Category Archives: oil

Two oily quickies

1) This would be wrong morally, economically and practically, but poetically, there’s no denying the appeal:

So the oil companies are once again boasting record profits and yet the auto makers are asking for some government cheese.  Does anyone else see the irony here?  So I’ve got a little trickle down theory of my own.  As long as Detroit continues to make cars for the Gas-Capades let the oil companies bail them out.

(Hat-tip: Sullivan.)

2) It’s a little surprising this didn’t happen more six months ago, when the cargo would have been worth twice as much, but it’s a hell of a target of opportunity.

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.

The offshore drilling scam

I don’t have a settled position on offshore drilling for oil, whether it’s in Canada, the United States or Nigeria — my gut says don’t but my head says in most cases, why exactly not? — but I think it’s clear that brand-new exploration of any kind is no short-term fix to the U.S. energy shortage. As Marc Gunther, one of a thousand sources I could have cited, puts it:

Citing US EIA reports, Rick and Andy say that 200,000 barrels per day by 2030 of extra output from additional outer continental shelf drilling represents a mere 3% increase in projected US production in 2030 and only a 0.2% increase in global output in 2030. The Department of Energy says the projected price impact of opening up additional outer continental shelf drilling in the US is “insignificant”. If McCain knows that (and he should), he’s being a cynic when linking offshore oil drilling to price cuts.

When the oil age eventually ends…

… Dubai’s going to have some awesome ruins.

Defining the energy problem

John Robb sums it up.

Our current global energy burn rate is 16 TW (terawatts), which is up from 0.7 TW at the turn of the 20th Century. … It’s very likely, given a judicious evaluation of the data, that this demand will double to 32 TW by 2025 (even with a global 1-2% decline in usage per $ of GDP due to efficiency improvements).

The bulk of the energy we feed this burn rate with is from stored solar — essentially, energy delivered from the sun millions of years ago and stored inside the earth’s crust. The problem we face with stored solar is that it is reaching production limits (particularly crude oil). In combination with this rapidly increasing demand, we will face a never ending series of price increases (occasionally mitigated by demand destruction) for stored solar energy as oil, natural gas, and coal deplete in series.

Alberta’s climate-change “plan”

I guess it’s officially a “strategy,” but it comes across as more of a “wish list,” not unlike the federal government’s.

The promise is to cut greenhouse-gas emissions by 14 per cent from 2005 levels by 2050. That’s a relatively mild target, compared to what climate scientists say we need to do, but even so there’s no obvious mechanism to make sure this actually happens. The newly released strategy from the Progressive Conservative government of Premier Ed Stelmach talks a great deal about investing in carbon-sequestration (capturing and burying carbon-dioxide emissions, that is), but doesn’t describe a means of making major emitters adopt the practice.

Here’s the news release and here’s the document itself (PDF), complete with lovely full-colour images of wheat waving in the wind, close-ups of leaves and images of … chopped-down timber, it looks like, on page 22. (Somebody send down to the stock-photo library for a substitute, would you?)

Alberta’s in an exquisitely difficult position, having a roaring economy that’s almost totally dependent on extracting carbon-producing fossil fuels in an energy-intense (and therefore highly carbon-emitting) way. Alternative sources of power are a long way off and won’t easily displace the cheap natural gas that’s used to fire the boilers that separate oil from sand in the oilsands.

Here’s a generous way to look at Alberta’s position, if you want one. The province’s oil reserves are only worth exploiting if prices are high, and prices are high because supplies are getting tighter while demand is expanding. If Alberta’s oil economy is to continue growing, it’ll be because other oil-exporters are running low, which will mean less overall pumping and refining and burning in the world, even if more of the supply comes from Alberta in particular. Therefore, if Alberta makes its oil economy more ecologically friendly and takes over an increasing share of the world’s production, its own emissions can rise while at the same time representing a net global decline.

One likely flaw in this reasoning is that whatever their other problems, conventional oil producers like Saudia Arabia and Nigeria are probably less environmentally damaging than Alberta is, so maybe we’ll keep doing the same amount of damage, globally speaking, to extract less oil. The truth is, oilsands oil is bad news for everybody except Albertans.Deep cuts to emissions would certainly mean deep economic damage, and Alberta voters wouldn’t likely stand for it. So there’s only so much an Alberta government can realistically do and expect to not get crushed at the polls.

Nevertheless, I’d think it would be more than this.

While Alberta’s latest greenhouse-gas plan talks about an emissions cut of 14 per cent below 2005 levels, most of its graphs and whatnot use a “business-as-usual” baseline for 2050 emissions to make the province’s projected cuts look more impressive. Taking them at their word, Stelmach’s government promises to cut 24 megatonnes of emissions through conservation in regular old power use, 37 megatonnes through greener energy sources, and 139 megatonnes through carbon sequestration by major emitters.

What’s missing, as I say, is the mechanism. How are major emitters to be made to capture all that carbon? The strategy is silent. No dollar figure for government spending is included in the plan, no discussion of carbon taxes or a cap-and-trade scheme. Alberta already charges major emitters $15 per tonne of carbon emissions beyond a  high ceiling, but there’s no way that’s going to produce the kind of changes the government purports to be planning. The last page of the strategy promises implementation plans in the coming months, although it also declares that “Most importantly, this plan is about actions not words.”

Just, uh, stay tuned for the actions.

Solar-power showpieces

Radically different governments, same principle: spend pots of public money on solar power in hopes of … well, having a lot of economically unsustainable solar power.

In Ontario, the Globe and Mail reports, The Ontario Power Authority is pleased to have signed contracts for 250 megawatts of solar-power systems:

If all those who have promised to install panels follow through with their plans, Ontario will have some of the biggest solar farms on the planet, and an important “green” industry will be kick-started in the province.

Still, the solar-power generation business is essentially starting from scratch. At year-end only an infinitesimal 0.3 MW of sun-generated energy was being sold to Ontario’s power grid. The biggest completed project so far is a series of panels on the roof of the horse barn at the Canadian National Exhibition in Toronto.

The industry will be “kick-started,” but the contracts call for the providers to be paid 42 cents per kilowatt-hour, which is about seven times the going rate for electricity in hydro- and nuclear-rich Ontario most of the time. Even in high summer, the spot price for power rarely tops 30 cents a kilowatt-hour. Later in the story, a spokesman for one of the companies involved says 42 cents a kW/h is barely a break-even price for his operation.

So I guess the hope is that this subsidy, for a subsidy it is, will help Ontario-based companies work out some of the kinks in solar-energy generation and move in the direction of the going market prices.

But still — seven times the market price? Wouldn’t the money be better spent on nuclear technology, if energy’s what the government’s determined to spend it on?

AbuDhabi

Abu Dhabi, meanwhile, is happily announcing the imminent construction of a Dongtan-style concept town called Masdar City, which is supposed to be a carbon-neutral residence for 50,000.

Abu Dhabi sits on most of the UAE’s oil and gas reserves, ranked respectively as fifth and fourth in the world. Proven oil reserves on their own are expected to last for another 150 years.

But like most oil-producing countries, the UAE also wants to diversify to ease its traditional economic dependency on oil.

The zero-carbon city, part of the wider Masdar Initiative launched by the wealthy Abu Dhabi government in 2006, is also a flagship project of the global conservation group WWF.

Masdar chief executive Sultan al-Jaber described Masdar — Arabic for “source” — as as an entirely new economic sector fully dedicated to alternative energy, which will have a positive impact on the emirate’s economy.

It’ll have transportation pods like Star Trek turbolifts, according to Agence France-Presse, where you’ll be able to walk in and say your destination and it’ll take you there.

Cool. Practical? No. It can function only with massive ongoing subsidies from Abu Dhabi’s oil-drenched economy. That’s the opposite of sustainable.

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.

Some virtuous cycle

Prime Minister Stephen Harper said an odd thing today at the United Nations climate-change bloviation in New York:

Canada is working on a variety of strategies, but one of the most exciting is carbon capture and storage.

It holds great potential for major emission reductions at home and abroad.

Pilot projects are underway in western Canada. CO2 is being pumped deep underground into rock formations that have been drained of their oil and gas.

Trapping it there creates a virtuous energy cycle: We take hydrocarbons out, tap their energy, and put the emissions back.

This is a, let’s say, non-standard definition of the term “virtuous cycle,” which you’d generally use to describe a system where improvements accelerate the longer you use it.

I’d expect the prime minister, who’s an economist to the extent he’s anything other than a politico, to recognize this as a case of the law of diminishing returns.

Don’t get me wrong — carbon sequestration is A Good Thing if it can be done economically, which is the current problem. But let’s not suggest it’s going to get us something for nothing.

Long-term adjustments

Tim Haab of Environmental Economics notes a data point suggesting people are beginning to make some significant life- and work-style adjustments to cope with higher gas prices. Telecommuting is on the rise, encouraged by bosses.

There’s been a lot of public-opinion research and economic forecasting trying to figure out at what point gas prices would really make people reduce their driving (more from Haab on this point, and some less-learned commentary from me), but it’s difficult to make accurate predictions about things as “sticky” as what kinds of cars commuters driver and where they choose to live in relation to where they choose to work.

Haab:

I’m not sure how long large-scale adjustments take, but I’m sure it is longer than 3 months. My guess is that we are just starting to see the beginnings of adjustments and over the next six months or so, as long as gas hovers around $3/gallon, we’ll see more and more stories like this one

This is something to keep in mind when reading apocalyptic predictions like some of Jim Kunstler’s, for instance, about our inability to adapt:

Mostly, we don’t want to face the tragic misinvestments we’ve made in the infrastructure of happy motoring, and we don’t want to face the inconvenient truth that there really isn’t any combination of alt.fuels that will permit us to keep running all the cars the way we like to run them. Either we keep getting the oil or say goodbye to the American Dream Version 2.K.

The public has now decided that this nation’s primary mission is to find some magic way to keep the cars running on a fuel other than gasoline …

There will be shocks and there will be adjustments and some of them will be hard and some of them will take a long time, and a combination of peak oil (which is coming eventually, whether that’s sooner or later) and climate change will hurt. But we are an adaptable species and we’ll figure some things out. The goal is to make the process as painless as possible, and not to mindlessly dump the problems prosperity has created onto people who haven’t enjoyed any of it.