Category Archives: natural gas

Managing abundance

Matthew Yglesias debunks the idea that Alaska Gov. Sarah Palin is an expert on America’s energy problems:

Alaska politicians never worry that energy may be getting too expensive and think about how to respond. They worry that energy might get too cheap! Alaska politicians don’t develop expertise in energy conservation measures or alternative fuels, they develop expertise in fighting with out-of-state executives about how to divide the profits that come from expensive energy. That’s the energy problem people think about in Alaska, Oklahoma, and parts of Texas and Louisiana but it’s not the energy problem people worry about in Michigan or Ohio or Virginia or Florida or New Mexico or Colorado or most anywhere else in the country.

It’s up there with Liberal leader Stéphane Dion’s assertion that Canada could lead the world in water-resources management, since we have so much water. No: we don’t have so much water because we’re so damned good at hoarding it, we have so much because we got a lucky deal. You want to see some people who are good at managing water, go to Saudi Arabia or someplace, where they don’t have any.

Stelmach’s choice

Alberta Premier Ed Stelmach is hiking royalty rates on the province’s hydrocarbons to bring in about an extra $1.4 billion for the government starting in 2010.  A review panel had suggested the figure ought to be $2 billion, starting sooner.

The industry’s unhappy:

Pierre Alvarez, president of the Canadian Association of Petroleum Producers, said he had “tremendous concern.”

“Financial markets are going to respond negatively,” Mr. Alvarez said, adding that the government didn’t listen to industry’s questioning of the costs to produce oil and gas in Alberta.

“The market may be surprised that more was done than less, and that the government didn’t back off on more of the provisions,” said Ari Levy, a vice-president at TD Asset Management Inc. “I fear the risk premium may rise on future projects built in Alberta.”

So’s the Left:

But NDP Leader Brian Mason says the premier has caved in to Big Oil.

“The phasing in of the royalty program means that the take will be significantly less … than the royalty task force has proposed,” he said. “I think the premier has compromised yet again on a report that represented a compromise in the first place.”

He said Alberta will continue to be one of the lowest royalty jurisdictions in the world under the new formula.

While Stelmach’s betting Albertans will be satisfied and — having become premier after the last guy retired and not yet won an election — might call an election to reinforce popular support for his choice.

Is it the right call? As I wrote last week, nobody has the faintest idea, though I’m pretty confident that one government-set price for anything is likely to be wrong.

The only way to set a “fair” price for Alberta’s oil and gas, as Andrew Coyne echoed yesterday, is to make the companies decide how much the rights are worth for themselves and bid on them. Anything else — the existing price, a higher one or a lower one — is bound to lead to an inefficient, inappropriate price.

ecoUH-OH

So we bought a house in Ottawa. It’s a house with a lot of old stuff in it — old wooden trim, old light fixtures, old stucco on the outside. Old insulation. And an old gas boiler in the basement, heating water to circulate in the old radiators.

You don’t need to be an engineer to know that a 26-year-old boiler with an open pilot light that runs 24/7 isn’t exactly the green-friendliest appliance on the block, and we decided that while getting it updated wasn’t our No. 1 priority (that was replacing the kitchen and all the old appliances in it, and taking out the asbestos-laden insulation in the attic, on which more later), it was on the list.

At a minimum, though, we wanted to get it inspected to find out just how bad the thing is and to find out, if nothing else, that the boiler is safe.

The heating contractor came yesterday evening, drilled a pinhole in the venting duct and stuck a probe in there. Before activating the probe, the guy told me that if the contents of the duct included more than 100 parts per million of carbon monoxide, he’d have to “red-tag” it as being unsafe to operate. Anything over 50 parts per million in the ambient air will get the fire department to order you out of the house, he said, and if your boiler is spitting out gases quite that poisonous, it’s only a matter of time.

He fired up the handheld computer the probe was attached to. Waited. Watched some numbers climb. Flipped through a couple more screens.

“Huh,” he said, blinked and shook his head. He extracted the probe, waved it in the cool air, reset the computer, started over.

“Huh,” he said again.

Turns out the boiler is safe, amazingly so given its age. Very low carbon monoxide content in the gases coming out. Unfortunately, it’s so safe precisely because it’s so monstrously inefficient. It’s burning so incredibly hot that all the dangerous products of combustion are being obliterated before they get anywhere — specifically, before they ride the tide of that incredible heat all the way along the duct, up the chimney and out the roof.

Out of the box — this is back when I was a small child — the boiler was maybe 75-per-cent efficient. Now, it’s much, much less. Ditto the hot-water heater, which is basically just a big dumb tank in which hot water sits, cooling off and being reheated until it’s used.

For this and other reasons, he successfully sold me on getting on with a high-efficiency upgrade forthwith. Among those reasons was the fact we’d be eligible for a $600 help-out grant from the Canadian government through its ecoENERGY program, and one from the Ontario government to match it. Ballpark, the job will cost something like $10,000, but we’ll start seeing savings on the gas bill right away, and $1,200 worth of help would sure take some of the sting out.

I hit the Web, looking for details.

Argh!

We are eligible for the $1,200 in grants if we follow this procedure:

  1. Have an energy audit done on the house. This is a two- to three-hour process, generally available only during weekdays, and it costs $350 by itself from a local non-profit that does them (the Ontario government will kick back a bit of the cost). A report would take two to three weeks to get afterward.
  2. Then we’d get the new system.
  3. Then we’d have a second energy audit to demonstrate we’d done the work.
  4. Then we’d apply for the rebate. We’d also get some proportion of the $350 back, too, but we’d only be eligible for the full amount if we followed all the audit’s recommendations, whatever they might be. In an old house, the things we could do might be staggering.

This is accountability run amok. Two separate inspections, a delay of many weeks (with winter approaching), and so much out-of-pocket spending on the accountability process that it eats up a sizeable chunk of the benefits we’d get.

The point of these audits is to grasp the so-called low-hanging fruit, to help people do the stuff that has a financial payoff as well as an immediate environmental one. Somehow, I won’t be surprised if this one fails.

Ed Stelmach de Bolívar

The Globe and Mail‘s David Ebner has an occasionally wordy but comprehensive survey of Alberta’s oil patch, which is holding its breath waiting for an announcement from the provincial government on whether and how it’ll change the royalty scheme whereby oil and gas companies pay the government to exploit an officially public resource.

In a nutshell, this is how it works: Alberta’s oil and gas, like that of other Canadian provinces, are owned by the provincial government. Oil companies lease the rights to explore and exploit those resources, and pay the government a percentage on what they find, extract and sell. And Premier Ed Stelmach is to make up his mind by the end of the month on how much that percentage will increase.

Stelmach, responding to a sense among Albertans that they were being taken for a ride by low royalty rates set when the industry was practically dormant, asked a review panel to make a recommendation on new rates. Simplistically put, the panel recommended jacking up the royalties on mature projects from 20 per cent of profits to 33 per cent, on the grounds that, indeed, Albertans weren’t getting a “fair share” of the profits from their publicly owned natural resources.

Aaaiiiiiiieeee!, the oil industry responded, including in an instant-classic analyst’s note from Deutsche Bank comparing Alberta to Venezuela (PDF). Behind that overblown rhetoric from the kind of Wall Street analyst who gives Wall Street analysts their superior reputation for probity and manners, there’s a fair point: Alberta’s oil reserves are exceptionally expensive to extract. Many projects are borderline even with oil costing $80 a barrel, and if Alberta wants to increase its royalty rates, maybe riskier but higher-profit projects in places like Saudi Arabia and Angola make more corporate sense.

Partway into Ebner’s story is this reminder that for all the talk of the economic riches and environmental perils of the oil sands, work on “unconventional” reserves in Alberta is really just getting started:

The critical and most controversial issue – natural gas – has underpinned Alberta’s economic success and its overflowing treasury. The so-called Calgary oil patch is in fact a gas capital, with a shift only now beginning to swing to the oil sands. Canadian Natural Resources Ltd., the country’s second-largest producer, is the embodiment of this evolution, beginning life in the deep recession of the late 1980s as a scrappy gas producer and growing into a giant gas producer – and now making a big, long-term bet on the oil sands.

But the oil sands remains a tomorrow story, a key source of the province’s long-term revenues.

And the key to that key source of long-term revenue is just how much Alberta wants to extract from the oil companies. This is not a simple question, as Ebner explains.

It’s Stelmach’s job to try to set a royalty rate that maximizes the oilsands’ value to his taxpayers and voters. His trouble is that it’s an impossible task, requiring him not only to set one provincewide rate where rates for individual projects would be more appropriate, and to “balance,” somehow, the reasonable arguments made in Deutsche Bank’s note with a vague “feeling” among Stelmach’s voters that they’re being hard-done-by. Not only that, but we’re talking not only about maximizing the price the province gets from the oil, but maximizing the oil’s long-term value — which means factoring in the other economic activity the oilsands support.

The Star‘s David Olive points out that in the long term, the vastness of Alberta’s reserves likely matters more than the cost of extracting them:

Global oil firms are desperate for reserves, and Alberta’s oil sands represent more than 50 per cent of the world’s reserves available for non-state investment. Threats to move to other jurisdictions are almost laughable. Where will the producers go in search of a similarly giant reserve base that also boasts a politically stable regime – Russia, Kazakhstan, Iraq, Venezuela, Sudan?

In other words, whatever the royalty rate Alberta sets, there will eventually come a world oil price where digging all that oily muck is worth the effort. Indeed, the longer Alberta makes the oil companies wait, the more the oil will be worth. But all the jobs in pipefitting and trucking and fabrication and engineering are worth an awful lot, too, in 2007 prosperity that could set the stage for an oil-independent economy by, say, 2050.

You’d almost think that this problem of trying to maximize the oilsands long-term value would be one better set by, well, a market, rather than this system, reminiscent of the Klondike era, of staking claims and paying arbitrary percentages and having provincewide policy decisions made by one guy.

What’s a particular project worth to an oil company? Why not make them put their cards on the table and bid? Let the companies do all the exploring they like (and no leasing exclusive exploration rights that are little more than lottery tickets with multibillion-dollar payouts) but before they can put a steamshovel in the ground, they’d have to tell the government what they’re willing to pay for the oil they get out. A flat amount, a percentage, whatever the company thought would be fair. Let anyone else bid, too, and take the best, maybe with some automatic payout to the finder if that company doesn’t win the bidding.

Whatever form it took, it’d almost inevitably be superior than leaving Alberta’s whole economic future to one farmer from just northeast of Edmonton, no matter how clever a fellow Stelmach is.

Alberta needs nukes

 NuclearCloud
The closest thing Alberta’s likely to see to a mushroom cloud
is an unusual cloud formation like this one.
Photo credit: Flickr/Nicholas_T

Alberta’s being all coy about whether it’ll give permission for a nuclear-power plant to be built to power a major chunk of the energy-sucking oilsands operations. According to the Financial Post, a private consortium wants to build one and has a major customer (pretty definitely a global oil company) ready to sign up for most of the electricity it generates. But the provincial government is squeamish about whether to allow it.

Alberta Premier Ed Stelmach says the jury is still out on whether a proposed $6.2-billion nuclear plant will be built in oil-rich northwestern Alberta.

“We first have to decide whether we’re open to nuclear energy,” he said Tuesday in Edmonton.

“You don’t build nuclear reactors over an evening. These are important decisions . . . beyond one person, and we’ll structure soon the kind of public discussion that will occur in the province.”

Alberta uses about 9,000 megawatts of power now, but getting usable oil out of the oilsands is an energy-intensive activity, and forecasts are that demand will double in the next decade and a bit. The biggest energy demand is to produce steam, which separates sticky tar from the sand it’s mixed with in the ground.

I can understand having serious reservations about the technology — Ontario’s nuclear “fleet,” as it’s grandly called, has been an utter nightmare of billion-dollar repairs and slipped schedules as the reactors enter middle age — but that’s a management decision, not one of deep principle.

What baffles me, while principle is on the table, is that the Alberta government would have no problem with powering the oil-sands operations by burning natural gas and spewing carbon dioxide into the air — would indeed warn other provinces not even to whisper about the possibility that might be bad — but will go all twittery about a technology that’s been used successfully the world over, with the only significant problem (albeit a doozy) having been a consequence of gross mismanagement in one of the most corrupt and half-assed industrial regimes ever to befoul the earth when it was embarking on its final collapse.

Certainly, more, lots more, needs to be done to reduce the oilsands’ extractors’ voracious appetite for energy. But if we take as a given in the discussion that more power is needed, nuclear plants seem the only remotely sensible option.

U.S. petroleum industry wants a carbon tax, your money

The latest report from the U.S.’s National Petroleum Council makes even clearer that contrary to what some optimists might have hoped, the fact we can’t seem to find enough oil anymore won’t be much help fighting human-induced global warming.

The council is made up of executives — dozens and dozens of them — from the oil and natural-gas industries and its financiers, plus a handful of academics, such as chairs of Texas geology departments. Its reports can reasonably be assumed to be the considered wisdom of the industry as a whole, though of course there will be outliers and dissenters.

The body’s latest report is called “Facing the Hard Truths about Energy,” and apparently two of those hard truths are (1) the projections all say that we’ll be screwed for energy by 2030, and (2) … unless maybe we throw a lot more money the industry’s way.

The full PDF of the report is here. It’s 430 pages long, and I won’t pretend to have read anything but the summary and the recommendations, a couple of other bits and pieces, and a couple of news stories about it that possibly quote people who have read it, or have people working for them who do.

(Funny how policy gets made, isn’t it?)

The one bit of good news is that the industry is making a call for sensible — and I’m not being snarky — greenhouse-gas regulation. The petroleum council wants

A U.S. mechanism for setting an effective cost for emitting CO2 that is:
– Economy-wide, market-based, visible, transparent, applicable to all fuels.
– Predictable over the long term for a stable investment climate.

It’s funny to see “visible” and “transparent” next to each other like that, but anyway, the only mechanism I can think of that fits this bill is a carbon tax. I favour a cap-and-trade system for big greenhouse-gas emitters like oil drillers and refiners, which very much does not fit this bill, but the fact they’re advocating a charge for CO2 emissions at all is astounding.

But that, of course, isn’t the only recommendation in the vast report.

The petroleum industry is afraid we’ll run out of energy unless public support somehow convinces it to find and sell more petroleum, a climate of desperate shortage apparently being difficult to run a profitable business in. Among its various recommendations, apparently the U.S. government should:

  • Support regulatory streamlining and research and development programs for marginal wells.
  • Use technology and operational advancements to allow environmentally responsible development of high potential onshore and offshore areas currently restricted by moratoria or access limitations.
  • The Department of Energy should conduct and promote research, development, demonstration, and deployment of industrial energy efficiency technologies and best practices.
  • The research and development tax credit should be permanently extended to spur private research and development investments.
  • Support research into second-generation biofuel crops that have lower input requirements or are suited to more marginal lands.
  • Promote agricultural policies that enhance global production of both food crops and biomass for fuel.
  • Implement the recommendation by the National Commission on Energy Policy to provide $2 billion over ten years from federal energy research, development, demonstration, and deployment budgets for demonstration of
    one to two new advanced nuclear facilities.

Etc. Sigh.

As you’d expect, the petroleum industry is going to fight, wellhead and drillbit, to find new sources of fossil fuels to sell people so they can be burned, even if it takes government subsidies to do it.  This energy-intensive way of life isn’t going to go down easily.

You want nukes? Build ’em yourself, says U.K. government

Bravo for the British government, having decided that if anybody wants more nuclear power stations, he or she is going to have to build them without help:

“The government is not going to build a single nuclear power station,” Trade and Industry Secretary Alistair Darling told a committee of members of parliament.

“We are not going to contribute to the cost of it,” he said, rejecting suggestions the government might have to give money to get companies to make the multi-billion pound investments.

“If the energy generators don’t want to build them, then there won’t be any,” he said.

All of the country’s existing nuclear power plants were paid for and built by the state, but none has been built since the power sector was privatised in the 1990s.

According to Wikipedia, the U.K. currently has 24 nuclear plants that supply about a fifth of the country’s power, though not a single one has been built since the British government privatized electricity.

The risks involved in nuclear power (mainly business risks, I mean, given the staggering costs — not environmental or BOOM! risks) are so great that stations generally require at least some government support, even if it’s only a publicly supported locked-in contract to buy the power. But it should be obvious that if the state has to kick in, it’s not a good way to serve consumers. Just getting rid of waste and decommissioning old reactors is guesstimated to cost 70 billion pounds.

The Reuters story goes on to note that the cheapest large-scale generation available in Britain is gas-fired power plants, suggesting that the alternative to state-supported nuclear expansion is greenhouse-gas-emitting gas plants. To even things out a bit, the state will definitely have to find an effective scheme to put a price on carbon emissions.

(Via Grist Mill.)