blog2009

Bishop spurns oilsands development

Kelly Cryderman, Calgary Herald
Florence Loyie, The Edmonton Journal
January 27, 2009

Bishop Luc Bouchard

Roman Catholic leader wants environmental concerns addressed; industry welcomes debate

The bishop of the Roman Catholic diocese that covers Fort McMurray has waded into the environmental debate over the oilsands, saying future development there "constitutes a serious moral problem" and goes against God's teachings.

In an online pastoral letter for Catholics in the area, Bishop Luc Bouchard of the Diocese of St. Paul calls for a moratorium on further oilsands development until environmental and social concerns are addressed.

"I am forced to conclude that the integrity of creation in the Athabasca oilsands is clearly being sacrificed for economic gain. The proposed future development of the oilsands constitutes a serious moral problem," Bouchard wrote in the long and extensively footnoted letter.

Surface mining of oilsands destroys the boreal forest ecosystem, pollutes water, releases greenhouse gases, and creates toxic tailings ponds that will exist long after the plants have closed, and will require 100 years of supervision and maintenance, Bouchard said.

"The present pace and scale of development in the Athabasca oilsands cannot be morally justified. Active steps to alleviate this environmental damage must be undertaken."

Bouchard says his criticisms are not aimed at the people of Fort McMurray, but the "oil company executives in Calgary and Houston, to government leaders in Edmonton and Ottawa, and to the general public whose excessive consumerist lifestyle drives the demand for oil."

Guy Boutilier, MLA for Fort McMurray-Wood Buffalo, said he applauds the bishop for his environmental concerns and for encouraging debate.

"And I say that as a proud parent ... who has called Fort McMurray home for the last 31 years. I believe the 21st century will be about what we do for the next 25 years when it comes to positive initiatives for dealing with tailing ponds, reclamation and our premier's $2-billion initiative on carbon capture and storage," he said.

Boutilier said he thinks the environmental battles are done, and the time has come to marry the environment, energy production and the economy in a way that is sustainable for the future.

Bouchard lays out his concerns using what he describes as "foundational Catholic theological principles supporting environmental ethics."

He then calls for 10 actions constituting a "serious commitment," including safeguarding the integrity of the Athabasca watershed, implementing a national energy conservation program, and national reductions in greenhouse gases to offset emissions from oilsands processing plants.

Bouchard's words come as the Canadian Association of Petroleum Producers predicts that oilsands investment in Alberta this year will fall to about half of what was projected last summer, due to deferred projects.

The bishop's own priests acknowledge Bouchard's words are likely to stir

debate.

Father Gerard Gauthier, the Catholic pastor for St. John the Baptist parish in Fort McMurray -- which falls under the Diocese of St. Paul -- said he expects his congregation's reaction to Bouchard's comments to be mixed.

"Those who are working for the oil will say, 'how dare the bishop do this?' Those who are more environmentally consciouswill say, 'he didn't go far en-

ough.' "

While Gauthier said "North America is addicted to oil," he added that addressing that addiction is the responsibility of all Americans and Canadians -- not just the oilsands companies or the people of Fort McMurray.

"I certainly hope that there will be some discussion, and out of that, a greater respect for creation," Gauthier said.

In the past, Melissa Blake, mayor of the Regional Municipality of Wood Buffalo, which includes Fort McMurray, has criticized the pace of oilsands development allowed by the provincial government.

"I have a faith and my faith isn't telling me we should be at an absolute moratorium. What it's telling me is we need to be responsible," said Blake, responding to Bouchard's comments.

"I can't say what God wants me to do or not do. I can just say within reason there are things we should be doing differently."

Blake said she is "relieved" by the current economic slowdown, as the community is still suffering labour shortages and problems in providing transportation services.

In reaction to Bouchard's comments, CAPP issued a statement saying "we invited the input of all Canadians to identify and address their concerns regarding oilsands development and we accept the bishop's input as part of that process."

The industry lobby group said it would like to sit down to talk with the bishop. "We strongly believe oilsands development is sustainable, regulated and the cornerstone of Canada's resource supply," CAPP said.

The Fort McMurray-based Oil Sands Developers Group offered to speak with Bouchard, and also to take him for a tour of the oilsands.

"We take those concerns seriously," group president Don Thompson said Monday.

Simon Dyer, oilsands researcher with the Pembina Institute, an environmental think-tank, called Bouchard's letter "amazingly well-researched and thoughtful."

Dyer said Bouchard's letter seems to be a part of a rising trend -- increasingly, faith-based organizations are realizing the importance of environmental conservation.

"The environment and social issues here are important to Albertans and Canadians."

The St. Paul Diocese covers 155,916 square kilometres, and serves about 55,000 Catholics in northeastern Alberta.
© Copyright (c) The Edmonton Journal

Big Energy companies announce 2008 record results

COMMENT: It may be economic collapse for the rest of us, but the big integrated energy companies cruised through their 2008 fiscal year with record results. The dismal final months of the year weren't bad enough to neutralize the incredible revenue momentum built up earlier in the year.

The end of January sees the first round of annual results, with more trickling in through February. So, 2009 to-date looks like this.

$45.2-billion: Exxon's record year

JOHN PORRETTO,
Globe and Mail,
January 30, 2009

HOUSTON — — Exxon Mobil Corp. [XOM-N]on Friday reported a profit of $45.2-billion (U.S.) for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 per cent from a year ago.

The previous record for annual profit was $40.6-billion, which the world's largest publicly traded oil company set in 2007.

The extraordinary full-year profit wasn't a surprise given crude's triple-digit price for much of 2008, peaking near an unheard of $150 a barrel in July. Since then, however, prices have fallen roughly 70 per cent amid a deepening global economic crisis.

In the fourth quarter alone crude tumbled 60 per cent, prompting spending and job cuts in an industry that was reporting robust, often record, profits as recently as last summer.

With piles of cash and diversified operations, the majors like Exxon Mobil have fared better than many smaller oil and gas companies, but Friday's results show no one is completely insulated from the ongoing malaise.

Irving, Texas-based Exxon said net income slid sharply to $7.8-billion, or $1.55 a share, in the October-December period. That compared with $11.7-billion, or $2.13 a share, in the same period a year ago, when Exxon set a U.S. record for quarterly profit. It has since topped that mark twice, first in last year's second quarter and then with earnings of $14.83-billion in the third quarter.

Revenue in the most-recent quarter fell 27 per cent to $84.7-billion.

Both the per-share and revenue results topped Wall Street forecasts. On average, analysts expected the company to earn $1.45 a share in the latest quarter on revenue of $69.1-billion, according to Thomson Reuters.

The nation's second largest oil company, Chevron Corp., reported profits of $4.9-billion for the fourth quarter, though revenues slid 26 per cent with oil prices in sharp decline.

It earned $2.44 per share in the three months ended Dec. 31. Like Exxon, Chevron easily beat expectations of analysts, who were looking for profits of $1.81 per share.

The industry went into retrenchment toward the end of the year with demand falling.

As expected, Exxon Mobil's bottom line took a beating from its exploration and production, or upstream, arm, where net income fell 31 per cent to $5.6-billion. The culprit: lower crude prices, which the company said decreased earnings by $3.2-billion in the fourth quarter alone.

The company, which produces about 3 per cent of the world's oil, said overall output fell 3 per cent in the most-recent period, a troubling trend in previous quarters. Exxon, which generates more than two-thirds of its earnings from oil and gas production, said production-sharing contracts and OPEC quotas contributed to its lower output.

Results were better at its refining and marketing unit, where earnings rose 6 per cent to $2.4-billion as higher margins overcame costs related to last summer's hurricanes and other factors.

The company's chemical division also took a hit, posting net income of $155-million versus $1.1-billion a year ago. Results were hurt by lower volumes and margins and hurricane-repair costs.

Exxon Mobil said it bought 119 million shares of its common stock in the quarter at a cost of $8.8-billion. Roughly $8-billion of that amount was dedicated to reducing the number of shares outstanding; the balance was used to offset shares issued as part of the company's benefit plans.

Exxon said it spent $26.1-billion on capital and exploration projects last year, up 25 per cent from 2007. Its earnings release provided no information about its planned spending for 2009.

For the full year, Exxon Mobil's massive profit amounted to $8.69 a share, versus $7.28 a share a year ago.

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Shell makes first quarterly loss in a decade

Terry Macalister and Graeme Wearden,
Guardian
Thursday 29 January 2009

• But company still makes biggest UK annual profit in history
• Earnings of £2.5m a hour may spark fresh calls for windfall tax

Shell has slumped to its first quarterly loss in 10 years on the back of plummeting oil prices, but the Anglo-Dutch oil group was still able to report the biggest annual profit in UK corporate history, of $31.4bn (£21.9bn) – the equivalent of £2.5m an hour – leading to renewed calls for a windfall tax.

The union Unite expressed anger that the petrol supplier was still raking in record profits while motorists and others suffered. "Shell is still feasting while the rest of us face famine," said joint general secretary Derek Simpson. "A compelling case still remains for a windfall tax on the greedy energy companies. Working families are struggling in the face of the recession; the redistribution of windfall profits would help support Britain through these difficult times."

Shell's profits were made when oil prices were soaring last year, reaching a record high of $147 a barrel last July – the price has since fallen to below $50.

The energy group, which is the second biggest publicly quoted oil company in the world, reported a net deficit of $2.8bn for the fourth quarter of 2008, compared with an $8.5bn profit during the same period 12 months earlier. "Combined cycle" earnings – the ones most watched by City analysts – fell 28% to $4.7bn in the three-month period, but Shell's full-year figure of $31.4bn was up 14% on the year before.

Jeroen van der Veer, Shell's chief executive, said industry conditions remained "challenging" and that the company would slow down some of its projects, such as the controversial tar sands operation in Canada. But he added that shareholders were still benefiting, with the dividend raised for both the last and the forthcoming quarter.

"Our strategy remains to pay competitive and progressive dividends, and to make significant investments in the company for future profitability. Industry conditions remain challenging and we are continuing the focus on capital and cost discipline," he said.

The tar sands business, which has attracted huge criticism from green groups because of its heavy carbon footprint, made a $30m quarterly loss. Van der Veer refused to admit that investing in tar sands was a mistake, saying it was a long-term business that would become profitable when global crude prices recovered.

Shell admits the tar sands business needs crude oil prices of $70-$80 a barrel to make money. James Marriott, a partner at environmental group Platform, said: "The tar sands are a disaster and should be abandoned. They are making a substantial financial loss for Shell while taking an even bigger toll on the environment."

Shell did not announce job cuts today, but the company did say it expected to spend slightly less on capital investment this year than last, as it balances its "commitments to projects under construction and growth with the more challenging economic landscape in 2009".

The City was split over the results and the share price dipped during the day but the "A" shares ended 25p up at £18.01. Andy Lynch, who runs the Schroders European Dynamic Growth Fund, welcomed the results, and Gordon Gray of broker Collins Stewart said the dividend increase showed Shell could ride out the downturn. "We are not that positive on the major oils as a group, but think Shell has the balance sheet to take it through this period of peak investment and weak pricing."

There had been speculation that the Anglo-Dutch group would reveal significant cutbacks in its 2009 exploration and production budget and could make job losses.

The results should keep Shell ahead of main rival BP, which will report next Tuesday and is expecting full-year profits of $26.5bn. BP is expected to produce a final-quarter profit of $2.98bn, which would be flat on the same period 12 months ago – a comparison flattered by the difficulties following the Texas City fire.

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Imperial racks up record 2008 profits

By Shaun Polczer
Calgary Herald
January 30, 2009

Integrated producer hikes capital budget 60 per cent

Imperial Oil president and CEO Bruce March says a long-term approach is paying off for the company in uncertain times.

Despite a lower fourth quarter, Imperial Oil Ltd. bucked an oilpatch trend by racking up record full-year profits in 2008 and cranking up its capital program, the company said Thursday.

"Our long-term approach has created a strong financial position that will continue to serve our shareholders well during times of economic uncertainty,"CEO Bruce March said in a statement.

Canada's largest integrated oil producer and refiner made $660 million, or 76 cents a share, in the final three months of the year, down about 25 per cent from $886 million, or 96 cents a share, in the fourth quarter of 2007.

Even after factoring lower oil prices in the second half, full-year profits climbed about 18 per cent to $3.9 billion, or $4.36 a share, from $3.2 billion or $3.41 a share a year earlier.

In addition, Imperial bucked another oilpatch trend by hiking its capital budget 60 per cent or nearly $800 million even as its peers slash billions in spending projects across Western Canada.

Much of the proposed increase is associated with the proposed Kearl oilsands project, where Imperial currently has 1,200 con-tractors and employees performing field work in anticipation of a decision to move ahead with the project later this year.

Where other big oilsands operators such as Suncor have reduced budgets and laid off contractors, work at the Kearl site in northeast Alberta continues uninterrupted, said Imperial spokesman Gordon Wong.

"We take a long-term view and disciplined approach to our business, that's one of our strengths," he said.

Imperial is one of a handful of companies that refines, produces and markets oil and gas products through its network of Esso service stations, which allows it to make money even when commodity prices fall.

The company's upstream production arm earned about $336 million in the quarter, down about 60 per cent from$739 million in the fourth quarter of 2007. Imperial blamed the drop on conventional oil prices that averaged $56.75 a barrel compared to $81.25 in the prior year period.

However, heavy oil prices held up better, fetching $48.95 compared to $56.60 in the fourth quarter of 2007.

Edward Jones analyst Lanny Pendill, who covers the Canadian oilpatch from St. Louis, credited better than expected heavy oil prices for the street-beating performance. Imperial doesn't disclose how much it receives for its Cold Lake production, other than to note"prices for Canadian heavy oil, including the company's heavy oil from Cold Lake, moved generally in line with that of the lighter crude oil."

Cold Lake production dipped slightly, to 146,000 barrels a day from 158,000 barrels a day a year earlier.

Pointing to more than $2.2 billion worth of share buybacks during the year, Pendill said Imperial has the balance sheet muscle to weather the downturn and maintain spending to bring its growth projects on-stream, which include the much-hyped Horn River unconventional natural gas shale play in northeast British Columbia.

"Imperial is one of those companies you can depend on not to do anything knee-jerk in response to short-term conditions. Everybody's expected a pretty dismal quarter from the oilpatch. They (competitors)just don't have the financial strength Imperial does."

Downstream profits, which include the company's refining assets, jumped to $257 million from $218 million a year ago reflecting a weaker Canadian dollar. Imperial said about $30 million of the difference is directly related to currency translation.

Andrew Potter, an analyst with UBS Securities in Calgary, said Imperial beat his quarterly estimates by some 13 cents a share, or nearly 20 per cent.

"Approximately 75 per cent of the variance is in the upstream due primarily to lower than forecast purchased product costs and lower taxes, with the remainder due to slightly better than expected downstream results," he noted.

Imperial's shares fell 63 cents on the Toronto Stock Exchange Thursday to close at $39.16.

© Copyright (c) The Calgary Herald

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Petro-Canada posts loss, coy on Fort Hills

Carrie Tait
Financial Post
Thursday, January 29, 2009

With oil prices still depressed as the global economy continues to weaken, PetroCan said it has lowered its production forecast for this year to between 345,000 and 385,000 barrels per day.Leah Hennel/CanWest News ServiceWith oil prices still depressed as the global economy continues to weaken, PetroCan said it has lowered its production forecast for this year to between 345,000 and 385,000 barrels per day.

CALGARY -- Petro-Canada, which on Thursday reported a fourth quarter loss and cut its production guidance for 2009, said it will wait until energy prices bounce back and financial markets strengthen before deciding whether to proceed with its Fort Hills oil sands project, which Total SA is trying to buy into.

Petro-Canada's Montreal coker and MacKay River oil sands expansion plans, two other unsanctioned projects, are also on hold.

"We intend to wait until we see a turn in commodity prices and the financial markets before moving ahead," Ron Brenneman, Petro-Canada's chief executive, said in a conference call. "In the mean time, we're stepping back and reworking the costs."

Petro-Canada lost $691-million, or $1.43 a share, in the fourth quarter, compared to a profit of $522-million, or $1.08 a share, in the same quarter in 2007. Operating earnings in the fourth quarter rang in at $518-million, or $1.07 a share, compared to $513-million, or $1.06 a share, in the fourth quarter of 2007.

The integrated company's oil sands division posted an operating loss of $8-million in the fourth quarter, compared to operating earnings of $73-million in the same quarter last year.

Petro-Canada expects to produce between 345,000 barrels of oil equivalent per day and 385,000 boe/d in 2009, down from its December prediction of between 360,000 boe/d and 395,000 boe/d.

"The production guidance range has been expanded to reflect market uncertainty in the current environment and the potential impact on near term production if low commodity prices persist or worsen and further reductions to capital expenditures are needed," Petro-Canada said in a statement.

The company also operates in Libya, and is therefore under production constraints imposed by the Organization of Petroleum Exporting Countries.

Harry Roberts, the company's chief financial officer, on the conference call said if Brent crude oil prices hover between US$40 and US$50, and if the Henry Hub natural gas trades around US$5 per Mmbtu, then "we can manage our business well within our financial means. If commodity prices are below this range for an extended period of time, we would look at further capital reductions."

Petro-Canada previously said it would make its final investment decision its Fort Hills oil sands project -- it has already iced plans to build an upgrader there -- in the middle of 2009. Asked whether this would change, Mr. Brenneman said: "We've got 11 months left in 2009. We haven't really said 'come hell or high water 2009.'"

Rather, when commodity prices, costs, and the financial markets are more favourable, and when factors such as the lease extension negotiations with the government are sorted out, then Petro-Canada will make its call, he said.

Total, the French energy giant, earlier this week made a hostile bid for UTS Corp., a minority shareholder in the undeveloped Fort Hills project. The international outfit made its first move into the oil sands in 1998, and has been making acquisitions there ever since. UTS owns 20% of the Fort Hills project, and Total has already broadcast its desire to own an even larger chunk of the development.

Teck Cominco Ltd. also owns 20% of the mining project, while Petro-Canada holds the remaining 60% and is the project's operator. Mr. Brenneman reiterated that Petro-Canada would welcome Total as a partner, and noted that the Canadian company is not interested in increasing or decreasing its stake in the multi-billion oil sands effort.

Oil patch blues not as lowdown as feared

Charles Frank
National Post
Canwest News Service
Saturday, January 31, 2009

Q4 reports not expected to spark major layoffs

So far, so good. Sort of. Thursday's much-feared round of oil patch fourth-quarter reports was not nearly as grim as had been originally forecast.

In fact, one of the biggest dogs in the patch, Imperial Oil, weighed in with a $660-million profit, running its 2008 net earnings to a record $3.9-billion--bringing with it a welcome note of optimism to an industry that has been battered by slumping commodity prices and the rapid onset of the global financial crisis.

Things weren't as good over at Petro-Canada, where the country's fourth-largest integrated oil company checked in with a $691-million loss -- enough of a setback to cause chief executive Ron Brenneman to opine that 2009 would be a good time to hunker down and wait for economic circumstances to become less volatile.

Even so, Mr. Brenneman, following in the footsteps of oils sands miner Suncor Energy, which reported its first fourth-quarter loss last week, eschewed any talk of layoffs. Perhaps because, at the end of the day, Petro-Canada's net earnings for 2008 were up 15%, to $3.13-billion.

That's a heady number. By any yardstick.

In fact, among the gaggle of industry heavyweights reporting Thursday, only distant cousin and former Calgary icon Nova Chemicals (now head-officed in Pittsburgh but with massive operations in central Alberta) chose to slash staff, announcing it would shed 15% of its workforce in the wake of a stinging $215-million fourth-quarter loss.

Nova, Canada's largest chemical producer, is also under intense pressure to raise $400-million to meet loan covenants -- a scenario that has in recent months already sent a number of blue-chip corporations to the bankruptcy courts.

Given what has been happening in the United States since the beginning of January, the relative lack of employee bloodletting in the oil patch -- so far --is worthy of note.

In the United States, heavy equipment manufacturer Caterpillar set the tone for the week when it jettisoned 20,000 workers after the company's order book started to spring a leak in 2009 and the company reported a 32% drop in profit.

No doubt part of the company's financial woes were the result of oil sands producers such as Petro-Canada and Suncor shelving expansion plans, an about-face that has seen planned expenditures in the oil sands fall from a projected $20-billion for 2009 to less than $10 -billion.

That number is likely to diminish even further before year-end, barring a miraculous global economic recovery.

Not to be outdone, aircraft manufacturer Boeing dropped 10,000 workers as shrinking airline profits caused cancellations and postponements of new aircraft purchases around the world.

Microsoft -- thought to be among the sectors "immune" to the raging global recession -- dropped 5,000 employees after a disappointing fourth quarter. And coffee giant Starbucks eliminated 6,700 jobs and said it would close some 300 stores while Home Depot said it would lose 7,000 workers.

Enough said.

All of which isn't to say there haven't been job losses in the oil patch.

One source suggests that some 2,000 engineers, mostly in contract positions, have lost their jobs in the past few months as projects have been mothballed and companies chop their spending plans by billions of dollars.

And the service sector has been selectively paring workers by the handful, as companies adjust their needs to meet the reductions in capital expenditures that explorers and producers are implementing to keep their heads above water in today's rapidly shifting economic environment.

Earlier this week, the Petroleum Services Association of Canada revised its 2009 forecast for drilling activity downward by 21% to 13,500 wells. The association is calling for only 8,455 wells to be drilled in Alberta compared with 11,844 last year.

That contraction is already translating itself into widespread workforce reductions as operators idle rigs until commodity prices -- and the economic climate-- rebound.

At this point, there is no consensus as to when that might be.

Conservatives ground green energy plan

Scott Simpson
Vancouver Sun
January 28, 2009

Funding for renewable power projects -- and jobs they create -- missing from economic stimulus budget

Green energy proponents were disappointed by the federal government's decision to exclude renewable power from a $40-billion economic stimulus package announced in Tuesday's budget.

The budget introduced in Ottawa by Finance Minister Jim Flaherty includes $1 billion in new funding for green technology, including carbon capture and storage projects aimed at grappling with climate change.

However, the Conservatives spurned calls by environmental groups and independent power producers to enrich the enormously successful ecoEnergy for Renewable Power program.

Response to the program has been so positive since its introduction in November 2007 that all the $1.5 billion originally offered has been committed, even though the program was supposed to run through 2012.

It provides green-energy developers a one-cent-per-kilowatt subsidy on their projects, less than similar subsidies available in the United States and Europe, but enough to trigger a boom in renewable power development in Canada.

More than 250 wind, small-hydro and other green power projects in B.C. and around Canada have tapped into the program, and last November the Canadian Wind Energy Association called on the Tories to give it another infusion of cash.

CanWEA said in a news release that its proposal would have cost the federal treasury $600 million, and leveraged over $6 billion in new private sector investment into the Canadian economy while creating 8,000 new jobs.

It also would have helped the Tories reach their throne speech commitment of providing 90 per cent of Canadian electricity needs from renewable power sources by the year 2020, CanWEA president Robert Hornung said in the release.

Dale Marshall, a climate change policy analyst with David Suzuki Foundation, said the omission was "unbelievable."

"In the throne speech they were talking about the jobs of tomorrow. If clean energy isn't part of the jobs of tomorrow, I don't know what is," Marshall said in a telephone interview.

"[President Barack] Obama just renewed the U.S. program for three years. In Canada, we have a program coming to a stop.

"If you can't find money in $40-billion stimulus for the energy source of the future, it's anti-environmental. Instead, they talk about carbon capture and storage. It's a single-minded focus on technologies that aren't green technologies."

"It's disappointing, but it doesn't really change our world much," Independent Power Producers Association of B.C. president Steve Davis said in an interview. "We bid to BC Hydro and. as long it's a level playing field, it's nice to have business."

However, Davis is hoping the Tories will have a change of heart, since projects that can't tap into the funds will be less competitive with those that received the money. "If the money ebbs and flows, people need to build that into their price."

ssimpson@vancouversun.com

State not ready for oil spill

COMMENT: If Washington State is unprepared for an oil spill - and arguably it is as well prepared as any other place with large oil tankering activity in North America such as Alaska, California or the Gulf - then British Columbia is a catastrophe in the making.

Virtually the only signficant response capability in BC is in Vancouver, and most of the rescue capacity BC relies on is in Washington State.

This red-necked grebe is covered in oil after the Exxon Valdez ran aground March 24, 1989, in Prince William Sound. This bird was found six days later on Knights Island, about 35 miles from the spill.

By ROBERT McCLURE
Seattle Post-Intelligencer
January 23, 2009

Ability to react sadly lacking, says agency facing cuts in funding, staff

Washington's state government and maritime industry are dangerously underprepared to handle an oil spill even one-fifth the size of an Exxon Valdez. No more than two-fifths of the oil could be skimmed out of the water -- and that's only if the weather's great and everything goes off without a hitch.

That last assumption is quite a stretch, because the state Department of Ecology rarely requires large-scale drills of oil spill-response equipment.

Those disturbing conclusions and others are contained in a forthcoming report by a four-year-old state watchdog agency. They're part of the first comprehensive, independent technical review of the state's oil spill-response program.

But even before the agency can issue the report, Gov. Chris Gregoire is moving to eliminate its funding and staff. She wants to order an even newer agency with larger responsibilities to shoulder the burden of riding herd on oil companies and others who could cause a spill. Gregoire says it has to be done to save the $357,000 the Oil Spill Advisory Council spends each year. It's the same agency she tried to defang two years ago by moving it under the control of Ecology -- the same state department the oil spill council was supposed to watch over.

Gregoire tried that back when the state budget was flush. The Legislature refused.

A major oil spill represents the largest short-term risk of extinction for Puget Sound orcas, scientists say.

"We're just looking at where is the equipment, what is the equipment, what does it do and where will the people come from to operate it?" said Jacqueline Brown Miller, executive director of the council. "We are not ready."

The council was created as a result of an oil spill in Puget Sound's Dalco Passage, between Tacoma's Point Defiance and the south end of Vashon Island, before dawn one morning in 2004. Crude oil fouled shorelines around central Puget Sound and on Maury and Vashon islands.

That spill came on the heels of one the year before that a state review said was characterized by foul-ups in containing the spill, recovering oil once it got loose, tracking the slick by air and staffing the cleanup. That one tainted tribal shellfish grounds.

Officials admitted shortcomings in responding to both spills, which together involved no more than 6,000 gallons of oil.

The size of the spill anticipated in the forthcoming study is 2.1 million gallons -- easily a possibility if an oil tanker were to run aground.

Due out next month, the council's draft study says Ecology and the oil and shipping industries count on equipment to be brought in from out of state during the first 48 hours after a spill.

"Spill response planners are relying on resources that may not be available, and never arrive on scene," the draft report says.

Among the shortcomings:

Oil from the Exxon Valdez swirls on the surface of Prince William Sound on April 9, 1989, 16 days after the tanker ran aground.

* The system assumes tugboats will be available for various purposes, including hauling barges where oil-laden water can be stored. Yet tugs are in notoriously short supply at times.

* Ecology does not conduct enough large-scale oil-spill drills.

* Washington does not require oil and shipping companies and others covered by its oil-spill rules to have the best equipment, which would allow better response to oil spills in big waves, fast currents and stiff winds.

* The state also doesn't require equipment in use in Europe that would allow tracking of oil spills in the dark or thick fog.

"This is a very important report because for the first time, we're gauging the state's ability to respond to a major oil spill," said Bruce Wishart of the environmental group People for Puget Sound, who serves as an alternate member on the oil spill council. "The analysis shows that we are far from ready to respond."

Dale Jensen, head of Ecology's spills program, said he wouldn't comment because the council's report is still in draft form. He said he wants to read the final report before discussing the shortcomings it describes.

With such a damning report coming out, why would Gregoire remove the council's funding?

Gregoire's chief adviser on pollution issues, Keith Phillips, did not return phone calls seeking comment.

A Gregoire spokeswoman, Karina Shagren, explained: "During these tough times, she looked very hard at every board and commission seat, which ones to keep and which ones could be completed by someone else, and there will be many, many more, not just the oil spill advisory council."

Gregoire is proposing to give the responsibility for critiquing Ecology's oil spill oversight to the Puget Sound Partnership, an agency headed by citizens appointed by Gregoire. In its recent "action agenda" for protecting and restoring Puget Sound, the Partnership said it looks to the oil spill council for guidance on preventing and responding to spills.

Now, with the governor who appointed the Partnership's governing board trying to give it more work -- but no more staff -- Partnership officials are saluting and saying they're up for it.

"We think it's going to better cinch up the oversight role on oil spills with the work of Puget Sound recovery and bring greater accountability," said Partnership spokesman Paul Bergman.

Fred Felleman, a consultant for Friends of the Earth who has been critical of the oil spill council, said he favors moving it to the Partnership -- but technical expertise must be maintained. "Whether they have a budget is more important than which agency they're housed in," he said.

The original idea for the watchdog council would have patterned it after one set up in Alaska's Prince William Sound after the Exxon Valdez spill 20 years ago. In that council, Indian tribes, fishermen and others with a stake in preventing oil spills appoint members to a council that is funded -- by congressional order -- by the oil companies.

Washington's council was never that independent. It is appointed by the governor, and paid for out of a tax on oil refined in the state. The savings from pulling the plug on the oil spill council would be shifted to Ecology to make up for a shortfall in those revenues.

Oil and shipping companies, sometimes aided by publicly owned ports, fought against creation of the watchdog council and have complained about its work after it was established. They prefer to deal with Ecology.

"We've had good progress in the past working with the Department of Ecology," said BP spokesman Bill Kidd. "I would say there's a lot of expertise in the Department of Ecology."

P-I reporter Robert McClure can be reached at 206-448-8092 or robertmcclure@seattlepi.com.
Read his blog on the environment at datelineearth.com.

Ignatieff touts Alberta tar sands

(CHRISTINNE MUSCHI/REUTERS) Montreal Liberal MP Justin Trudeau, right, watches as Liberal Leader Michael Ignatieff takes questions from business students in Montreal on Jan. 21, 2009.

Andrew Chung
Quebec Bureau Chief
The Star (Toronto)
Jan 22, 2009

Oil industry key to Canada's geopolitical power, Liberal leader tells Quebecers in unity pitch

MONTREAL–Liberal Leader Michael Ignatieff brought a pragmatic message to this environmentally conscious province yesterday, defending Alberta in the name of national unity.

Keenly aware that his greatest future electoral opportunity is in Quebec, and his greatest challenge in Alberta, Ignatieff essentially told Quebecers they needed to get with the program when it comes to the Alberta tar sands.

"The stupidest thing you can do (is) to run against an industry that is providing employment for hundreds of thousands of Canadians, and not just in Alberta, but right across the country," Ignatieff told an audience largely of business graduate students at HEC Montreal, a management school affiliated with the University of Montreal.

Aware that the tar sands, one of the biggest oil deposits in the world, and also one of the dirtiest, is a controversial subject in Quebec, Ignatieff told the audience that "all questions of energy policy are a question of national unity."

He said he toured the oil sands in August and concluded that they will determine Canada's geopolitical power for the 21st century.

"We provide more oil to the United States than Saudi Arabia. That changes everything," he insisted. "It means that when the prime minister of Canada goes into the White House, he gets listened to, in ways that Canadian prime ministers have not been listened to before.

"We're not the nice little friendly northern cousin. They can't run their economy without us."

Polls show Quebecers have serious environmental reservations about the resource's development. During the election campaign, Bloc Québécois Leader Gilles Duceppe repeatedly claimed that Prime Minister Stephen Harper's favouritism toward western oil companies hurts Quebec.

Ignatieff repudiated that kind of rhetoric. "Alberta is a valued treasured part of our federation," he said. "Never pit one region of the country against the other when you develop economic policy."

Ignatieff tempered his comments by saying tar sands development must be made more sustainable – environmentally and socially. He said waterways must be protected.

"We've got to understand this isn't the Klondike," he said. "We're going to have this thing developing for a century. Let's do it right."

While some might say coming to Quebec and essentially chastising the public to embrace the tar sands carries risks, HEC professor of international business Martin Coiteux said it depends on how the message is packaged.

If development policy comes with more attention paid to the Kyoto Protocol for example, or using more environmental technology, "and that this isn't just a government for the West, I don't see why it'd be difficult to sell to Quebecers."

Coiteux said Ignatieff could go a long way educating the public because Quebecers are used to politicians talking to them only about Quebec's interests. "But it's not only Alberta that has benefited from exploitation of the oil sands," he said. Quebec has benefited in terms of that industry buying Quebec goods and services, and in terms of increased transfers from Ottawa, possible in part because of oil sands profits.

Ignatieff was appointed interim Liberal leader in December after Stéphane Dion stepped aside. He won't be ratified as full-time leader until the party's convention in May in Vancouver.

COALergy: "Smudge"

A production of the Reality Campaign. Check it out at www.thisisreality.org.

U.S. plans to open offshore drilling

COMMENT: With mere days left in the Bush Administration, Mineral Management Services introduced energy decisions largely focussed on opening up Atlantic and Pacific coastal areas to drilling. It is a draft plan, however, and may not endure long past the period of public comment, or the first months of the Obama Adminstration.

Click for larger map

Mineral Management Services U.S. Department of the Interior News Release
Draft Proposed Program Fact Sheet
Draft Proposed Program (3.6 MB)

U.S. tells plan to drill off California coast
Jane Kay, San Francisco Chronicle, 17-Jan-2009

Proposal could lead to more offshore drilling
Jim Tankersley, LA Times, 16-Jan-2009

Feds issue offshore drilling plan, including Alaska's Bristol Bay
H. Josef Hebert, Fairbanks Daily News-Miner, 16-Jan-2009

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U.S. tells plan to drill off California coast

Jane Kay
San Francisco Chronicle
Saturday, January 17, 2009

Proposed offshore oil lease sale plan

The U.S. Interior Department, acting in President Bush's final days in office, proposed on Friday opening up 130 million acres off of California's coast to drilling for oil and natural gas, including areas off Humboldt and Mendocino counties and from San Luis Obispo south to San Diego.

After a hands-off policy for a quarter-century, the administration submitted plans to sell oil and gas leases for most of the U.S. coast, from the Gulf of Maine to Chesapeake Bay and the Outer Banks of North Carolina to the Gulf of Mexico and the Pacific Coast.

New drilling also was proposed in Alaska's Bristol Bay, one of the nation's most plentiful sources of fish, and the Arctic Ocean.

Washington, Oregon and protected parts of Florida were excluded along with waters off San Francisco Bay that lie within national marine sanctuaries.

On Friday, the American Petroleum Institute, the U.S. Chamber of Commerce and other business groups greeted the news with praise, saying it is time for domestic energy supplies to be released from the moratorium.

But environmental groups and some Democratic leaders who oppose California drilling criticized the 11th-hour move, vowing to work with the Obama administration to promote energy independence based on clean, renewable technologies.

"President Bush's last-ditch effort to open our coasts to new drilling is nothing more than a parting gift to his buddies in the oil and gas industry," said Lois Capps, D-Santa Barbara, a member of the House Natural Resources Committee.

On the eve of the 40th anniversary of the platform blowout that spilled 3 million gallons of black crude oil on 35 miles of beaches around Santa Barbara, Capps said, "New offshore drilling would not lower gas prices, make us more energy independent or get our economy back on track."

Richard Charter, a longtime environmental lobbyist who now works for the Defenders of Wildlife Action Fund, called the government's move "an extremist act."

"What we see today is the political equivalent of a rock star trashing the hotel room right before checkout," he said.

The Interior Department used a lapse in the congressional moratorium in October and a cancellation of a presidential prohibition in July to set in motion the lease-sale program - which the incoming administration of President-elect Barack Obama could cancel or proceed with.

Obama has said he would consider some offshore oil drilling as part of a comprehensive energy plan. Sen. Ken Salazar, D-Colo., Obama's pick for interior secretary, hasn't given his views on offshore drilling in California. He said in his confirmation hearings Thursday that he will confer with the administration's team.

Gov. Arnold Schwarzenegger, along with the governors of Oregon and Washington, opposes new offshore oil drilling despite the new revenue it would offer the cash-strapped state.

The federal government has failed to make a case for a new program because energy resources are insignificant in the Atlantic, Pacific and eastern Gulf of Mexico, already-sold leases aren't being used, and no protections are in place to protect the environment, the governors said.

In Friday's announcement, Interior Department officials proposed three new lease sales, one in Northern California and two in Southern California in "areas with known hydrocarbon potential." The proposals, which were based on requests from seven oil companies that weren't named, would include:

-- As many as 44 million acres of federal waters, which start 3 miles from the shoreline, off Humboldt and Mendocino counties.

-- As many as 89 million acres off of San Luis Obispo, Santa Barbara, Ventura, Los Angeles, Riverside and San Diego counties. One lease would require equipment operating at a diagonal to drill within the Santa Barbara Ecological Preserve. In Southern California, there are 79 existing leases with 43 producing and 36 undeveloped.

There will be a 60-day comment period, with hearings in Ukiah, Fort Bragg, Santa Barbara, Ventura and San Diego. Dates for the hearings have not been announced.

If sales are allowed, they could occur as soon as 2014.

About 60 percent of California citizens who commented on new oil-and-gas development were opposed to new drilling, according to the Interior Department's oil-drilling agency, the Minerals Management Service.

E-mail Jane Kay at jkay@sfchronicle.com.

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Proposal could lead to more offshore drilling

Jim Tankersley
Jim Tankersley
LA Times
January 16, 2009

The Bush administration took a preliminary step this morning to open parts of the outer continental shelf for offshore oil and gas drilling, lobbing a political firecracker into the lap of the incoming Obama administration.

The draft proposal would start a two-year process that could result in drilling leases off California, Alaska, the Atlantic Coast and the Gulf of Mexico. It won’t be published in the Federal Register until after President-elect Barack Obama takes office, meaning he could stop it immediately or discard its recommendations later.

Congress and Bush allowed dueling bans on shelf drilling to expire last year, under pressure from high gas prices and a public appetite for drilling. Appearing before a Senate committee on Thursday, Obama’s Interior secretary nominee, Sen. Ken Salazar (D-Colo.), did not commit to whether he would support reinstating a ban. He said it might be appropriate to allow drilling in some areas but not others.

Bush Interior Department officials cast their last-minute move as a favor for Obama. Randall Luthi, the director of the Minerals Management Service, said in a press release that “We’re basically giving the next administration a two-year head start. This is a multi-step, multi-year process with a full environmental review and several opportunities for input from the states, other government agencies and interested parties, and the general public.”

The American Petroleum Institute applauded the move.

“American consumers have been demanding access to the oil and natural gas located off our coasts and the draft proposed five-year plan, with its inclusion of areas that had been off-limits for more than 20 years, is a good step in the right direction,” President and CEO Jack Gerard said in a press release. “Developing our domestic resources is crucial to getting our nation’s economy back on its feet and getting more Americans back to work in well-paying jobs.”

Environmentalists screamed foul.

"It seems like it’s one last, desperate act of the Bush administration to impose its agenda on the incoming administration,” said Josh Dorner, a spokesman for the Sierra Club. “We expect this to be one of the many issues that the incoming administration will fully review."

-- Jim Tankersley

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Feds issue offshore drilling plan, including Alaska's Bristol Bay

H. Josef Hebert/The Associated Press
Fairbanks Daily News-Miner
Friday, January 16, 2009

WASHINGTON -- The Interior Department on Friday issued a detailed proposal for widespread oil and gas drilling off both the Pacific and Atlantic coasts in areas that have not had energy exploration for decades.

The proposal, issued in the Bush administration's final days, calls for oil and gas leases to be made available within two to six years "in areas of hydrocarbon potential" from New England to Florida and off the length of California.

Until recently these regions of the Outer Continental Shelf have been declared off limits to drilling by Congress and by presidential executive order. It also outlined lease plans off Alaska including the fish-rich waters of Bristol Bay.

It will be up to President-elect Barack Obama whether to proceed with Interior's revised five-year leasing plan that would cover the years 2010 to 2015. He could scale it back or scrap it entirely. Interior officials said they wanted to give the next administration maximum flexibility to expand offshore drilling.

Colorado Sen. Ken Salazar, Obama's choice as interior secretary, has indicated he likely will want to scale back the Bush administration's offshore drilling agenda.

"There are places in the Outer Continental Shelf that are appropriate for drilling. There may be other places that are off limits," Salazar said Thursday during his Senate confirmation hearing. "We need to have a thoughtful process as we go forward."

The draft plan was attacked by marine conservation groups and praised by industry.

Jacqueline Savitz of Oceana, a marine protection advocacy group, called the plan an "eleventh hour attempt to sell out our oceans" and urged the Obama administration to reject it.

The proposed leasing agenda is more aggressive than expected even from the Bush administration, said Bill Eichbaum, vice president of marine programs at the World Wildlife Fund. He noted that additional lease sales were scheduled for Alaska's Chukchi Sea and Bristol Bay instead of "rolling back existing leases until there are adequate and comprehensive science-based reviews."

The American Petroleum Institute, which represents major oil companies, and the U.S. Chamber of Commerce in statements urged Obama to embrace the plan that they said will make available needed new energy resources. Oil and gas companies "have proven they can develop resources in an environmentally safe way," said API president Jack Gerard.

Congressional Democrats have indicated that while they have no intention of returning to the broad drilling bans that covered 85 percent of the Outer Continental Shelf, some areas - especially off California and the Northeast - are likely to again be protected from energy development.

The proposed drilling agenda issued by Interior's Minerals Management Service on Friday assumes no such action.

It schedules three lease sales, in 2012-2015, off California in the Point Arena Basin off the state's northern coast and in the Santa Maria, Santa Barbara/Ventura and Oceanside/Capistrano basins in the south. Access to oil and gas in an ecological preserve off Santa Barbara would be allowed, but only through directional drilling.

Sen. Barbara Boxer criticized the measure.

"It is clear that President Bush intends to expand his disastrous environmental and economic policies right up to his last hours in office," the California Democrat said. "During the worst economic crisis since the Great Depression, this administration wants to threaten California's $12 billion coastal economy and the 250,000 jobs that depend on it."

The plan calls for five leases, the earliest in 2011, off the Atlantic coast, including one in an area stretching from Maine to New Jersey and another in an area from South Carolina to Florida. Three leases are planned for the mid-Atlantic region including one, previously announced, off Virginia. While the Virginia lease would require a 50-mile (80-kilometer) protective buffer from shore, the subsequent leases would not.

"The future of these initiatives and projects now rests with the next administration," said Randall Luthi, director of the Minerals Management Service. "By starting this new five-year program when we did, we give the new administration the option of actually starting two years earlier than they normally would."

"All options are up to them," he added.

Associated Press writer Andrew Miga contributed to this report.

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MMS Announces Milestones in Energy Development

News Release
Minerals Management Service
January 16, 2009

Includes Alternative Energy, Traditional Sources

WASHINGTON, D.C. - The Department of the Interior’s Minerals Management Service (MMS) announced today three significant milestones that will potentially lead to expanded domestic production of both traditional and alternative energy resources.

The milestones are: the notice of availability of the final environmental impact statement (FEIS) for the Cape Wind Energy project off Massachusetts; a notice of intent to prepare an environmental impact statement (EIS) for geological and geophysical studies, such as seismic surveys, off the Atlantic coast; and the notice of availability of the Draft Proposed 2010-2015 Outer Continental Shelf (OCS) Oil and Gas Leasing Program and notice of intent to prepare an EIS for that program.

“MMS has been working tirelessly to facilitate the responsible development of our domestic energy resources and expand our nation’s energy portfolio,” said MMS Director Randall Luthi. “Today, we are presenting options to the next Administration. The final decisions regarding the next steps are theirs.”

The final EIS for the Cape Wind Energy Project, a proposed 130-turbine wind farm, was filed with the Environmental Protection Agency last week, and will publish in the Federal Register on January 16.

Luthi highlighted $3.8 million in Fiscal Year 2008 funding for environmental research related to offshore alternative energy development.

“While we anxiously await the publication of the Final Rule governing the OCS Alternative Energy Program, we are moving forward with important environmental work to ensure we have the best available scientific data upon which to base our decisions,” Luthi said. “As with the development of traditional sources of energy such as oil and gas, we must use a balanced approach to developing alternative energy resources, weighing the nation’s demand for energy with our responsibility to protect and preserve the environment.”

MMS submitted the Final Rule for the OCS Alternative Energy Program to the Office of Management and Budget for review and approval in November.

Luthi also announced the notice of availability of the Draft Proposed 2010 – 2015 OCS Oil and Gas Leasing Program (DPP) and a notice of intent to prepare an EIS for the DPP. The two notices will be published in the Federal Register January 21 beginning a 60-day public comment period.

“We’re basically giving the next Administration a two-year head start,” Luthi said. “This is a multi-step, multi-year process with a full environmental review and several opportunities for input from the states, other government agencies and interested parties, and the general public.”

The agency estimates the OCS contains about 86 billion barrels of oil and 420 trillion cubic feet of natural gas in yet to be discovered fields.

These numbers are conservative because little exploration has been conducted in much of those areas during the past quarter of a century due to the Executive and Congressional restrictions.

In response to the lifting of the Executive ban and the expiration of the restrictions included in previous Congressional Appropriations language, industry has begun submitting requests to MMS to conduct geological and geophysical studies, such as seismic surveys, in the Atlantic planning areas. Before making a decision on such requests, the agency must first conduct the necessary environmental reviews in accordance with the National Environmental Policy Act (NEPA).

“In order to move forward with expanded exploration and development responsibly, we need current data. That is why we are also announcing today our intent to prepare a programmatic EIS to evaluate potential environmental effects of multiple geological and geophysical studies in the Atlantic OCS planning areas,” Luthi said.

The public may submit comments on the Draft Proposed Program during the next 60 days by using the online commenting system or by mail to:

Minerals Management Service
Attention: Leasing Division (LD)
381 Elden Street, MS-4010
Herndon, VA 20170-4817

The public may submit comments on the scope of the Programmatic EIS, significant issues that should be addressed, alternatives that should be considered, scenario development, and the types of G&G activities and geographical areas of interest on the Atlantic OCS. Comments may be submitted electronically or in written form enclosed in an envelope labeled “Comments on the PEIS Scope” and mailed (or hand carried) to:

Regional Supervisor
Leasing and Environment (MS 5410)
Minerals Management Service
Gulf of Mexico OCS Region
1201 Elmwood Park Boulevard
New Orleans, Louisiana 70123-2394

For More Information:

Alternative Energy Environmental Studies Fact Sheet
Atlantic Seismic Activities Fact Sheet
Cape Wind Energy Project Fact Sheet
Draft Proposed Program Fact Sheet (27.83 KB PDF File)

Contact:
Nicholas Pardi (202) 208-3985

MMS: Securing Ocean Energy & Economic Value for America
U.S. Department of the Interior

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2010-2015 Draft Proposed Program

FACT SHEET
Minerals Management Service
January 16, 2009

(link to Draft Proposed Program (3.6 MB))

• The Outer Continental Shelf Oil and Gas Leasing Program, routinely referred to as the Five-Year Program, specifies the size, timing and location of the areas to be considered for Federaloffshore leasing during a five year period. The program is then reviewed by Congress and approved by the Secretary of the Interior.

• The current five-year program is the 7th program prepared since Congress passed the OCS Lands Act Amendments in 1978. It proposes 21 lease sales in 8 of the 26 OCS planning areas in the Gulf of Mexico, Alaska, and the Atlantic during the 5 year period of July 1, 2007 to June 30, 2012.

• The Minerals Management Service issued a Request for Information for a new 5-Year Outer Continental Shelf Oil and Gas Leasing Program on August 1, 2008 after the President lifted the Executive Withdrawal on offshore lands on July 14th and called for Congress to lift the annual moratorium and enact legislation to allow states to have a say on what happens off their shore and provide for the sharing of revenues with those states that want to proceed with development.

• More than 150,000 comments were received in response to the Request for Information. The Draft Proposed Program has been prepared using input from those comments.

• On October 1, 2008, the Congressional moratorium was allowed to expire. This allowed all OCS areas to be considered for leasing but according to the OCS Lands Act Amendments of 1978, an area must be included in the 5-Year OCS Leasing Program to be offered for leasing. (The only areas remaining under congressional restrictions are the majority of the Eastern Gulf of Mexico and a small portion of the Central Gulf within 100 miles of Florida. These areas are under restriction until 2022 pursuant to the Gulf of Mexico Energy Security Act of 2006.)

• For the draft proposed program, the Secretary proposes 31 OCS lease sales in all or some portion of 12 of the 26 planning areas—4 areas off Alaska, 2 areas off the Pacific coast, 3 areas in the Gulf of Mexico, and 3 areas off the Atlantic coast.

• The OCS currently produces about 27% of domestic oil and 14% of natural gas and is estimated to contain significant quantities of yet-to-be-discovered energy resources

• MMS is managing offshore resources in a manner that is responsive to the public’s concerns and respects the diverse needs of the communities where exploration and/or development may occur.

• MMS strives to protect human, marine and coastal environments. Environmental protection and safety are vital considerations in developing and executing the five-year program. Therefore, development of resources is balanced against potential environmental impacts. Safety is a priority for both MMS and for the operations that occur under MMS regulation. Last year
MMS conducted more than 25,000 inspections.

• Initiating the process for a new 5-Year Program provides the next Administration with the maximum decision-making flexibility.

• As we did with the Request for Information in August 2008, contact is being made with all 50 Governors making them aware of the 60-day comment period available to them.

• We are creating the maximum opportunity for the people of the United States to plan for strategic energy development on the OCS with the inclusion of areas that have previously been unavailable for consideration due to Executive Withdrawal and Congressional moratorium.

• With this second step in a two-year process to develop a new leasing program, MMS is seeking comments on all aspects of the new program including energy development, and economic and environmental issues in the OCS areas.

• Comments are being specifically requested on the subjects of size, timing, and location of sales and on the issues of buffer zones, revenue-sharing, and the use of unitization to limit the number of structures.

• The public comment period will remain open for 60 days from the date of publication in the Federal Register.

• The DPP will be published in the Federal Register on January 21, 2009. The public may submit comments during the next 60 days by using the online commenting system, http://www.regulations.gov or by mail to:

Minerals Management Service
Attention: Leasing Division (LD)
381 Elden Street, MS-4010
Herndon, VA 20170-4817

Canadian oil, gas entities fight for their lives

Claudia Cattaneo and Carrie Tait
Financial Post
Thursday, January 15, 2009

BA Energy's Heartland upgrader project, shown under construction northeast of Fort Saskatchewan in October 2007.(Canwest News Service/Chris Schwarz)

CALGARY -- As oil sands developer BA Energy Inc. seeks help from an Alberta court Friday to prevent a fire sale of its assets and appease nervous bankers, it joins a growing list of Canadian oil and gas companies fighting for their lives amid the credit crunch.

While so far only smaller players have run into trouble, insolvency experts say the flood of energy companies headed to court will swell if energy prices stay weak.

"If [oil and gas] prices stay at these levels, absolutely you're seeing just the tip of the iceberg and the beginning of a big trend," said Tony DeMarinis, head of Torys LLP's restructuring and insolvency group in Toronto. "People forget just how capital intensive oil and gas companies are, in particular the juniors."

Rock Well Petroleum Inc., a private oil and gas company based in Calgary and Sheridan, Wy., filed for protection from creditors under the Companies' Creditors Arrangement Act this week, after taking the same step in Wyoming in December.

Less than a year ago, Rock Well, developer of an extraction technique to recover oil from depleted oil fields, was planning the year's largest oil IPO on the London Stock Exchange.

The company is restructuring its operations. It has reduced staff from 112 employees to 43 and is trying to sell assets and line up new lenders, executive Greg Florence said in an affidavit filed in Alberta.

Last week, the Toronto Stock Exchange said shares of Oilexco Inc. would be delisted in February after its stock collapsed. The company put its North Sea assets under the administration of Ernst & Young after its lenders, led by the Royal Bank of Scotland, refused to advance any more funding.

Calgary-based Oilexco was one of the top drillers in the UK North Sea and its assets include the Huntington Field, one of the region's biggest oil discoveries.

While not in court, Bow Valley Energy Ltd., the international explorer founded by Daryl (Doc) Seaman, the legendary oilman who died Sunday, is in discussions with its lenders to extend the expiry of debt that matured on Dec. 31. Meanwhile, its lenders have promised not to issue default notices until the talks have concluded.

Meanwhile, Bow Valley is looking for a buyer.

Ausam Energy Corp., a Calgary-based junior with operations in the United States, filed for Chapter 11 bankruptcy protection in Houston on Dec. 31, saying it was unable to secure new equity or debt on terms satisfactory to its primary lender.

Victor Kroeger, senior vice president and head of Deloitte & Touche Inc.'s restructuring practice in Calgary, said more insolvencies are in the pipeline but haven't been publicized.

While companies are suffering in a range of sectors, he predicts the oil and gas industry will rack up the most CCAA filings because of the large influx of capital in recent years, when oil and gas prices were strong, that swelled companies' debt.

"A lot of money flew into the city," he said. "With the climbing prices being what they were, (debt) was easily manageable."

At the same time, he warned creditors to be careful with whom they do business.

BA Energy Inc., developer of the $4-billion Heartland Upgrader near Edmonton, became the first oil sands company to file for bankruptcy protection, worried that its parent's major lender will recall a US$507-million loan.

Columba Yeung, CEO of both BA Energy and parent Value Creation Inc., said in a court document this week that TD Securities Inc. and Genuity Capital Markets have been hired to prepare an analysis of the current market for oil and gas assets, Value Creation's technology and size of oil sands holdings.

Should a parade of energy companies march toward bankruptcy protection, junior producers and service companies will be at the front of the pack, Mr. DeMarinis said. Refiners and integrated companies are better suited to weather the storm, he said.

Energy companies will not be the only ones struggling to keep afloat as the economic crunch continues -- forestry companies, manufacturing concerns, base metals outfits will all be hit. "You can just list company after company," the Toronto-based lawyer said. "I've never seen anything quite like it."

Oil giant comes in from the cold

COMMENT: Here is ExxonMobil's official position on climate change:

"Climate remains today an extraordinarily complex area of scientific study. The risks to society and ecosystems from increases in CO2 emissions could prove to be significant, so it is prudent to develop and implement strategies that address the risks, keeping in mind the central importance of energy to the economies of the world."

When I checked last year this statement (or something very like it) was the official policy (and remains the official policy at Imperial Oil):

"The risk of climate change and its potential impact on society and ecosystems may prove to be significant."

[Emphasis added in both excerpts]

Not much change there, and the weasel word count remains high.

Apparently, ExxonMobil prefers a carbon tax to a cap-and-trade system. So is this really an "astonishing U-turn"? All this means is that faced with the inevitability of carbon regulation, ExxonMobil would find a carbon tax less onerous than a cap and trade system. ExxonMobil is also aware that a carbon tax is a political non-starter in the U.S., and so has no hope of being adopted any time soon. This supposed about face is simply defensive PR to attempt to polish ExxonMobil's image and combat the justifiable public perception that ExxonMobil supports climate change "denial".

Dave Clarke, Victoria

By Stephen Foley in New York
The Independent
Saturday, 10 January 2009

Exxon funded global warming denial for years. Yesterday, in an astonishing U-turn, it called for the imposition of green taxes.

The boss of ExxonMobil, the world's largest oil company, has called for a carbon tax to tackle global warming, marking a volte-face by the firm once described by Greenpeace as Climate Criminal No 1. Assailed from all sides by scientists and a new cadre of US politicians, led by the President-elect, Barack Obama, the landmark concession by Rex Tillerson represents a nod to realpolitik after years when the company denied the existence of man-made global warming.

Exxon had already dropped its funding of lobby groups which deny the science of climate change and begun to take a softer public line, but even Mr Tillerson admitted that propounding a carbon tax had stuck in the craw until recently. However, with European-style "cap and trade" rules governing carbon emissions moving up the agenda in the US, a carbon tax may be the least worst option, he said. Environmental groups gave a sceptical response to Exxon's U-turn, calling it a deliberate attempt to torpedo the movement for outright carbon caps and any early switch to alternative energy. "A carbon tax is also the most efficient means of reflecting the cost of carbon in all economic decisions – from investments made by companies to fuel their requirements, to the product choices made by consumers," Mr Tillerson said in a speech to the Woodrow Wilson Centre for International Scholars, a Washington think-tank. "As a businessman it is hard to speak favourably about any new tax. But a carbon tax strikes me as a more direct, a more transparent and a more effective approach."

The chief executive's comments are aimed at moving ExxonMobil decisively to the centre of the political debate about global warming in a year that will see world leaders meet in Copenhagen to establish a successor to the Kyoto treaty on climate change – something that threatens to fatally weaken the long-term prospects for oil companies who are refusing to invest in alternative energy, such as Exxon.

Last year, Exxon came under pressure from descendants of the oil magnate John D Rockefeller, who said it would go the way of the dinosaur unless it shifted positions on climate change. Use of its oil and gas output is estimated to dump 500 million tons of carbon into the atmosphere each year.

A "cap and trade" system sets limits on carbon output and allows polluters to buy permits from companies which reduce their own emissions. The nascent system established in Europe was failing to lead to the reductions its proponents expected, Mr Tillerson said, and its extension into the US would create "a new Wall Street" of brokers and speculators who would make long-term planning impossible.

By backing a carbon tax, the Exxon chairman has put himself in the unusual company of the former US vice-president Al Gore and Mr Obama's designated head of the National Economic Council, Larry Summers.

But Greenpeace – which has waged a multi-decade war against Exxon, its denial of man-made climate change and its secret funding of renegade scientists – warned Mr Tillerson's intervention was a smokescreen for its attempt to slow down the switch to alternative fuels. "A carbon tax is a political poison pill," said Kert Davies, a research director at Greenpeace. "No politician in the US would propose something with the word tax in it. Being in favour of something makes Exxon look like it is being intellectual, but this threatens to derail the prevailing international discussion."

Exxon argues that raising the cost of carbon-emitting fuels could change consumer behaviour and spur the entrepreneurship needed to boost solar, wind and other alternative power sources, but that these alternatives are not now sufficiently technologically advanced to meet the ambitious targets demanded of them. Separately, this week Mr Tillerson dismissed Mr Obama's proposed targets for alternative energy use, saying "let's not kid ourselves".

Under the previous chairman, Lee Raymond, Exxon took a belligerent approach to environmental protest, dismissing man-made climate change as a fantasy, and his $400m (£264m) retirement package in 2006 aroused major controversy. Greenpeace called him the Darth Vader of climate change.

Since his appointment, Mr Tillerson has largely sought to strike a more amenable public relations stance, stressing the work that Exxon has done to reduce emissions from its own operations and the new technologies it is selling to help businesses use fuel more efficiently.

Yesterday, Greenpeace challenged ExxonMobil to come up with a detailed proposal for a carbon tax high enough to significantly reduce demand for its products.

Alyeska plans to sell Berth 1, keep Berth 3 for other options

Anchorage Daily News
January 13, 2009

The owners of the big tanker port in Valdez say two of the four berths there are no longer needed for loading crude oil from the trans-Alaska oil pipeline.

The oil pipeline flow peaked at some 2.1 million barrels a day in the late 1980s, but it since has declined to about 700,000 barrels a day. That decline in North Slope production has resulted in a decline in tanker traffic. When oil throughput was at its peak, the four berths at the terminal "were needed to handle a constant stream of tankers. However, today it is not uncommon for several days to elapse between tanker callings," Alyeska Pipeline Service Co. told the Regulatory Commission of Alaska.

Five companies own the port and pipeline: BP, Conoco Phillips, Exxon Mobil, Koch and Unocal. They applied to the state regulators to permanently stop using two of the berths for loading oil on tankers. They said they're not sure they need RCA approval and that they filed for approval "as a precautionary matter."

Berths 1 and 3 are the ones at issue.

Berth 1 floats on 13 buoyancy chambers and is 390 feet long. It can load up to 80,000 barrels of oil per hour. It has been used for off-loading diesel fuel consumed at the port. It could be transported by water to another location.

Berth 3 is a fixed platform, 122 feet long capable of loading 100,000 barrels a day. "Berth 3 will continue to be used and useful as a layover berth where tankers and other vessels can be moored for purposes other than loading crude oil," the owners said.

The two active, workhorse berths at Valdez are equipped with something Berths 1 and 3 lack: an ability to capture vapors from the oil emitted during the loading aboard tankers. The vapor capture lessens air pollution from the port.

Installation of such arms costs about $20 million per berth, the owners said, and federal environmental regulations require vapor recovery equipment for berths loading crude oil.

The Environmental Protection Agency allowed loading of crude oil without vapor recovery at Berths 1 and 3 until 2002. The berths haven't been used for loading oil since then.

Besides less oil being loaded in Valdez and the lack of vapor recovery gear at the two berths, newer tankers can be loaded much faster than years ago, the owners said.

The plan for Berth 1 is to sell it for use or for salvage value, "if either of those options is determined to be economical. Until then, Berth 1 can be used for purposes other than loading crude oil," the owners said.

Berth 3 can be used to park tankers when weather closes Prince William Sound, for vessel repairs, for support of oil-spill drills and for crew-member medical evacuations.

BA Energy first oil sands developer to file for protection

Claudia Cattaneo and Carrie Tait
Financial Post
Wednesday, January 14, 2009

CALGARY -- BA Energy Inc., developer of the $4-billion Heartland Upgrader near Edmonton, Wednesday became the first oil sands company to file for bankruptcy protection, fearing its parent company's major lender, Credit Suisse, will recall a US$507-million loan.

Columba Yeung, chief executive of parent company Value Creation Inc., said that company could default on its multi-million bank loan after BA was unable to repay it a $50-million loan. BA's failure to make good on this debt allows Value Creation's lenders to demand immediate payment of the US$507-million loan, Mr. Yeung said in an affidavit filed Dec. 30, 2008 with the Alberta's Court of Queen's Bench. The filing was made under the Companies' Creditors Arrangement Act.

"BA is suffering from a cash flow shortage and as such will be unable to repay a loan ... of approximately $50-million plus interest to VCI due Dec. 31, 2008," Mr. Yeung said in the affidavit, posted on the Web site of Ernst & Young Inc., acting as the monitor for BA's restructuring under CCAA.

Mr. Yeung said failure to repay the loan might place Value Creation in default of its main credit facility, allowing the lenders to accelerate repayment and immediately demand the full amount of the loan.

In an interview, Mr. Yeung said he still hopes a solution can be found ahead of a hearing Friday before Justice Barbara Romaine.

He blamed the credit crisis for BA's need to file for court protection.

"Who could have foreseen this recession, and the oil price going to the US$30s?" Mr. Yeung said.

"All the equity and debt markets are totally frozen, and (we are) in the middle of a major project that needs money."

As oil prices collapsed last fall, BA Energy became one of a long list of oil sands companies that deferred projects.

Its upgrader, originally designed to process bitumen from third parties, was already under construction.

Mr. Yeung created both BA and Value Creation, both private companies. Value Creation holds vast oil sands leases near Fort McMurray.

In Mr. Yeung's affidavit, he said the two companies have more than $768-million in assets and BA Energy has a tax pool of more than $588-million.

In March last year, Value Creation acquired BA and was in the process of amalgamating the sister companies.

Value Creation is in "recent and ongoing discussions" with "an international state-owned oil company" for an equity injection and a joint venture, Mr. Yeung said in the affidavit.

But the foreign company backed off its offer for an investment because of concerns over the lenders' intentions, he said.

He tells the court that if BA's Energy's restructuring plan, which includes its amalgamation with Value Creation, isn't approved, BA would be forced to sell its assets as well as some of Value Creation's assets "certaintly at far below market value."

Value Creation is a top oil sands lease holder with 3.2 billion barrels of contingent resources. It wanted to turn them into a major project called Terre De Grace using new technologies developed by Mr. Yeung that he believes would have been made money at US$40 a barrel.

Russia resumes pumping gas to Europe

COMMENT: Ironic juxtaposition this - in this news item today I think we're all expected to nod in approval that Russia has reopened the gas taps to Europe. In the other news item we're expected to nod approvingly that OPEC is attempting to "balance the market" for oil.

Here we have these big oil and gas producers levering their production of fuels for national advantage. Not so Canada. The difference? Something to do with nationalized oil production? Just askin'

Associated Press
Globe and Mail
January 13, 2009

MOSCOW — Russia's Gazprom state gas monopoly resumed pumping gas to Europe via Ukraine Tuesday after a six-day cutoff that left large parts of Europe cold and dark.

The company turned on the taps after 10 a.m., Gazprom spokesman Boris Sapozhnikov said by telephone from Sudzha gas metering station on the border with Ukraine.

European Union officials said it would take at least a day for gas to reach consumers in Europe after gas is first pumped into Ukraine.

Russia has accused Ukraine of stealing gas intended for Europe and only restarted supplies after a EU-led monitoring mission was deployed to gas metering and compressor stations across Ukrainian territory. The observer mission includes EU, Russian and Ukrainian officials and representatives of European energy companies.

Ukraine fiercely denied the siphoning charge, but Prime Minister Yulia Tymoshenko warned Monday Ukraine will have to use some gas from Russia as so-called "technical gas" to power compressors that push Europe-bound gas through its 37,800 kilometres of pipelines.

Gazprom has insisted it's Ukraine's duty to provide the gas, setting the stage for more bickering and possible supply interruptions.

Russian President Dmitry Medvedev already has ordered Gazprom to reduce supplies if it again sees Ukraine siphoning gas, and suspend it completely if it believes Ukraine continuously steals gas.

Ukraine's position potentially "creates a crisis situation with the transit of Russian gas to European users," Gazprom spokesman Sergei Kupriyanov said in a statement late Monday.

Russia supplies about one-quarter of the EU's natural gas, 80 per cent of it shipped through Ukraine, and the disruption came as the continent was gripped by freezing temperatures in which at least 11 people have frozen to death.

The gas cutoff has affected more than 15 countries, with Bosnia, Bulgaria, the Czech Republic, Hungary, Serbia and Slovakia among the worst hit. Sales of electric heaters have soared and thousands of businesses in eastern Europe have been forced to cut production or even shut down.

Russia stopped gas supplies to Ukraine on Jan. 1 amid a contract dispute, but continued sending gas to Europe across the Ukrainian territory until Jan. 7 when it fully halted shipments over alleged Ukrainian theft.

Russia used the gas dispute to reaffirm its push for prospective gas pipelines under the Baltic and the Black Sea which would bypass Ukraine. But EU officials said the crisis should encourage a search for independent energy sources and supply routes, such as the U.S.-backed Nabucco pipeline that would carry Caspian energy resources circumventing Russia.

While the current gas crisis was triggered by a pricing dispute, relations between the two ex-Soviet neighbours have been strained since the 2004 Orange Revolution in Ukraine led to the election of a pro-Western government in Kyiv.

Ukraine's efforts to join NATO and its support for the former Soviet republic of Georgia in its war with Russia in August has angered the Kremlin. Last week, U.S. officials had warned Russia not to use its energy resources as a weapon against Europe.

Russia still will not send natural gas to Ukraine for domestic consumption. The neighbours remained deadlocked over the price Ukraine should pay for gas in 2009 and the amount Russia should pay for transporting gas through Ukraine.

Ukraine in 2008 paid $179.50 (U.S.) per 1,000 cubic metres of Russian gas and turned down Gazprom's proposal of $250 for 2009 — a substantial hike for the economically distressed country but still far below some $450 that European customers pay.

The latest round of price talks ended Sunday without result.

Saudi to cut oil supply below OPEC targets

COMMENT: Ironic juxtaposition this - in this news item today I think we're all expected to nod in approval that OPEC is attempting to "balance the market" for oil. In the other news item we're expected to nod approvingly that Russia has reopened the gas taps to Europe.

Here we have these big oil and gas producers levering their production of fuels for national advantage. Not so Canada. The difference? Something to do with nationalized oil production? Just askin'

MAYANK BHARDWAJ
Reuters
Globe and Mail
January 13, 2009

NEW DELHI — Saudi Arabia plans to go beyond OPEC's deepest ever single cut in supply as the world's top oil exporter looks to halt a slide that has lopped over $110 (U.S.) off the oil price since July.

The kingdom will pump below its OPEC target in February at its lowest level in over six years and is prepared to go further still to balance a market battered by falling demand and a global recession, Oil Minister Ali al-Naimi told reporters on Tuesday.

“We will do what it takes to bring it back to balance,” he said on arrival in India for an energy conference.

The Saudi supply target was 8.05 million barrels per day (bpd), a little under 10 per cent of global output, after the Organization of the Petroleum Exporting Countries (OPEC) agreed to its biggest ever cut in December.

“It will be lower,” Mr. Naimi said of February output. The kingdom was currently pumping around 8 million bpd, he added.

Strict Saudi discipline has so far failed to boost oil prices, which were below $37 a barrel on Tuesday, less than half the $75 price which Saudi King Abdullah has named as fair.

Mr. Naimi declined to comment on whether the move was taken in anticipation of a further cut in output by OPEC.

Industry sources on Sunday told Reuters that Saudi planned to cut by up to 300,000 bpd below its OPEC target in February, a pro-active step to balance the oil market. The reduction would take Saudi output to around 7.7 million bpd, some 2 million bpd below its pledged output in July.

Then, the kingdom was the only OPEC country with significant spare capacity to boost output as the price soared to its peak above $147 a barrel. The kingdom has shouldered most of OPEC's production cuts as the oil price has collapsed and producers have raced to bring supply in line with demand to stop brimming global stocks rising further.

Falling consumption in top consumer the United States and other developed economies threatens to shrink global oil demand this year for the first time since 1983.

Saudi Arabia last pumped below 8 million bpd in October 2002, according to U.S. Department of Energy data. Production of 7.7 million bpd would be the lowest since July 2002.

OPEC, which pumps around a third of the world's oil, is scheduled to meet again in March. The decline in demand due to a slowing economy is likely to be exaggerated by then as warmer weather in the northern hemisphere cuts oil consumption for heating.

Some in the group have called for a meeting before that, while others say waiting until March would allow OPEC to better measure the effect on the market of total pledged cuts of 4.2 million bpd since September.

Even before the 12-member exporter group announced its record cut of 2.2 million bpd in December, Saudi Arabia had informed its customers they would receive less oil. That latest cut came into effect on Jan. 1.

Russia vows to restore gas flow to Europe

Julia Kollewe
The Guardian
January 12, 2009

Russia today vowed to fully restore the flow of gas to the European Union as quickly as possible, and blamed Ukraine for the crisis.

The two countries have signed a new agreement after a last-minute hitch yesterday, according to the Russian prime minister's office.

Spot gas prices in Britain fell on the news, trading down 5.5p to 61.75p per therm. However, forward prices rose on worries that another cold spell this winter could leave the system short, market traders said.

A deal acceptable to Moscow has been signed to allow independent monitors to track gas supplies from Russia to Europe through pipelines that cross Ukraine.

The head of Russia's state gas company Gazprom, Alexey Miller, and the Russian deputy prime minister, Igor Sechin, will be attending talks this afternoon in Brussels with EU energy ministers.

A spokesman for the Russian prime minister, Vladimir Putin, said: "Moscow has been informed that Ukraine has signed an acceptable agreement. We hope this is the case."

But he warned: "It will take a certain time before the pipelines can begin flowing again with natural gas."

Early yesterday Ukraine, Russia and the EU seemed to have reached agreement, but Moscow declared the deal void last night after Kiev attached additional notes.

Russia turned off the gas tap to Ukraine on 1 January amid a price dispute, and stopped supplying countries beyond Ukraine last Wednesday because it claimed Kiev was siphoning off the gas. Ukraine has denied this.

Russia supplies about a quarter of the European Union's natural gas, and 80% of it is shipped through Ukraine. The supply disruptions came as temperatures in many parts of Europe dropped well below zero. Eastern and central Europe have been worst hit, with thousands of businesses forced to cut production or even shut down and Slovakia saying it would restart a nuclear reactor it shut down last year. Slovakia's move prompted an angry response from neighbouring Austria.

Slovakia was on the brink of a power blackout today after a fire forced the partial shutdown of a coal power plant. "We are at the edge of a blackout," economy minister Lubomir Jahnatek said as he boarded a plane to Brussels for a meeting of EU energy ministers.

Energy companies in the Balkans, where temperatures dropped as low as -17C, have switched to alternative fuels and alternative imports to restore heating to hundreds of thousands of homes.

© Guardian News and Media Limited 2009

Huge gas project set for 2011

Dina O'Meara
Canwest News Service;
Calgary Herald
January 11, 2009

B.C.'s Horn River play estimated to hold as much as 13 trillion cubic feet

Last November, natural-gas giant EnCana Corp. quietly filed a multi-billion dollar natural-gas plant proposal with provincial regulators in B.C.

The massive Cabin Gas Plant would process natural gas from shale plays in the Horn River basin for eight companies, led by the Calgary-based producer. Estimated to cost $400 million for the first phase, the plant's initial capacity was slated at 400 million cubic feet per day, twice as much as the province's largest natural-gas processing plant.

Plans call for the plant to launch in 2011 and call for up to six expansion phases, depending on future production. Key here is "future."

Although the Horn River play in the tip of B.C.'s northeastern corner has attracted billions of dollars in investments from companies across North America, shale-gas production in 2008 was small enough to be considered not commercial.

Yet some say last year was when the face of natural-gas development in North America changed forever.

In the second month of the year, word of a potentially huge resource play in northeastern B.C. was unveiled at a conference in Houston. The Horn River (Muskwa) play could hold up to six trillion cubic feet of natural gas, according to U.S. company EOG Resources.

By the end of 2008 -- and several billion dollars in land sales later -- the amount had doubled to an estimated 13 tcf of recoverable resources.
Just south of the Horn River formation lies the 50 tcf Montney play.

That formation produced about 500 million cubic feet of natural gas last year. And that's just the beginning. (One billion cubic feet of gas a day is enough to heat five million Canadian homes for a year and the equivalent of about 170,000 barrels of oil.)

Across North America, nine unconventional shale-gas plays make up a 260 tcf reserve potential.

"It was a game changer," Mark Leggett, with BMO Capital Markets said.

Not only has the lure of shale shifted billions of dollars into B.C., which saw land lease prices in its northeastern corner skyrocket to $300,000 a hectare in 2008 from $300 in 2005, unconventional activity has revitalized a floundering service industry that saw conventional drilling fall some 11 per cent last year.

"Shale will have a very big impact because our basin is a conventional basin," Leggett said. "There is a need to replace declining conventional production and these will play a huge role in maintaining that growth profile and satisfy natural-gas demand in the oilsands years down the road. It gives industry visible natural-gas supply."

Shale rock is pretty common around the world and estimates of shale gas within the Western Canada Sedimentary Basin resource vary from 86 tcf to more than 1,000 tcf.

The huge potential could see half of Canada's natural-gas production stem from unconventional sources by 2025, according to the Canadian Society of Unconventional Gas.

However, unconventional shale gas is as variable as the weather in Calgary
-- it can be packed in a space as wide as a molecule, or spread across wide swatches of complex layers of rock, shallow or deep, prolific in spots, sparse in others.

Until recently, unconventional reserves were "tighter than cement" but a combination of horizontal drilling and multi-staged fractioning unlocked the rock.

"The technology enhancements on the shale gas are allowing a $7 per thousand cubic feet to be profitable because of the size of the prizes,"
Bruce Edgelow, with ATB Financial, said. "These pools in certain basins are significant as to the new technology being able to produce them -- it's quite amazing, it's a quantum leap as to what we're doing on the conventional size. You can make reasonable money as long as you have a good acreage play, and you have followup locations."

Build up, build out is the credo for companies pursuing unconventional resources, such as Talisman Energy, Nexen Inc., Devon Canada and ARC Energy Trust, one that natural-gas giant EnCana Corp. followed as it quietly acquired the largest land bases in the Montney play in B.C., which could hold up to 700 tcf of gas in place, and the Horn River.

Yet EnCana has yet to call the monstrous B.C. play commercial, saying it needs more concrete numbers on recovery factors and production rates. The region is remote, lacks infrastructure and hasn't provided the economy of scale the company seeks. EnCana wants to see well costs fall a third from current costs around $10 million before deeming the play economic.

Ever a canny oilpatch player, EnCana doesn't disclose much data but acknowledges the potential prize makes continuing investments in the region worthwhile.

Unconventional gas in the U.S. represents about 11 per cent of projected demand in 2008, about 6.8 billion cubic feet per day.

Canadian shale production is in its infancy, at about 600 million cubic feet per day. The volume is expected to rise to 5.3 bcf per day within a decade, but still won't offset conventional declines during that period.

"Shale is everything," David Johnson, president of ProEx Energy Ltd. said.
"I've been in this business since 1975, and unconventional has revitalized me as an engineer since the technology is quite exciting. I think it will take us beyond where we were on the conventional assets which are solely a harvest situation. Companies involved in unconventional resource plays will have repeatability because gas is continuous, and that's the difference between the conventional."

Exposing the Myth of Clean Coal Power

COMMENT: "100 times more waste than the Exxon Valdez disaster"

By Bryan Walsh
Time Magazine
January 12, 2009

An aerial view shows the aftermath of a retention pond wall collapse at the Tennessee Valley Authorities Kingston Fossil Plant, Monday, Dec. 22, 2008 in Harriman, Tenn. The Tennessee Valley Authority says the 40-acre pond held a slurry of ash generated by the coal-burning Kingston Steam Plant. (Wade Payne / AP)

If you paid any attention to last year's Presidential campaign, you'll remember ads touting the benefits of "clean coal" power, sponsored by the industry group American Coalition for Clean Coal Electricity. (The ads featured lumps of coal plugged into an electrical cord.) Designed in part to respond to the growing green campaign against coal power — which accounts for about 30% of U.S. carbon emissions — the ads promised high-tech and eventually carbon-free power, emphasizing coal's low cost compared to alternatives, its abundance in America and its cleanliness.

The "clean coal" campaign was always more PR than reality — currently there's no economical way to capture and sequester carbon emissions from coal, and many experts doubt there ever will be. But now the idea of clean coal might be truly dead, buried beneath the 1.1 billion gallons of water mixed with toxic coal ash that on Dec. 22 burst through a dike next to the Kingston coal plant in the Tennessee Valley and blanketed several hundred acres of land, destroying nearby houses. The accident — which released 100 times more waste than the Exxon Valdez disaster — has polluted the waterways of Harriman, Tenn., with potentially dangerous levels of toxic metals like arsenic and mercury, and left much of the town uninhabitable.

More than two weeks after the spill, workers and machines are still trying to clear the estimated 5.4 million cubic yards of coal ash from around the plant. The breach "is an environmental catastrophe that reveals not only the dangers of burning coal and mismanaging coal combustion waste, but also the need for federal regulation," said Steven Smith, executive director of the Southern Alliance for Clean Energy, at a Senate hearing on the spill on Jan. 8. After Kingston, coal may be considered many things — but it's hard to see how "clean" could be one of them.

That's because, even putting aside climate change–accelerating carbon dioxide, coal remains a highly polluting source of electricity that has serious impacts on human health, especially among those who live near major plants. Take coal ash, a solid byproduct of burned coal. A draft report last year by the Environmental Protection Agency (EPA) found that the ash contains significant levels of carcinogens, and that the concentration of arsenic in ash, should it contaminate drinking water, could increase cancer risks by several hundred times. A 2006 report by the National Research Council had similar findings. "This is hazardous waste, and it should be classified as such," says Thomas Burke, an environmental risk expert at Johns Hopkins University who has studied the health effects of coal ash.

But the ash isn't currently classified as hazardous waste. Though the EPA in the past has come close to imposing stricter rules on the treatment of coal ash, the agency has repeatedly backed down in the face of opposition from utilities and the coal industry. As a result, hundreds of coal plants around the U.S. are allowed to dump their leftover sludge in unlined wet ponds like the one used by the Kingston facility. Not only does that raise the risk of accidents like the Kingston spill, but the toxins in the ash could seep into the soil or groundwater, contaminating drinking water supplies. Environmentalists would prefer federal regulations that require ash to be buried in lined landfills that would prevent leakage. "You can't talk about clean coal without dealing with this problem," says Eric Schaeffer, the director of the Environmental Integrity Project, which just came out with a new report finding that there are nearly 100 other largely unregulated wet dumps like the Kingston facility across the U.S.

In reality, we can't really talk about clean coal — it doesn't exist. Though the coal industry is right to point out that it has improved filters on coal plants, sending less traditional pollutants like sulfur dioxide and mercury into the air, the toxic waste that remains behind is only growing. The biggest advantage of coal power has been cost — in most cases, it remains much cheaper than cleaner alternatives like wind, solar or natural gas. But the cheapness of coal depends on the fact that external costs — climate change, or the health impacts of air and water pollution from coal — remain external, paid for not by utilities or coal companies but society as a whole. The coal industry itself estimates that taking better care of fly ash could cost as much as $5 billion a year — and if the government imposed a tax or cap on carbon dioxide, the price of coal would certainly rise. "For all the money the industry has spent to mislead the public, [Kingston] shows that there really is no such thing as clean and cheap coal in the U.S," says Bruce Nilles, the director of the Sierra Club's National Coal Campaign.

That's not entirely true. As we grapple with global warming, coal can be cheap or it can be (somewhat) clean. But the sea of ash in Tennessee shows it can't both, and that's a reality we need to face as we plot America's energy future.

Feed-In Frenzy

COMMENT: We have long maintained that British Columbia has a golden opportunity to establish itself as leader and supplier of progressive energy solutions to the world. It takes fiscal and regulatory policy to make it happen. It takes a government clear in its purpose and focussed in its policy. It takes feed-in tariffs.

A feed-in tariff ensures that the energy and energy technologies which the state wants to promote, get enough of a subsidy to ensure they're in business. In BC, a feed-in tariff for tidal energy, for example, would have the state pick up the tab for the difference between some reference rate ($88/MWh in 2006, $122/MWh currently - the nominal average rate which BC Hydro expects to pay for new power in its "calls") and whatever the cost of power is from the incentivized source. It makes the desired power viable, draws in investment, and has the potential to stimulate an industry where none could otherwise exist.

BC missed the boat with wind energy. (Denmark showed us how to do it with wind.) We never had a chance with small hydro. (Mature technologies, largely owned by GE, Siemens etc.). Solar, as this article demonstrates, is already owned by Germany, the US, Japan.

But we are blowing the opportunity with tide and wave energy. With these, the UK is mimicking what Denmark did with wind. It's still not too late for BC. Our ocean energy potential is stunning, we have local companies with ideas and technologies of world-scale potential. In Here Be Dragons, we call feed-in tariffs, "water wings for a new industry."

What we need now is a government with the intelligence to appreciate the potential, the wisdom to wrap policies around it, and the courage to make it happen.

Failing that, it's back to hewers of wood (mostly gone with no market), salmon (mostly gone), coal (no market) and importers of all that manufactured junk that ends up in Walmart and every other big box store in all the malls across BC - essentially, the program that's killing us.

by Chris Turner
The Walrus Magazine
Jan/Feb 2009

Solar Valley (Image courtesy of Salon AG)

A simple green tariff has transformed Germany. Why isn’t Canada following suit?

The gritty industrial town of Bitterfeld, Germany, is about an hour southwest of Berlin by train, but until very recently it was the ruined epicentre of another civilization entirely. As the hub of the Eastern bloc’s chemical industry, it was once declared the dirtiest town in Europe, serving as the inspiration for a sort of German curse — in loose translation, “If we don’t meet in this world, I’ll find you in Bitterfeld.” By 2001, the town was at the black bottom of ten years with one of the highest unemployment rates in Saxony-Anhalt, the state that in turn suffered from the highest unemployment rate in all of Germany.

That same year, a handful of solar entrepreneurs set up shop in a local industrial park. Today their little start-up is Q-Cells, the world’s largest manufacturer of photovoltaic cells. It presides over a burgeoning industrial hub christened Solar Valley by its ecstatic boosters. Unemployment here has plummeted from its 25 percent–plus peak in the 1990s down into the mid-teens. The economic development director of the regional municipality of Bitterfeld-Wolfen (which includes a number of other blue-collar burgs), a shy young gent named Christian Puschmann, told me he’s constantly updating the employment figures on his agency’s website to keep up with the delirious pace of expansion.

Puschmann was keen to show me the exuberant reality of Solar Valley, so we met one typically grey Saxon afternoon at Q-Cells’ headquarters and set off on a tour of booming Bitterfeld-Wolfen. He trolled slowly down winding industrial park avenues and rail yard access roads, pointing out the sights from behind the wheel of his modest, aging subcompact with palpable pride. Here were the vast warehouses containing Q-Cells’ production lines, its next-generation spinoffs, and its competitors’ goods. Around the bend were a Swiss supplier of PV components and a maker of solar panel glass. We skirted Thalheim, the once-sleepy town closest to the Q-Cells complex. “This small village had so much money they didn’t know what to do with it,” said Puschmann in his gentle, halting English. “They built a new stadium; they made streets and lamps and whatever.”

We passed through a broad expanse of detritus left behind by the chemical industry of the former GDR. Puschmann pointed out the small deliverers — businesses of fifteen or twenty employees that serve the solar industry. Then we came to a larger facility. “This is the wafer production for the solar cells. It’s only a hundred million investment,” he told me, his voice drenched in good-natured sarcasm. “One of the smaller ones.” Q-Cells alone had invested half a billion euros in the region over the previous two years.

Finally, he dropped me at the Bitterfeld train station with a reluctant auf Wiedersehen. He’d wanted to squeeze in a visit to the new lake they’d made by pumping water into an old open-pit brown-coal mine near the market square. Stylish homes were going up around it, in hopes that high-tech workers would forsake their commutes from Leipzig and Berlin. Things were happening in Bitterfeld. In Bitterfeld! This was what he wanted me to know.

Curiously, not once did Puschmann mention climate change. The defining issue of our time may have provided the impetus for Bitterfeld’s renaissance, but it was by now an incidental detail. There was too much else happening here — and up and down the length of Solar Valley, and all over Germany — to dwell on such gloomy topics. This is one of the upsides of acting boldly: you wind up too busy to wring your hands.

In much of the world, the official response to climate change from government and business leaders has been decidedly underwhelming. Few seriously dispute the assessment of Scientific American that stopping climate change represents “the most imposing scientific and technical challenge that humanity has ever faced,” but the reaction, particularly in Canada, has been a series of half shuffles, tentative and provisional and multiply compromised. We throw a little R&D money around and implement voluntary efficiency programs and pilot projects, but we are deathly afraid of big steps. Germany, meanwhile, has taken one giant step, skipping past the frustration and acrimony of a hundred incidental ones. To the surprise of a great many North American skeptics, the country has given birth to one of the world’s most verdant green industrial heartlands.

The engine of this radical transformation is the single most effective climate policy measure yet devised: a straightforward law called a feed-in tariff that obliges power distributors to purchase electricity from renewable sources for a fixed time, at fixed rates above market prices. The German fit (the Renewable Energy Sources Act, by name) sets the price for green power far higher than market rates — as much as seven times higher in the case of solar energy.

Although Germany is not particularly windy and is kissed each year by about the same amount of sunlight as southern Alaska, it is now a global leader in the generation of energy from sun and wind, and in the production of solar panels and wind turbines. Its renewable energy industry employs about a quarter of a million people, and brought in almost $40 billion in revenue in 2007, up 10 percent from 2006 and nearly four times the figure for 2000. Seemingly every green power company on the planet has set up at least part of its shop there in recent years, including Arise Technologies, a solar company headquartered in southwestern Ontario, which announced in September 2007 that it would establish its first industrial-scale production facility in eastern Germany.

To most North American economists and policy wonks, the German fit reeks of any number of heresies, whether price fixing or central planning or some other acridly socialistic term deemed synonymous with eco-nomic suicide. But the frenetic activity at eastern German economic development offices is a direct result of the fit’s unorthodox pricing scheme, and one European nation after another has chosen to follow the German lead. The fit — an easily copied piece of legislation, unencumbered by the elaborate rules and fine calibrations of cap-and-trade regimes — has now spread to France, Greece, Ireland, Italy, and Spain.

It has also crossed the pond, after a fashion, inspiring Ontario’s pacesetting Standard Offer Program. The Ontario government’s version, however, is watered down, freighted with artificial growth caps, implementation deadlines, and other caveats — a bold leap reconfigured as a series of furtive hops. Nonetheless, it is Canada’s most ambitious renewable energy program. It even looks, from a certain angle, like a fine start.

If, however, the goal is to formulate a new and truly transformative energy policy — if, in other words, the goal is to succeed — then Canada’s most ambitious program needs to be reassessed against the model that inspired it. Which foundation is better suited to supporting a twenty-first-century economy? The one propped up by aging hydro plants, flirting impotently with renewables while dumping money into unproven clean coal tech-nology and environmentally problematic, chronically cost-overrunning nukes? Or the one already on track to generate 30 percent of its power from green sources within a quarter century, buoyed by a massive industrial and infrastructure boom? Wouldn’t the latter be the definition of well positioned? A case study in strategic advantage? The very model of a national paradigm shift? An example, finally, of real green ambition?

Germany’s leading-edge, fit-driven green economic model arose out of its climate policy, which is among the world’s most ambitious. In 2007, the German government said it was willing to seek a 40 percent decrease in carbon dioxide emissions by 2020 if other EU countries made similar commitments — a reduction in absolute volume (not intensity) below 1990 levels that is fully double the European Union’s current target. The country is already nearly halfway there. As of 2006, it had already shrunk its carbon footprint by 18.5 percent. The lion’s share of this reduction was accomplished by shuttering obsolete East German factories in the wake of reunification, but after a few years of stagnation the feed-in tariff has helped renew the downward trajectory.

The first fit was enacted in California in 1978, with Portugal, Denmark, and Japan adopting similar legislation by the early 1990s. Germany, though, is widely regarded as the contemporary fit’s birthplace and best-practices model. It was the product of the so-called Red-Green Coalition, the partnership between the old-left Social Democrats and the newly ascendant Green Party that governed the country from 1998 to 2005. The coalition passed the Renewable Energy Sources Act in 2000, and, although this was already far and away the most aggressive renewable energy law the world had seen, substantially intensified it in 2004. Solar power was given a particularly big boost, with the going rate for solar energy generated from German household rooftops amped up to seven or eight times the market rate. (It was nudged back slightly after a mandatory reassessment this June.)

These deliriously high rates were designed not just to cover the extra cost of bringing new installations online, but to allow a small profit for producers — much as traditional North American energy markets operated prior to the deregulation wave of the 1980s. The fit thereby guaranteed a market for companies willing to make sizable up-front capital investments, sparking the construction of not just renewable en-ergy installations, but a renewable energy industry. The chief architect of the German law, the veteran Social Democrat parliamentarian Hermann Scheer, summed it up thusly: “It is the most successful new job creation program we ever had, and the most cost-effective job creation program.” Best of all, it does the job without direct taxation: the cost of the fit is embedded in the price of energy and distributed equally to all power consumers. The more you use, the more you pay.

The highest estimates for the German fit have it adding about one eurocent to the cost of a kilowatt hour of power. That equates to about thirty-six euros per year for the average German consumer — fifty bucks a year, give or take, for 250,000 new jobs and a rapidly rising share of renewable energy on the national grid. The amount of green energy consumed in Germany leaped from roughly 6 percent in 2000 to 14.2 percent in 2007, and it is on target to reach at least 25 percent by 2020. What’s more, that fifty-buck average masks the money-saving contributions of some 400,000 German homeowners who have installed rooftop solar panels, becoming power plant operators in their own right and, in some cases, paying a near-zero net cost for their electricity over the course of a year. Those 400,000 have embarked on a fundamental inversion of the industrial age’s energy economy, transforming themselves from rate-paying power con-sumers into profit-making power producers. If that’s not a paradigm shift, nothing is.

Until very recently, some North American experts viewed the German fit as a lurch toward disaster. In 2006, I mentioned the tariff to John Anderson of the Rocky Mountain Institute, one of the world’s most influential energy efficiency think tanks, and he responded with a melodramatic, stage-whispered “Oh, God!” Then he quoted the going rate for German solar power, saying, “I could put monkeys in cages to make power for that and make money. Good Lord!” Then he settled down and told me, “A certain amount of that kind of thing your economy can stand. But it can’t become a very big part of it, or your economy goes down the toilet.” And then, in the next breath, he wondered if he was overlooking something.

“Okay, look,” he said. “If in 1980 you’d come into my office, I’d have said I was pretty happy with telecom: had a box on the desk in the office, had a box on the wall at home. Telecom’s great. Love it. If you’d told me that for thirty bucks I could buy one of these things” — he held up his mobile phone — “and call anywhere in the world from anywhere, I would’ve laughed at you. Then if you’d told me the highest, best economic use of that was for my thirteen-year-old daughter to stand in one end of the mall and talk to her friend at the other end of the mall while they were shopping? I’d have had you committed. That’s clearly insane, right? That’s the kind of paradigm shift electric utilities are facing.”

Let’s repeat that, mantralike: That’s the kind of paradigm shift electric utilities are facing.

Certain North American jurisdictions are finally acknowledging the scope of this shift and the enormous business opportunity it represents. Witness, for example, the headline-making power play by oilman T. Boone Pickens, who has begun building what will eventually be the world’s largest wind farm, 2,700 turbines strong, on a patch of breezy west Texas land. His goal is to have 20 percent of US electricity generated by wind. In California, meanwhile, Governor Arnold Schwarzenegger’s $3.3-billion (US) California Solar Initiative has spurred the rapid expansion of the state’s solar industry. Private homes and big-box rooftops all over California are now being tiled in solar panels in unprecedented numbers, while several Silicon Valley headquarters (most famously Google’s) have parking lots shaded by banks of them, and the state’s old-school energy titans are ushering in an era of utility-scale solar farms. pg&e, for example, recently announced plans to partner with two solar companies to bring installations of 250 and 550 megawatts online — a combined capacity similar to that of a medium-sized nuclear reactor.

Now consider again Canada’s most ambitious climate policy initiative: Ontario’s Standard Offer Program for renewable energy, introduced in the fall of 2006. Like a fit, the program requires the Ontario Power Authority to purchase power from renewable sources at rates higher than the average market price — about 42 cents per kilowatt hour for solar power, and 11 cents per kilowatt hour for wind, biogas, and small-scale hydro — and guarantees those rates for twenty years. At its launch, opa expected to issue contracts for 1,000 megawatts of new clean energy over ten years. Instead, projects totalling over 350 megawatts were approved in the first six months, and by eighteen months the number had exploded to more than 1,300 megawatts.

Notwithstanding this unanticipated and unprecedented green power boom, opa recently introduced new limits on the size and location of certain types of projects, thus setting aside significant swaths of the province’s grid for power from new nuclear and natural gas plants. In July, less than two years into a program that massively underestimated the private sector’s enthusiasm for renewables, opa tabled a long-term plan that calls for renewable energy to comprise barely 20 percent of new electricity production being brought online by 2025. The remaining 80 percent would be evenly split between nukes, which have never been added to the grid on time and on budget in Ontario, and natural gas, whose production will likely be approaching its global peak by then.

It should come as no surprise, really, that opa’s commitment to renewables has wavered, even in the face of overwhelming support, because there was an overly fussy quality to Ontario’s Standard Offer right from its inception. Riddled with seemingly arbitrary time limits and caps on installation size, it seemed to represent only a symbolic commitment to green power, not the kind of wholesale reconfiguration of the energy economy compelled by climate change. Still, because the Standard Offer used Germany’s fit as its model, some green power advocates see it as a stronger foundation than the government subsidy approach favoured in jurisdictions like California. “It’s a timid first step,” says Paul Gipe, an expert in renewable energy and one of the Standard Offer’s main architects. “But it’s a first step, and we shouldn’t underrate its significance. This is the most progressive renewable energy policy in North America in two decades. The footnote, of course, is that we haven’t done anything in North America in two decades, so it’s pretty easy to step up.”

As I counted crumbling gdr guard towers on the train ride from Bitterfeld to Leipzig the evening after my tour of Solar Valley, my thoughts turned from Christian Puschmann’s boyish enthusiasm to the desperate edge I’d encountered during a recent visit to Windsor, Ontario. My host was a laid-off autoworker, a guy named Chris Holt. He was just a little older than Puschmann, I’d guess. He had two kids and a cozy house in the funky old part of town. Holt was one of only a few of his co-workers, he told me, who weren’t simply biding their time until the fix came in from enough levels of government to buy back some faded remnant of the city’s manufacturing glory. He was trying to build a green-minded grassroots revitalization movement in Windsor, but it had been slow going.

As Canada geared up for an election this past fall, pretty much the last thing Stephen Harper did before dissolving Parliament was hand Ford an $80-million subsidy to reopen an engine assembly plant in Windsor. The leader of the Opposition, meanwhile, chose to base his campaign on a carbon tax. Two different strategies that went nowhere fast — a fitting symbol, perhaps, of a political culture stuck in the slow lane in an outmoded vehicle. I know that if I were hoping to send Canada racing toward a sustainable twenty-first-century economy, I’d want one of those sleek new German-engineered engines. I’d start off with a feed-in tariff. And if anyone asked why, I’d introduce them to Christian Puschmann.

Published January 2009

Chris Turner is the award-winning author of The Geography of Hope: A Tour of the World We Need.

Canadians tell oil men to clean up their act

COMMENT: An industry-staged mea culpa meant to deflect the much greater opposition to tar sands development than it acknowledges.

Claudia Cattaneo, Financial Post Published: Thursday, January 08, 2009

Fort McMurray AB-Syncrude's Mildred Lake plant north of Fort McMurray. It takes about 4,000 workers to operate this plant, the largest oilsands crude oil production facility in the world. (Photo Chris Schwarz/Edmonton Journal/CanWest News Service.)

Canadians are telling oil sands companies they need to do a better job of protecting the environment, the Canadian Association of Petroleum Producers admitted on Thursday.

The industry's trade group said data from opinion polling and feedback on an interactive web site set up six months ago found that Canadians believe it's possible to develop the oil sands while protecting the environment. The polling and the feedback also shows that most are concerned about the impact of projects on fresh water and about greenhouse gas emissions, but also that Canadians believe technology is a large part of the solution.

"Canadians are telling us that we need to do better," Bruce March, chief executive of Imperial Oil Ltd., said in a statement.

"We have received a clear message: the economy and energy security benefits of the oil sands cannot come at the expense of the environment. We are encouraged to find Canadians believe, as we do, that responsible development of the oil sands is possible."

Members of CAPP are discussing the results and what they can do to address them, the group said.

Teck Cominco slashing 1,400 jobs

VIRGINIA GALT
Globe and Mail
January 8, 2009

Teck Cominco Ltd. is cutting 1,400 jobs globally, or 13 per cent of its work force, because of slumping demand for coal and plunging commodity prices.

The Vancouver-based miner said Thursday the staff reductions are part of a broader strategy to cut costs, and are expected to save the company about $85-million.

Teck said it also plans to scale back coal production this year to 20 million tonnes given falling global steel demand.

Analyst Ian Howat of National Bank Financial said in a research note that Teck had previously announced that its 2008 coal production would come in on the low end of their 23-to-25 million tonne guidance range.

Don Lindsay, Teck CEO Teck Cominco Ltd.

“The reduction in coal production is negative for the company and will lower earnings for the year,” Mr. Howat wrote.

“It isn't clear yet how much the company will deliver into 2008 contracted prices and how much will be delivered into what will surely be much lower 2009 contract prices,” he said.

After a delayed opening on the Toronto Stock Exchange, Teck Comino shares were down 75 cents, or 5.5 per cent, to $12.76 in early trading.

Teck said the work force reduction is “part of its broader strategy to reduce costs and bolster competitiveness in the face of persistently weak commodity prices,” Teck said in a statement.

“Given continued economic uncertainty, a significant reduction in our work force is needed to further reduce costs and position Teck for both short and long-term competitiveness,' said Don Lindsay, president and chief executive officer.

“Notwithstanding the substantial decline in commodity prices, this was a difficult decision,” he said.

Teck said about 1,000 employees and 400 contractor positions would be cut by the end of the year, most in the first quarter. It expects a charge of $35-million in the quarter for severance and other costs.

Teck is Canada's largest diversified mining, mineral processing and metallurgical company. It is a world leader in the production of copper, metallurgical coal and zinc. It also produces gold, molybdenum and specialty metals, with interests in several oil sands development assets.

The company owns, or has interests in, 16 operating mines in Canada, the United States, Chile and Peru.

In a separate announcement Thursday, Calgary-based Grande Cache Coal Corp. said demand for metallurgical coal has been affected by the decline of global steel production as a consequence of the global economic slowdown.

As a result, steel producers are rethinking their orders.

“Grande Cache Coal has received indications from certain customers that shipments originally scheduled for delivery by March 31, 2009, will be deferred into the following fiscal year,” Grande Cache said in a statement.

“The full extent of these delays is unknown at this time given that many steel companies have yet to provide detailed shipping schedules for the quarter ending March 31.”

Statistics Canada reported Tuesday that the contraction of prices for petroleum and coal products accelerated for the second straight month in November, decreasing 18.9 per cent compared with a drop of 13.8 per cent in October.

The Toronto-Dominion Bank, in a report on commodity prices earlier this week, noted that 2008 “was a wild ride for commodity markets, turning from a bull market to a bear market in a matter of months…

“Compared with year-ago levels, base metals prices were down by 50 per cent as 2008 came to a close, with all metals experiencing significant declines of 40 to 60 per cent,” TD Bank said in its weekly commodities report.

Against this backdrop of lower prices for coal, copper and zinc, Teck is also paying off the debts incurred in its $14-billion (U.S.) takeover of Fording Canadian Coal Trust last summer before coal prices plunged.

Mr. Howat wrote that Teck should “still pass the debt covenants related to the Fording acquisition, but this may change depending on any writedowns the company will incur as a result of lower commodity prices.”

In November, Teck announced that it was suspending dividends for 2009, selling its interest in the Lobo-Marte gold property in Chile and reducing zinc production at its operations in Trail, B.C.

In its statement Thursday, Teck did not provide details on where the staff cuts would take place, other than to say that they would be across the board.

“Each strategic business unit is adjusting personnel levels to protect operating margins given difficult commodity markets,” Teck said.

“The company is also significantly reducing staff and contractors associated with exploration activities and research and development. Finally, the work force reductions eliminate redundancies at the corporate level created by Teck's recent acquisition of Fording Canadian Coal Trust's assets.”

The staggering cost of new nuclear power

Business Risks and Costs of New Nuclear Power

Part 1: The staggering cost of new nuclear power

ClimateProgress.org
January 5, 2009

A new study puts the generation costs for power from new nuclear plants at from 25 to 30 cents per kilowatt-hour — triple current U.S. electricity rates!

This staggering price is far higher than the cost of a variety of carbon-free renewable power sources available today — and ten times the cost of energy efficiency (see “Is 450 ppm possible? Part 5: Old coal’s out, can’t wait for new nukes, so what do we do NOW?“).

The new study, Business Risks and Costs of New Nuclear Power, is one of the most detailed cost analyses publically available on the current generation of nuclear power plants being considered in this country. It is by a leading expert in power plant costs, Craig A. Severance. A practicing CPA, Severance is co-author of The Economics of Nuclear and Coal Power (Praeger 1976), and former Assistant to the Chairman and to Commerce Counsel, Iowa State Commerce Commission.

This important new analysis is being published by Climate Progress because it fills a critical gap in the current debate over nuclear power — transparency. Severance explains:

All assumptions, and methods of calculation are clearly stated. The piece is a deliberate effort to demystify the entire process, so that anyone reading it (including non-technical readers) can develop a clear understanding of how total generation costs per kWh come together.

As stunning as this new, detailed cost estimate is, it should not come as a total surprise. I detailed the escalating capital costs of nuclear power in my May 2008 report, “The Self-Limiting Future of Nuclear Power.” And in a story last week on nuclear power’s supposed comeback, Time magazine notes that nuclear plants’ capital costs are “out of control,” concluding:

Most efficiency improvements have been priced at 1¢ to 3¢ per kilowatt-hour, while new nuclear energy is on track to cost 15¢ to 20¢ per kilowatt-hour. And no nuclear plant has ever been completed on budget.

Time buried that in the penultimate paragraph of the story!

Yet even Time’s rough estimate is too low, as Business Risks and Costs of New Nuclear Power quantifies in detail. Here is the Executive Summary:

It has been an entire generation since nuclear power was seriously considered as an energy option in the U.S. It seems to have been forgotten that the reason U.S. utilities stopped ordering nuclear power plants was their conclusion that nuclear power’s business risks and costs proved excessive.

With global warming concerns now taking traditional coal plants off the table, U.S. utilities are risk averse to rely solely on natural gas for new generation. Many U.S. utilities are diversifying through a combination of aggressive load reduction incentives to customers, better grid management, and a mixture of renewable energy sources supplying zero-fuel-cost kWh’s, backed by the KW capacity of natural gas turbines where needed. Some U.S. utilities, primarily in the South, often have less aggressive load reduction programs, and view their region as deficient in renewable energy resources. These utilities are now exploring new nuclear power.

Estimates for new nuclear power place these facilities among the costliest private projects ever undertaken. Utilities promoting new nuclear power assert it is their least costly option. However, independent studies have concluded new nuclear power is not economically competitive.

Given this discrepancy, nuclear’s history of cost overruns, and the fact new generation designs have never been constructed any where, there is a major business risk nuclear power will be more costly than projected. Recent construction cost estimates imply capital costs/kWh (not counting operation or fuel costs) from 17-22 cents/kWh when the nuclear facilities come on-line. Another major business risk is nuclear’s history of construction delays. Delays would run costs higher, risking funding shortfalls. The strain on cash flow is expected to degrade credit ratings.

Generation costs/kWh for new nuclear (including fuel & O&M but not distribution to customers) are likely to be from 25 - 30 cents/kWh. This high cost may destroy the very demand the plant was built to serve. High electric rates may seriously impact utility customers and make nuclear utilities’ service areas noncompetitive with other regions of the U.S. which are developing lower-cost electricity.

I am not saying here that nuclear power will play no role in the fight to stay below 450 ppm of atmospheric CO2 concentrations and avoid catastrophic climate outcomes. Indeed, I have been including a full wedge of nuclear in my 12 to 14 wedges “solution” to global warming here. It may, however, be time to reconsider that, since it is increasingly clear achieving even one wedge of nuclear will be a very time-consuming and expensive proposition, probably costing $6 to $8 trillion and sharply driving up electricity prices.

Given the myriad low-carbon, much-lower-cost alternatives to nuclear power available today — such as efficiency, wind, solar thermal baseload, solar PV, geothermal, and recycled energy (see “An introduction to the core climate solutions“) — the burden is on the nuclear industry to provide its own detailed, public cost estimates that it is prepared to stand behind in public utility commission hearings.

What is unique about this new analysis is its transparency: “all assumptions, and methods of calculation are clearly stated.” As Severance explains:

In contrast to this transparency, many nuclear promoters have adopted a “Black Box” approach. It has unfortunately been the case over the last couple of years that some utilities have begun to claim that even rudimentary basics of their nuclear cost estimates must be hidden from the public as “trade secrets”. For instance, in the South Carolina Electric & Gas proposal to build two reactors now under consideration by the South Carolina PSC, there is literally a large “box” obscuring the bulk of the calculations in the SC E&G Exhibit which presents the utility’s projection of construction and financing costs for the proposed two-unit facility. In a different case, Duke Energy claimed that it does not even have to disclose its new cost estimates for a proposed nuclear facility in Cherokee County, S.C.. In the Duke case, C. Dukes Scott, South Carolina’s consumer advocate, who represents the public in utility rate cases, noted, “If the cost wasn’t confidential in February,” Scott said, “how is it confidential in April?”

Even when no effort to conceal information is apparent, the very terminology used when projections are presented can be confusing or misleading. For instance, in 2007 when a number of new nuclear proposals began to advance, it was common for “Overnight Cost” estimates to be quoted. For a project (such as solar or wind) whose construction period may be as short as several months, the difference between an “overnight” cost and the full cost to complete the project may not be significant. However, for a nuclear project that may typically take a decade to complete, cost escalations that occur during this long construction period, plus the financing costs during construction, may easily double the total cost of a project compared to its “overnight” cost. When the full picture is presented, some may perceive the total cost estimate has mysteriously doubled. However, it simply should have been stated clearly to begin with that major escalation and financing costs cannot be avoided when it takes a long time to complete a project. Failure to do so is tantamount to selling someone a house with “teaser” initial mortgage payments and failing to make clear that the mortgage payments will later reset to a much higher level.

Another mysterious “black box” presentation method is to fold the overall costs of the new facility into the general rate base of the utility, without ever mentioning what the generation costs per kWh of the nuclear unit will be. Instead, it is often only presented how total costs per kWh for all ratepayers will increase — which includes kWh’s generated by existing generation units. (For instance, if a nuclear unit is to supply 20% of the kWh’s for the utility when it comes on line, any cost increase per kWh appears to only be 1/5 as large because the additional costs are also spread over the 80% of kWh’s generated by other facilities, even though those other facilities did not cause the rate increase.) While it is important to know the impact on final overall retail electric rates, it is also important to know the generation costs per kWh from the nuclear facility. If this step is “skipped” in public presentations, the nuclear units (or any new generation power source that is more expensive than existing units) can appear far cheaper than their real impact.

The Paper takes the approach that it is best to lay out in detail “how you got that number” at each step of the way. All parties can then proceed to have discussions based upon real numbers rather than mysterious “Black Box” secrets.

So feel free to criticize the analysis, but anyone offering different all-in cost estimates for power from new nuclear plants should detail their own assumptions and calculation. And simply pointing to the operating costs of existing paid-0ff nuclear plants doesn’t count as detailed analysis — my home would be very cheap to live in if I didn’t have a mortgage.

Also, it’s fine to call for aggressively developing 4th generation nuclear plants (as James Hansen does) — I’m all for such R&D — but that won’t help us meet 2020 climate targets, and probably won’t help us significantly meet 2030 targets. In any case, it is impossible to accurately project the real world all-in costs of noncommercial technologies that are still largely sitting on the drawing board.

Alberta resident suing Syncrude over dead ducks

CAROLINE ALPHONSO
Globe and Mail
January 7, 2009

An Alberta resident is suing one of the country's largest oil-sands' operators, alleging that it was responsible for killing 500 ducks at its northern Alberta facility last spring.

Jeh Custer, a member of the Sierra Club Canada, filed the lawsuit Wednesday in Edmonton against Syncrude Canada Ltd. He said that if legal action wasn't taken, such practices by oil companies would continue without consequences.

“We are bringing this forward because this incident of 500 ducks dying ... is further evidence that pollution from tar sands extraction is making the environment too toxic for birds, in this case migratory waterfowl, and people,” Mr. Custer said in an interview. “The regrettable failure of the Alberta and federal governments to enforce their own environmental laws means that ordinary Canadians must act.”

In April, about 500 birds died after landing on a snow-covered tailings pond at Syncrude's plant in northern Alberta. Images of the ducks that had sunk to their deaths in the toxic byproduct of Syncrude's oil-sands operation spread around the world. Environmental groups used the incident to illustrate the perceived hazards resulting from oil sands development.

The pond usually has noise-making cannons that keep away migrating waterfowl. But the devices hadn't been deployed because of a late winter storm, allowing the ducks to land.

Environment Canada has yet to conclude its investigation. And the Alberta government launched its own probe under the provincial Environmental Protection and Enhancement Act. The province requires the company to have a waterfowl protection plan at its tailings ponds. If convicted, fines can reach up to $1-million.

Environmental groups said that nine months later, governments have failed to act.

“If we are able to put together our own prosecution in two months on a shoestring budget, why are the feds and the province still sitting on their hands?” Mr. Custer asked.

The lawsuit against Syncrude is under the Federal Migratory Birds Convention Act, which prohibits harmful substances from being deposited in an frequented by migratory birds.

The lawsuit is launched by Ecojustice, formerly Sierra Legal Defence Fund, on behalf of Mr. Custer. It is also supported by Sierra Club Canada and Forest Ethics.

Russia-Ukraine gas crisis intensifies as all European supplies are cut off

David Gow
The Guardian
Wednesday 7 January 2009

Gazprom, the state-owned Russian gas group, today cut off all supplies to Europe travelling through Ukrainian pipelines, intensifying the political and economic crisis that has arisen out of a payments dispute between the two countries.

Amid evidence that people in eastern Europe are being deprived of heating as the Arctic cold snap continues, Russia and Ukraine continued to blame each other for the deadlock.

Gazprom accused Ukraine of shutting down the fourth and last open pipeline crossing the country while officials at Naftogaz, Ukraine's state energy firm, simply said: "Words fail us."

The complete shutdown comes ahead of top-level talks in Moscow tomorrow between Gazprom and Naftogaz executives to resolve a pricing dispute that has arisen in each of the last four years. Ukraine, semi-bankrupt and being bailed out by the IMF and EU, is being offered natural gas at higher prices, but substantially below those charged on European markets.

The dispute, viewed by the EU as a purely commercial one until recently, threatens a fresh breakdown in relations between Brussels and Moscow, with European Commission officials warning that Russia's reputation as a reliable partner is once again at stake.

But analysts point out that, since the last serious crisis broke out in 2006, Europe has done very little to avert shortages. Instead of creating an integrated market, drawing on alternative energy supplies, countries have simply drawn up individual contracts with Gazprom, increasing dependence on Russia.

Russia supplies a quarter of Europe's gas and 80% of this transits through Ukraine. As shortages hit western Europe and intensify in the south and east, EU governments will meet on Friday to consider sharing supplies held in storage.

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Russia completely turns off gas spigot

DMITRY ZHDANNIKOV and PAVEL POLITYUK
Reuters
Globe and Mail
January 7, 2009

MOSCOW/KIEV — Russian gas flows to Europe through Ukraine shut down completely on Wednesday, reducing power to industries and homes in south-east Europe and disrupting supplies to major economies.

The dispute, over gas prices and debts owed by Ukraine to Russia, left thousands of households in Bulgaria without heating and hit supplies as far west as France and Germany as Europe faced freezing mid-winter temperatures.

“Russia, which supplies 80 per cent of its gas to Europe through Ukraine, has left Europe without gas. There is zero transit,” said Valentin Zemlyansky, a spokesman for Ukrainian state energy firm Naftogaz.

Russian gas export monopoly Gazprom blamed Ukraine for the closure. It said Russia was still pumping a small volume of gas to Ukraine and accused Kiev of keeping it.

At a meeting with Gazprom chief executive Alexei Miller, Russian Prime Minister Vladimir Putin said all gas supplies through Ukraine should be stopped.

“I agree with the proposal to stop deliveries, but it should be done publicly, in the presence of international observers,” he said in televised remarks.

Gazprom said it was raising supplies to the European Union and Turkey via other routes. Despite those measures, the dispute cut Russia's supplies to Europe – which depends on Moscow for a quarter of its gas supplies – by half.

The reduction in supplies started on Jan. 1 when Russia reduced gas volumes to Ukraine, and has been sharper and more prolonged than a similar disruption in January 2006.

The International Energy Agency said Bulgaria, Romania, Greece and Turkey would struggle to provide electricity and heating if cold weather and gas disruptions continued next week.

Several countries have taken emergency measures to eke out dwindling fuel reserves by switching to other energy sources.

The European Union presidency, which has so far chosen not to intervene in a dispute between two energy companies, said on Wednesday it would take a more forceful approach unless the gas was flowing again by Thursday.

Czech Prime Minister Mirek Topolanek, whose country holds the EU presidency, also said the union was preparing an emergency meeting of EU energy ministers.

The EU has a limited ability to act and it has failed to reduce its use of Russian energy because of internal divisions and the lack of alternatives. Some member states have bilateral energy deals with Russia, undermining hopes of a united front.

Ukraine's Naftogaz chief Oleh Dubyna said he would go to Moscow on Thursday for talks with Gazprom's Miller, but both sides traded blame and there was no sign Moscow and Kiev were closer to resolving the row over pricing and transit fees.

Mr. Dubyna said Ukraine will insist on a price of $201 per 1,000 cubic metres of Russian gas for 2009, less than half Russia's proposal. It also wants to increase transit fees and scrap a controversial gas intermediary.

Ukraine's pro-Western President Viktor Yushchenko appealed to the European Union to use all efforts to help end the crisis, which has further dented investor confidence in his country.

The cost of protecting Ukrainian debt against restructuring or default rose to 54.75 per cent on an upfront basis, meaning an investor buying protection for $10 million of Ukrainian debt must pay $5.475 million plus $500,000 a year for five years.

Ukraine said it was planning to reduce supplies of gas to some metals companies and chemical enterprises, but households have not yet been affected.

Eastern and central Europe have borne the brunt of the row, with Bulgaria cutting back or suspending supplies to industrial users and at least 45,000 Bulgarian households going without central heating on Wednesday. Schools were shut and some companies were closed.

The Hungarian unit of Japanese car maker Suzuki, one of Hungary's biggest exporters, halted production after Hungary imposed restrictions on industrial users of gas, a Suzuki spokeswoman said.

In Bosnia, the sole alumina factory said it had been forced to stop production and ArcelorMittal said it was suspending production at its Zenica plant.

The euro zone's major economies have escaped significant economic repercussions, but France has reported a drop in supplies and an Italian industry ministry spokesman said Italy has begun tapping its stockpiles of natural gas.

German energy provider E.ON Ruhrgas reported a drastic decline in incoming Russian gas deliveries, but said no industry or households would be short of gas. It has warned that prolonged cuts combined with a cold spell could cause shortages.

Big energy users like aluminum, glass and metals makers could be hurt by a lengthy crisis.

Energy prices on international markets have risen in response to the Ukraine-Russia dispute. On the British gas market, the biggest and most liquid market in Europe, contracts on Tuesday rose to the highest level since October, although they softened on Wednesday.

Tehran looks to the skies for cheap power from the sun

Alok Jha
The Guardian
Tuesday 6 January 2009

Iran is introducing the latest solar technologies to cut its oil consumption and bring cheaper electricity to its civilians

A concentrating solar power (CSP) plant in Spain that uses panels to reflect light on to a central tower to produce electricity. A pilot scheme using CSP has been started in Iran. (Photograph: AP)

Mention energy and Iran in the same sentence and you're duty-bound to express some concern about the country's ambitions for nuclear power and, as a result, raise dangerous questions about weapons. But while that are-they-aren't-they game has been going on between the country's leaders and the wider international community, renewable energy experts in Iran have been quietly working on capturing sunlight to power their country.

According to officials, Iran has started 2009 by inaugurating a pilot solar plant in Shiraz, Fars province. It is a concentrating solar power (CSP) system, using parabolic mirrors to focus sunlight onto a tube of water that is super-heated to make steam that is then used to turn electricity-generating turbines.

According to the Mehr Iran news agency, Iranian energy minister Parviz Fattah said: "The country backs the use of alternative and renewable energy sources. In future alternative energy sources will be greatly developed in the country. The growth of investments in this sphere is expected."

The solar radiation hitting the Earth contains around 10,000 times the energy needs of the world's population. CSP is seen by many as a simpler, cheaper and more efficient way to harness the sun's energy than other methods such as photovoltaic panels. But it only works in places with clear skies and strong sunshine. As such, large CSP plants of up to 20mw each are already in construction in the sunnier parts of the world.

Spanish firms, in particular, are moving quickly with CSP: more than 50 solar projects around Spain have been approved for construction by the government and, by 2015, the country will generate more than 2GW of power from CSP, comfortably exceeding current national targets. The companies there are also exporting their technology to Morocco, Algeria and the US.

At present the Iranian plant is small (just 250KW, probably enough for just over 200 family homes while the sun is shining) but the locally-
built mirrors join thousands of smaller-scale solar-thermal installations already in place around the country.

Whether Iran has plans to build bigger solar plants or add photovoltaic panels to those plans is unclear, but an ambitious move in this direction would be a good idea. Not only because the region has a huge resource of sunlight falling onto it, so tapping even a small proportion of that would be a cheap and clean way to provide energy for the country. But, just perhaps, solar plants could also placate those international observers that are suspicious of President Mahmoud Ahmadinejad's nuclear plans.

Oregon exceptionally generous with green-energy subsidies

COMMENT: European countries are ahead of the pack in encouraging renewable energy. They are doing it for two reasons - to reduce their dependency on coal fired generation and other fossil fuels, and to establish industries so that they become global leaders. Denmark is notable in this respect with wind energy. The UK is doing it with wave and tidal energy.

BC has missed the boat completely. The consequence of BC's clean energy policies has been to drive investment into small hydro and biomass, where the technologies are mature and there is no opportunity to become a manufacturer or technology leader.

The few wind projects in BC are too little, too late. There might have been an opportunity in 2000, when the GSX Pipeline and gas-fired generation were the sorry best that could come out of the cloistered musty minds in BC Hydro and the BC Government.

There still may be an opportunity with tidal and wave energy, but without policy and fiscal encouragement (read, feed-in tariffs), any development of these awesome energy resources, will similarly leave BC a consumer of technologies and knowledge developed elsewhere, most likely the UK, instead of a global leader.

Some places in North America get it. In the US, Oregon is something of a leader, as this article describes (with caveats). In Canada, Nova Scotia is establishing itself with tidal energy.

There is no indication that the BC government appreciates the opportunities that exist, or has any interest in developing them. With its head lost in Pacific Gateway transportation infrastructure and the 2010 Olympic party, the BC government reveals itself to be lost in the thinking of yesterday.

Rivers of Riches, from the January-February 2007 Watershed Sentinel (on small hydro)

Here Be Dragons, from the June-July 2008 Watershed Sentinel (on tide and wave energy)

by Harry Esteve
The Oregonian
Friday January 02, 2009

Klondike Wind Power spins electricity from its north-central Oregon turbines, which stand 214 feet tall and have 120-foot-long blades. The company receives an $11 million energy tax credit from the state. (MARV BONDAROWICZ/THE OREGONIAN/2003)

Oregon taxpayers are shelling out tens of millions of dollars to subsidize green energy projects, making the state a magnet for solar and wind companies.

But an investigation by The Oregonian shows that the money also is going to risky ventures with questionable environmental benefits and to prosperous companies that need no incentives but are cashing in anyway.

When the Legislature convenes next week, Gov. Ted Kulongoski will call on lawmakers to raise taxes and fees as the state plunges deeper into recession.

At the same time, he will push to expand tax breaks for businesses -- tax breaks that will cost the state at least $140 million over the next two years, a cost he says is necessary to make Oregon a sustainability model for the nation.

The governor likes to credit these subsidies for luring SolarWorld to develop a $440 million factory in Hillsboro. But records show that the state also has given away millions to keep long-haul truckers comfortable in their cabs overnight without running their diesel engines, to timber companies for wood-burning steam boilers, to buy bus passes for well-paid employees at Nike and the city of Portland, to build a state-of-the-art bicycle garage for a Hillsboro sportswear company and to help a car rental company add hybrids to its Portland fleet.

The handouts come from Oregon's Business Energy Tax Credit program -- the state's fastest growing tax shelter. The credits are so easy to obtain that more than 4,000 applicants have lined up to get them whether they need them or not. Klondike Wind Farms, for example, seeks $44 million in state tax breaks even though eastern Oregon's wind-blown geography has proved a profitable turbine location, subsidies or no.

"It's gotten out of hand," says Chuck Sheketoff, director of the Oregon Center for Public Policy, which studies the impact of state tax policies on low-income residents. "It's being scammed. It's not serving its purpose."

Even banks and big corporations that have nothing to do with renewable energy are grabbing the tax breaks. Under the state's generous incentives, groups and companies that qualify for tax credits can turn around and sell them. Most do. Standard Insurance, for example, paid $2.5 million to Flakeboard, an Albany mill that makes composite wood. In exchange, Standard gets to use $3.5 million in tax credits the mill received for building a wood-burning boiler that can generate electricity.

Lawmakers alarmed

The energy credit is just one of hundreds of tax breaks allowed by Oregon -- a list that includes popular deductions such as home mortgages and medical expenses for the elderly. Unlike tax deductions, however, tax credits are far more attractive because they directly reduce a tax bill -- every dollar of credit is a dollar saved on taxes.

Rapid growth in the amount and size of the tax credits has alarmed some lawmakers and advocacy groups that see the state reducing services to the poor while handing out huge sums to often wealthy businesses. Furthermore, they say, the state is using its precious general fund dollars to pay private companies for projects that help them make a bigger profit.

"My concern is, it's going to be loved to death," says state Sen. Ginny Burdick, D-Portland, who chairs the Senate Revenue Committee. "Are we getting our money's worth as taxpayers? Or are we simply doling out money to people who would be doing what they're doing anyway?"

A case in point is Enterprise Rent-A-Car, the St. Louis-based chain that has shifted large numbers of its rental fleet to hybrids. Enterprise has received more than $100,000 in Oregon tax credits, mostly for new Toyota Priuses, which run on a combination of electricity and gasoline.

Yet the company would have bought the cars even without the tax credit, says Meghan Maguire, an Enterprise spokeswoman.

"We buy hybrids because it's a reaction to customer demand," Maguire said. "It's a nice thing that (the tax credits) are available, but it certainly doesn't impact our decision to buy hybrids."

Oregon is generous

Oregon's energy credits are uniquely generous and simple to get.

Zipcar, a car-sharing company based in Cambridge, Mass., received approval for $1.7 million in Oregon tax credits simply for doing what it does -- offering use of cars for a monthly or hourly fee. Zipcar offers its service in at least 10 other states, none of which give it the kind of tax breaks that Oregon does.

"That's money we're not putting to children," says Jody Wiser of Tax Fairness Oregon, a group that looks at how state tax dollars get divvied up. "That's money we're not using for health care."

Kulongoski, however, remains a big believer in the program. He argues it has brought hundreds of jobs to the state and kick-started the green energy industry. In fact, he wants to offer even more lucrative tax breaks to companies that construct energy-efficient buildings.

"It's about moving to a greener, cleaner economy," said Kulongoski's spokeswoman, Anna Richter Taylor. "Any time you have a tax incentive program, there's always going to be a debate about what's the best use of public dollars."

In some cases, however, Oregon energy tax credits have been used as startup money for projects that aren't proven energy savers. One is Reklaim Technologies, a Bellevue, Wash., company that erected a tire recycling plant in Boardman.

Reklaim got $3.4 million in tax credits from Oregon. The company says the plant will extract usable oil from the tires and sell it as industrial grade fuel.

The problem, says Michael Blumenthal, a national expert on scrap tires, is that the process Reklaim plans to use, called pyrolysis, has never been proved as an economically viable way to recycle tires. It is possible to get oil from the tires, but it is prohibitively expensive, and the markets for the end products often aren't there, he says.

"The road is littered with the carnage of previous companies that have tried it and the investors who have gone down with them," says Blumenthal, a vice president of the Rubber Manufacturers Association in Washington, D.C.

Renee Gastineau, a spokeswoman for Reklaim, says the company studied past failures "and made modifications. There's always someone who can come along and find a better process, and that's what Reklaim is doing."

Construction ended last summer. Initially, company officials said the plant would be operational in October and capable of processing 5.5 million tires a year. Now, the company says the plant won't be up and running until after March.

Push from Kulongoski

Oregon's energy tax credits began as a small, targeted program aimed at conservation and efficiency. It kicked into high gear after the 2007 legislative session, when Kulongoski pushed for some of the biggest tax breaks offered anywhere in the nation.

Under the 2007 rules, companies could apply for up to 50 percent of the cost of the project, up to a limit of $20 million, as long as they could show the project would save energy or produce renewable energy or fuel alternatives.

The governor saw what he considered to be two golden opportunities. One, green tech companies would move to Oregon to take advantage of the tax savings, bringing jobs with them. And two, the state would make progress on its goal of drawing 25 percent of its energy from renewable sources by 2025.

At the time, state officials projected the changes would add $2 million to a projected $23 million hit on the state's two-year budget. They were wrong. Less than two years later, the program is costing taxpayers $78 million. And that figure easily could triple again. State records show more than 4,400 applications pending for the credits, for projects worth $716 million.
To give an indication of the program's attraction, one of the world's most successful solar companies, Maryland-based Sun Edison, recently applied for $14 million in tax breaks to build more than 50 plants, mostly in the Portland area.

"The governor went into the program with his eyes open," says Lynn Frank, former director of the state Department of Energy, which oversees the credits. "The program has been very successful in bringing renewable resource manufacturing plants to Oregon."

Unnecessary break

Even bicycles get tax breaks.

Susan Otcenas, owner of Team Estrogen, a company that makes athletic wear for women, used the tax credits to help pay for construction of what she considers Oregon's nicest bicycle parking facility at the company's Hillsboro plant. It features lockers, places to hang bikes, heat and other comforts for employees who bike to work.

The tax credits helped, she says, but "yeah, we would have done it anyway. I hate to say that."

Burdick, the Senate Revenue chairwoman, says the Legislature may consider capping the amount of money that can be spent on the tax credits. Her counterpart in the House, Rep. Phil Barnhart, says he needs more facts about how the program has operated.

So far, Barnhart says, the credits have helped bring needed commerce to Oregon, but that doesn't mean all the credits make sense.

"Lately, questions have been raised about subsidies for wind power," says the Eugene Democrat. "Is it at the stage now where it no longer needs a subsidy? I don't know the answer to that. Those are the kinds of questions we'll be asking."

-- Harry Esteve: harryesteve@news.oregonian.com
www.oregonlive.com/politics

Barnett Shale drilling and natural gas prices down

COMMENT: Wither goest the Barnett Shale, so goest northeast BC. As the government spends the next month preparing its election year throne speech and budget, rights sales and royalty projections for 2009-2010 will have to be considerably less optimistic than last year's forecast. In the 2008 budget, rights sales for 2009-2010 were forecast at $620 million; gas royalties, $1.25 billion. Watch those numbers decline, and watch closely as the government reconciles declining revenues with expenditures. Who's going to get hit? Count on it that it'll be those least able or least likely to fight back at the ballot box.

Jim Fuquay
Star-Telegram (Fort Worth)
January 3, 2009

Drilling has declined faster than was predicted just two months ago and may have to decline more for gas prices to rise. (STAR-TELEGRAM ARCHIVES/M.L. GRAY)

The number of drilling rigs active in the Barnett Shale finished the year down 26 percent from its peak in early October, mirroring a decline in drilling nationwide as natural gas prices have plunged amid worries about weak demand.

There were 159 rigs operating in 14 North Texas counties as of Dec. 26, according to the most recent report from RigData. That was down 12 from the previous week and down 55 from the 2008 peak of 214 active rigs in the Barnett.

It’s the biggest sustained decline in the Barnett since late 2001, when there were fewer than 100 rigs, according to RigData. Drilling in 2008 generally remained above 200 rigs until recently.

Nationally, the rig count fell by 98, or 5.7 percent, said Baker Hughes, a Houston-based oil-field services and equipment firm that has tracked North American drilling for decades. That was the biggest one-week drop since 1993 and left the U.S. rig count down 20 percent from its yearly high.

Rigs exploring for natural gas accounted for 80 of the idled rigs in the past week, Baker Hughes said. There were 1,267 rigs looking for gas, down 21 percent from the 2008 high of 1,606, on Aug. 29.

Overall, 1,623 rigs were active both onshore and offshore in the United States, Baker Hughes said. That peaked in 2008 at 2,031, in September.

What’s happening

Natural gas futures have plunged since peaking at $13.58 per 1 million Btu in July. On Friday, gas settled at $5.97.

Drilling has declined faster than was predicted just two months ago.

As recently as Oct. 24 there were 205 active rigs in 16 Barnett counties, according to RigData. At the time, Richard Mason, publisher of Land Rig Newsletter in Lubbock, said he expected to see the rig count fall as much as 20 percent in the first quarter of 2009.

Last month, Mason updated his forecast, saying the rig count could drop as much as 30 percent and predicted "the most difficult drilling environment in 10 years."

On the ground

As gas prices continued to weaken, XTO Energy President Keith Hutton said in early December that the number of rigs looking for natural gas in the United States might have to drop to 1,200 before production would fall enough for prices to rise again.

As of Dec. 26, XTO was running 16 rigs in the Barnett, just under the approximately 19 rigs it generally operated last year. Chesapeake Energy showed the biggest cut in its Barnett rig fleet, from 43 in late September to 32 as of Dec. 26, according to RigData.

Devon Energy, based in Oklahoma City, remains the busiest driller locally, with 38 rigs. That’s about what Devon, the Barnett’s largest producer, has operated in the past year.

JIM FUQUAY, 817-390-7552, jfuquay@star-telegram.com

Russia gas row disruption spreads

COMMENT: Europe shivers as it watches this dispute between Russia and Ukraine, because Russian natural gas gets to European countries through Ukraine. The US is so fortunate to have Canada as a neighbour, because what is the likelihood that Canada would ever unilaterally decide that it will set the price of Canadian gas or oil, or conserve its resources? How much shivering would go on in Washington or Houston should Canada embark on a national energy policy? Just askin'

"Three years after a similar dispute briefly disrupted supplies, European fears of gas flows dropping off in the dead of winter were once again becoming a reality – and Russia's reputation as a reliable gas supplier was under new scrutiny. Russia halted all supplies to Ukraine on New Year's Day in what it called a purely commercial dispute, but in the background is a fierce disagreement over a drive by Kiev's pro-Western leaders to join NATO."

Reuters
Globe and Mail
January 3, 2009

KIEV/MOSCOW — Russian gas flows to four European Union countries were below normal levels on Saturday after Moscow cut off supplies to Ukraine in a pricing row, and there were no talks in sight to resolve the dispute.

Temperatures were below zero overnight in Europe, and Bulgaria's Bulgargaz joined energy firms in Poland, Romania and Hungary in saying they had noted falls in supply, though flows to Europe's biggest economy, Germany, were not affected.

The European Union, which gets a fifth of its gas from pipelines that cross Ukraine, said it would call a crisis meeting of envoys in Brussels on Monday and demanded that transit and supply contracts be honoured.

It also urged both sides to reach an agreement soon, but added that it did not intend to become a mediator and that the bloc had sufficient gas reserves for now.

The prospects of a swift settlement to the dispute appeared remote. Moscow alleged Kiev was stealing gas intended for Europe and playing political games. Ukraine accused Russia of using “energy blackmail” and of not providing enough gas for the proper functioning of the transit system.
Three years after a similar dispute briefly disrupted supplies, European fears of gas flows dropping off in the dead of winter were once again becoming a reality – and Russia's reputation as a reliable gas supplier was under new scrutiny.

Russia halted all supplies to Ukraine on New Year's Day in what it called a purely commercial dispute, but in the background is a fierce disagreement over a drive by Kiev's pro-Western leaders to join NATO.

Poland, which had earlier reported a drop in Russian supplies, said deliveries via Ukraine were now down 11 per cent. Hungary said pressure in its pipeline from Ukraine had recovered slightly but was still below normal levels.

Russia's gas export monopoly Gazprom said it was increasing deliveries to Europe by 52 million cubic metres per day, about 16 per cent, but said its ability to compensate for the fuel lost on the Ukrainian route was limited.

The extra deliveries were being pumped around Ukraine – through Belarus and Turkey – and from underground storage facilities in Europe.

Gazprom said Kiev was not ready to resume talks. “They are not negotiating because there is nobody to negotiate. It looks like they are not thinking about their own country, just playing political games,” said Gazprom deputy CEO Alexander Medvedev.

Mr. Medvedev had talks with officials in the Czech Republic, holder of the EU's rotating presidency, just hours after a delegation from Ukraine had also been there to lobby for European support.

“Europe must be interested in helping to solve the dispute as quickly as possible ... What we need from the EU is their help to persuade Ukraine to follow the rules of behaviour at the negotiating table,” Mr. Medvedev told Reuters in an interview.

Ukraine, already reeling from the effects of the global financial crisis, denied it was stealing gas intended for Europe and instead alleged Gazprom had itself cut flows via Ukraine.

“Gazprom's position breaches international practices of holding negotiations ... and amounts to energy blackmail,” Ukrainian state energy firm Naftogaz said in a statement.

Naftogaz chief Oleh Dubyna said his officials were ready to go to Moscow at any moment to resume talks and sign a mutually acceptable deal.

The gulf between the two sides is vast. Russia said it was prepared to charge Ukraine $250 per 1,000 cubic metres this year before talks collapsed and now wants Kiev to pay $418. Mr. Dubyna said that price could tip Ukraine into a humanitarian crisis.

Mr. Dubyna also said that even if Ukraine agreed to pay $250 instead of the current $179.5, it would ask Moscow to raise gas transit fees it pays to Ukraine by 40 per cent. Moscow says transit fees cannot be revised before 2010.

Naftogaz also said Moscow could choose to return to the old practice of paying for gas transit to Europe with gas instead of cash, which Mr. Medvedev described as “beyond commercial logic.”

European Union customers pay about $500 per 1,000 cubic metres of Russian gas, though that price is set to drop in line with the falling price of crude.

In Sofia, Bulgargaz CEO Dimitar Gogov said supply levels had not fallen below a critical level but further reductions could force the company to introduce restrictions for customers.

“The pipeline pressure has dropped and we are getting smaller deliveries as of Saturday morning,” Mr. Gotov told Reuters.

Enbridge Energy to pay state $1.1 million for waterways violations during pipeline construction

COMMENT: Keep this in mind when Enbridge promises a standard for environmental performance with its proposed Northern Gateway Pipeline project. Gateway is two pipelines connecting the tar sands to markets on the Pacific Ocean. In BC, they would cross dozens of rivers and hundreds of smaller streams, much of them salmon habitat. And it would trigger frequent large oil tanker traffic on BC's coast. The BC government is on side with promises to help companies, including Enbridge, to develop an "energy corridor" along the pipeline route. The risks are predictable, the impacts will be tragic and disastrous. This headline from Wisconsin could be foreshadowing, or just a warning. It's a choice we get to make issue of in 2009, an election year in British Columbia.

Associated Press
TwinCities.com (Minneapolis-St.Paul, WI)
January 2, 2009

It's one of state's largest settlements in a waterways case

The company that built a 321-mile, $2 billion oil pipeline across Wisconsin has agreed to pay $1.1 million for environmental violations, Attorney General J.B. Van Hollen said Friday.

Houston-based Enbridge Energy Co. will pay the money to settle a lawsuit accusing it of violating state permits designed to protect water quality during work in and around wetlands, rivers and streams, Van Hollen said.

The settlement is one of the largest for a wetlands and waterways case in Wisconsin, said Dave Siebert, director of the state Department of Natural Resources' Office of Energy.

"Enbridge agreed to high standards, and the state held them accountable to that," he said. "It demonstrates we take these wetlands and waterways laws seriously."

No wildlife or drinking water was damaged by the violations, Siebert said.

The violations happened in 2007 and 2008 during the pipeline's construction between Superior and Delavan, authorities said. The pipeline is 42 inches in diameter and designed to carry 400,000 barrels of crude oil each day.

It carries crude oil from Canada to a refinery near Chicago.

Denise Hamsher, an Enbridge spokeswoman, said some of the violations involved erosion controls that did not hold up during rains, causing streams to get polluted with mud. The company also was accused of allowing a construction vehicle to cross a stream when it should have used a bridge, she said.

The company was initially accused of 545 violations and settled 115, Hamsher said.

"We agreed it was just better to put this behind us even if the amount was significant," she said. "What is important is how we left that right-of-way after construction. It is restored. After a year or two, there will be very little evidence there was a construction project, with the exception of some wooded areas."