery from the liquidation of the Saleable Assets will exceed the costs of the Receivership and the settling of any priority claims to the estate.

Sayer has been involved in Receivership asset sales for several years, acting as sales agent for the Receivers of 36 insolvent entities.  These entities collectively held approximately 4,000 licenced wells.  We were able to sell approximately 30% of these wells, 1,200 in total.  Absent sales processes funded by Creditors through Receiverships, the 1,200 wells that were sold would likely have been delivered to the OWA along with other related Residual Assets.

As previously-mentioned, for approximately 32 months subsequent to the issuing of the Redwater Decision and prior to the issuing of the Appeal Decision, Receivers were able to act on behalf of Creditors to sell whatever wells, facilities and equipment could be sold from the estates of insolvent oil and natural gas entities.  Subsequent to the disposition of any Saleable Assets, Receivers were able to disclaim any Residual Assets and deliver them to the OWA.

With the Appeal Decision in place, any funds realized from the Saleable Assets must now be ultimately directed to the OWA, not to the Creditors, so that the OWA can use the funds to manage the abandonment and restoration of any environmental liabilities associated with the Residual Assets.  While the social aspect of this is quite clearly understood, the collateral damage that will result is significant.

Creditors will now be loath to put insolvent entities into Receivership.  Why would a Creditor fund a Receivership if there is not a realistic expectation of recovering its costs as well as a meaningful portion of the funds owing to it by way of its secured debt position?

Instead of pushing companies into Receivership some Creditors will possibly force insolvent entities to minimize overhead, following which the Creditor will then bleed off any available cash flow to help to pay down the debt position until such time as the operations are unsustainable.  After cutting the losses, it is possible that the Creditor will simply just walk away from its position once the operations are unsustainable. The likely outcome of this scenario, collateral damage caused by the Appeal Decision, is that all of the assets of insolvent oil and natural gas entities will end up as Residual Assets, bagged, tagged and delivered to the OWA.

As previously-mentioned, absent funding by Creditors, this type of scenario would have resulted in roughly 1,200 additional wells being sent to the OWA from only the 36 Receiverships that Sayer has been involved in.  If you consider the numerous other recent oil and natural gas industry Receiverships, plus all of the future ones, the collateral damage from having to deal with this likely avalanche of Residual Assets will undoubtedly overwhelm the OWA.

One way for the OWA to receive funds from the sale of the Residual Assets in a scenario such as was previously-discussed would be if the AER were to act as a Creditor, forcing the sale of assets for the account of the OWA.  Without going into too much detail, Sayer recently worked with Grant Thornton Limited, Lexin’s Receiver, in managing the sale of assets from Lexin on behalf of the AER, Lexin’s Creditor by way of the funds owed to it.  We believe that after being front and centre in that process, the AER would not be interested in getting actively involved in another Receivership.  As well as creating obvious conflicts, we believe that acting as a Creditor in such scenarios is beyond the mandate of the AER as an independent regulator.

Another significant outcome of the Appeal Decision is that bankers may not continue to provide debt funding to junior oil and natural gas companies.  The implications of this collateral damage are tragic, and could spell the beginning of the end of this once robust segment of our local economy.

Background to One Possible Solution

Sayer does not believe in criticizing anything without providing an alternative solution to a problem.  To that end, approximately 18 months ago we initiated a meeting with Mr. Jim Ellis, the CEO of the AER at the time, to discuss the aforementioned possible outcomes to the Appeal Decision, which was still pending at that time.  I will quote our advice to Mr. Ellis.

Jim, regardless of how the Supreme Court rules, the AER, the Creditors and the Receivers must all learn how to play nice together in the sandbox.”

We presented a possible solution (the “Solution”) to Mr. Ellis, who did not disagree with the need for a similar outcome.  The Solution, which we stand by today, is actually quite simple.  To better understand the Solution a bit of background information is in order.

Before a Creditor pushes an insolvent entity into Receivership, the Creditor prepares an economic evaluation of the costs and benefits of the potential process.  On the benefit side, the Creditor will typically engage the services of a mergers and acquisition specialist firm like Sayer (the “M&A Advisor”) to provide an analysis of what the proceeds from the sale of any Saleable Assets might be.  An experienced M&A Advisor can generally predict which assets can be sold, what the sale proceeds will be, and which assets will become Residual Assets.  If the Creditor believes that the proceeds will exceed the expected costs of a Receivership, a Receiver is hired, and a process to market the assets is undertaken through an M&A Advisor.

At the conclusion of the Receivership, the Creditor receives the proceeds of the sales of the Saleable Assets, net of costs.  The Residual Assets are then disclaimed by the Receiver, ultimately ending up in the OWA.

One Possible Solution

Sayer’s Solution is that prior to putting a company into Receivership, the Creditor, the AER and the M&A Advisor would work together to discuss the assets.  With many details to work out, the basic workings of the Solution would involve the following steps.  The first step would be to have the Creditor advise the group as to the amount it requires to satisfy its position.  The M&A Advisor would then provide its best estimate of whether or not the estate has any Saleable Assets, and, if so, what the proceeds of a sale of those assets might be.

Once the estimate of which of the assets will become Saleable Assets is in hand, the AER would then provide its best estimate of the cost to deal with the obligations of the Residual Assets which the M&A Advisor believes will be left to deal with.

The parties now have an estimate of the results of a liquidation of the estate, factoring in the estimated cost of the Receivership, the estimated proceeds from the sale of any Saleable Assets, and the estimated cost of dealing with the Residual Assets.  With this information in hand, the disposition of assets can take place in an orderly, equitable manner.

Let’s use as an example a situation where the Creditor needs $20 million, the M&A Advisor estimates the market value of the Saleable Assets to be $12 million and the AER needs $10 million to deal with the Residual Assets.  Using an allocation determined by the proportionate shares of the required recoveries of $20 million (Creditor) and $10 million (AER), the Creditors, requiring two-thirds of the estimated recovery, would pay for two-thirds of the costs of the Receivership.  The AER, requiring one-third of the estimated recovery, would pay for one-third of the costs.  The net proceeds from the sale of the Saleable Assets would be distributed to the two parties using the same two-thirds to one-third split, in this example $8 million to the Creditor and $4 million to the AER.

Recognizing that the M&A Advisor’s estimates will be good, but not perfect, after the assets are sold and it is time to wind up the Receivership the allocation of net proceeds and expenses would be adjusted to account for the realized proceeds from the sale of the Saleable Assets and for the estimated cost of dealing with the resulting Residual Assets.

The end result of the Solution should be that the number of Residual Assets would be minimized, while providing some funds to the OWA to deal with the Residual Assets, overall a far more palatable outcome might be expected absent a Receivership process.

Potential Backlash to the Solution

While the Solution appears at first glance to be fair and equitable to all parties, before considering going down this road the AER would need to find a way to manage the public perception.  In light of the negative sentiment to the industry resulting from the recent public discussion of a few notable insolvencies, including Lexin, and in light of the Appeal Decision, the public backlash of this cooperative approach to lightening the load of the OWA would most likely be huge.

If the AER and a Creditor were to work together to share the costs and proceeds from the liquidation of assets in a Receivership, well-meaning but ill-informed third parties would look at this in horror, as the Solution conflicts with the ruling of the Supreme Court that effectively says that the OWA would be entitled to receive all of the proceeds from any asset sales in a Receivership.  This will not likely be publicly-received as the good news story that it is; it will likely be treated as a travesty of justice.  It is possible that legal challenges to any cooperative effort will follow.

The flip side is that any approach that is not collaborative is likely to result in a very significant increase in the Residual Assets heading to the OWA.  No matter how you look at it, that would not serve the best interests of any party, especially the OWA, the AER, the Creditors, the oil and natural gas industry, and even the general public.

Conclusion

While our proposed Solution has obvious positive factors rendering it worthy of consideration, the negative implications may prove to be difficult to overcome.  We are tabling it here as a starting point for discussions, as we believe that the ultimate solution will require a collaboration of industry, the financial community, government and the public.  We are sure that other solutions can be found; however, we have not yet heard of any proposals.  For the sake of our industry’s future, we all need to step up and work towards collaborative solutions to these types of issues, sooner rather than later


About the Author

Alan Tambosso, P.Eng. P.Geol., is President of Sayer Energy Advisors.