blog2009

Alaskan oversees gas line coordination for Obama administration

COMMENT: Ms Pearce understates the risk to the Alaska gas pipeline ever getting built.

There are 35 trillion cubic feet of proved gas on Alaska's north slope, and perhaps another 100 tcf waiting to be discovered and proved up. At 6 bcf per day capacity of the proposed pipeline, that represents 60 or more years utilization of the pipeline. You could even add in a guesstimated 85 tcf of gas hydrates.

But perhaps five or even ten times that much gas is being proved up now in gas shales in Canada and the Lower 48. These fields are already connected to pipelines or are a lot less than 1700 miles from from existing infrastructure. And LNG, which this article argues will come to North America at a price which can challenge domestic production, further undermines the economic viability of a $30 billion pipeline from Alaska.

No, this pipeline is a long way from realization. It'll still be all talk in 2018. But the lobbying pressure for Canadian and US governments to underwrite its costs with the biggest subsidies since, well, since the bailout gifts to US banks and auto manufacturers, will be intense.

By ERIKA BOLSTAD
Anchorage Daily News
June 28th, 2009

Drue Pearce: "People want to get to work on this project."

WASHINGTON -- Beyond its $30 billion cost, there are thousands of steps on the path to the proposed pipeline that will take North Slope natural gas 1,700 miles through Alaska and Canada.

There are market forces, state and national politics and a host of environmental and regulatory hurdles -- some 22 federal agencies in the United States alone must sign off on an environmental impact statement before the project can move forward.

One small federal agency, the Office of the Federal Coordinator, is overseeing the effort. The office, headed by Drue Pearce, an Alaskan who is based in Washington, D.C., has nine employees.

Pearce, a former Alaska Senate president, served from 2001 to 2006 as the senior adviser to the Secretary of the Interior for Alaska Affairs until she was appointed as federal coordinator.

The pipeline, considered a national priority by both Congress and the Obama administration, picked up momentum this month when Exxon Mobil Corp. announced it would join TransCanada Corp. to compete with the Denali gas line project proposed by BP and Conoco Phillips. TransCanada has the backing of Alaska Gov. Sarah Palin's administration, which pushed through the Alaska Gasline Inducement Act in 2007 that made the company eligible to receive up to $500 million from the state for up-front costs.

Next year, the two competing projects will hold open seasons, where they will lay out their shipping rates and seek gas producers to commit to using their pipe. The two companies would need those commitments during the open season to land approval from regulators and the money needed for construction.

Pearce and her deputy, Thomas Barrett, sat down last week to talk about what they're doing and what comes next:

Q. What's the scope of your office?

A. Our primary mission for the Office of the Federal Coordinator is to expedite construction of the gas pipeline that will commercialize North Slope gas and bring it to the Lower 48 domestic markets. That's our charge from Congress.

Underneath that we have a number of different directive things to do. We're the first line of communication with Congress about the project; we oversee the other federal agencies, make sure they stay on their timelines; we will work with the Federal Energy Regulatory Commission to make sure that they can meet their 18-month deadline that's laid out in law for their environmental impact statement, by ensuring the other agencies provide information that they need to feed into that EIS in a timely manner. It's to expedite making the project happen.

Q. How does it complicate it, having two separate proposals?

A. It's not so much at this point that it complicates it. It means that FERC will have additional work to do as they deal with not one but two separate environmental impact statements. At some point, there will be duplicative work that will cost the applicants a lot of money, and there will be duplicative processing that the agencies will have to do, and that's inefficient. It's doing twice the amount of work, frankly.

Q. There seems to be some momentum gathering. What are you doing to capitalize on that -- is there something you can do or is it something that's just going to take its own course?

A. We're all marching in some ways to the timelines of the two applicants. Having said that, however, there's a lot going on behind the scenes as they put together their cost estimates that will be the basis for their tariff proposals in the open seasons. And both entities plan to go to open season in 2010. So there's a huge amount of design and cost-estimating work that's going on, and a lot of interaction with the different agencies -- and with us -- as they move forward toward those open seasons. At the same time, both applicants are planning to begin their open houses, the first meetings where they'll go out to the public and describe the project in great detail to stakeholders.

Q. Who are the stakeholders?

A. The environmental community, all of Alaskans are stakeholders, the government-to-government responsibility we have with the tribes in Alaska. The municipalities up and down the route that will be affected.

Q. You went to Ottawa recently. What kind of talks did you have with the Canadian government, and how difficult is that part of it?

A. It's been easy to work with Canadians. Certainly they know pipelines, they know northern pipelines. They have processes that are laid out and well understood by the applicant companies, so they will proceed apace. They've said publicly that they will strive to meet the deadlines that are laid out in our legislation by Congress, so that permitting on the Canadian side will not hold up the ability to get a pipeline built.

Having said all of that, the official position of Canada is that they'd like to see the Mackenzie line (a Canadian competitor) go first. And we understand that, accept that and believe that there's room for both pipelines.

Q. What are you seeing in Washington in terms of political will for this project?

A. There's a lot of support for the project both in the administration, as well as in Congress, both the House and the Senate and, frankly, both Republicans and Democrats. It's a project that clearly had a lot of support in 2004 when the enabling legislation was passed, and in 2006 when I was nominated and confirmed. And the project itself has a great deal of interest. We get calls often from legislative offices saying, "Is there something we can do to help?" In the Senate energy bill, there are sections about the pipeline. Frankly, the ideas for those all came from members on the Hill; they weren't things that we put forward. We're gratified that there's bipartisan support.

Q. Is the support in the administration talk, or is it actual support?

A. Oh, no, I think it's strong support. I'll give you an example. Interior Secretary Ken Salazar, after his confirmation, the pipeline was one of the first things he asked to be briefed about. And we've seen that in a number of agencies. People want to get to work on this project. Everybody supports it; it's a great project, it's huge, lots of opportunities for lots of people to be involved.

You see analysts saying, "The money's not there, the prices aren't in the right place for a project of this magnitude, there are shale deposits looking very promising in the Lower 48."

The beauty of commercializing our gas is it's going to tie into a system of pipelines that's already in place. Conventional natural gas production in western Canada is declining. The pipes are already there. Our gas will replace the gas that's in decline, coming into upper Midwestern markets that neither the shale gas nor LNG, frankly, are coming to on a massive scale. So we have almost a ready-made market. People are dependent on there being gas coming through those lines and nobody envisions that they will be taken out of service. Both companies have said, looking at the early modeling they've done, they believe they can deliver gas into market at an economic tariff.

Q. What does it do to have a company like Exxon, which has a lot of cash, come to the table?

A. It never hurts to bring cash to the table. I understand that the deal that they struck with TransCanada includes some additional funding into the project, which is great. They bring a great reputation for their technical capabilities, and they certainly know how to deliver massive projects on time and on budget, around the world in some extreme conditions. But the best part about Exxon coming into the project is that we now have all of the major North Slope producers actually party to one or the other of the two projects, as opposed to just being on the sidelines, watching. That tells us that there is a real momentum, that this is the window, this is the time to make this project happen.

Q. What is the timeline?

A. First gas in 2018 is the most optimistic. Both Denali and TransCanada's timelines right now show first gas in 2018, if they stay on schedule and if nothing went south. It is optimistic. But we build pipelines in North America all the time. The technical side is not what will stop this project.

Q. What would? Politics?

A. The cost. The Legislature, the state politics could stop the project. Canadian politics could stop the project. And frankly, national politics could. But I don't see, at this point, those things happening, because there is support at every level and I think people are going to step up to the plate at every level. And it's going to take a lift at the state and Canada and here. We have to seek the problems and try to solve them ahead of time.

ebolstad@adn.com

The Environmental Risks of Arctic Shipping

COMMENT: Suggestions made here that the Arctic should be managed like the Antarctic, as a protected area, off-limits to development, have fallen on deaf ears. I suppose there are still many people who don't read www.sqwalk.com on a regular basis. Or ever. Alas.

Since Stephen Harper came out swinging to put Canadian gunboats in the Northwest Passage a few years ago we've offered the protective status scenario as a more benign alternative to national claim-staking and wanton resource exploitation.

Instead, oil and gas producers, and national governments, are all viewing a warming Arctic as Mother Nature's invitation to have their way with her. The Arctic Council, which produced this shipping report, appears to exist to figure out how nations and corporations can have their shipping, mining, drilling and territorial cakes while respecting indigenous peoples and the environment.

It's tragic in at least two ways - in what it says about human incapacity to act beyond greed and self-interest, and in the spectre of despoilation of this precious and vulnerable environment.

The Marine Assessment Report is available here (27 mb)

The Arctic Council website is at www.arctic-council.org.

By Stefan Milkowski
New York Times
June 29, 2009

Whales in the Bering Strait between Alaska and Russia could be disturbed by an expected increase in shipping.

As the Arctic warms, an expected increase in shipping threatens to introduce invasive species, harm existing marine wildlife and lead to damaging oil spills, according to a recent report from the Arctic Council, an intergovernmental forum of Arctic nations.

Seabirds and polar bear and seal pups are particularly sensitive to oil and can quickly die of hypothermia if it gets into their feathers or fur, according to the report. Whales, as well as walruses and seals, can have a harder time communicating, foraging and avoiding prey in noisy waters.

“Whether it is the release of substances through emissions to air or discharges to water, accidental release of oil or hazardous cargo, disturbances of wildlife through sound, sight, collisions or the introduction of invasive alien species, the Arctic marine environment is especially vulnerable to potential impacts from marine activity,” the report states.

As the climate changes, reductions in sea ice are likely to lengthen the shipping season, putting migrating animals into more frequent contact with ships. Bowhead and beluga whales share a narrow corridor with ships in the Bering Strait between Alaska and Russia and could be disturbed.

There is also greater risk of introducing invasive species through ballast water, cargo, or on ships’ hulls. “Introduction of rodent species to islands harboring nesting seabirds, as evidenced in the Aleutian Islands, can be devastating,” the report states. Shipping between the North Pacific and the North Atlantic is of particular concern, because it could transport species between areas with similar environmental conditions.

The Arctic Marine Shipping Assessment, as the study is called, was put together by Arctic Council nations, including the United States, and serves as a formal policy document, according to Lawson Brigham, a University of Alaska Fairbanks professor and retired Coast Guard captain, who chaired the study and presented it last week in Fairbanks.

It recommends that Arctic nations reduce emissions of greenhouse gases and other air pollutants from ships, work to lower the risk of oil spills, and consider setting aside special areas of the Arctic Ocean for environmental protection, among other things.

Mr. Brigham described an Arctic bustling with activity, where ice-breaking ships with special hulls sail stern-first through heavy ice and a shipping route across the top of the Earth is not out of the question.

“It’s not a question of whether the maritime industry is coming to the Arctic,” he said. It has, he added, already come.

Supreme Court rules against Chevron

By GREG STOHR
Bloomberg News
June 29, 2009

The U.S. Supreme Court rejected an appeal by Chevron Corp., the second-largest U.S. energy company, in a fight with the Ecuadorean government over potentially tens of billions of dollars in liability for environmental damage.

The justices, without comment, today let stand a lower court ruling that blocked Chevron’s effort to force arbitration with state-owned PetroEcuador.

Chevron contended that a 1965 joint operating agreement requires PetroEcuador to pay a share of any award in a pending environmental lawsuit against the U.S. company. A court- appointed expert has recommended that Chevron be forced to pay more than $27 billion. Chevron has denied wrongdoing.

PetroEcuador and the Ecuadorean government contended in court papers that the state-owned company isn’t bound by the 1965 accord, signed by two private companies including one that is now part of Chevron. PetroEcuador became a partner in the operations in the 1970s and took them over in 1992.

Chevron is based in San Ramon, California.

The case is ChevronTexaco Corporation v. Republic of Ecuador, 08-1123.

Oil sands to take hit from U.S. bill

Shawn McCarthy and Nathan VanderKlippe
Globe and Mail
Tuesday, Jun. 30, 2009

Producers and their U.S. refiners face sharply higher costs

Alberta's oil sands producers and their U.S. refiners face sharply higher costs to reduce greenhouse gas emissions under legislation approved by the U.S. House of Representatives and championed by U.S. President Barack Obama.

The American Clean Energy and Security Act, if passed by the U.S. Senate, could also result in new tariffs on Canadian exporters of energy-intensive goods from cement to chemicals if Washington deems Ottawa's climate-change regulations to be lacking.

Under the cap-and-trade plan, U.S. refiners will have to buy permits for each tonne of carbon dioxide that they send into the air. While utilities will be provided free allocation of those permits to reduce the impact on power users, the oil industry will have to purchase virtually all of its permits.

Such a system would heavily penalize oil companies that ship oil sands bitumen to the United States because refining the raw bitumen into petroleum products such as gasoline and heating oil is more energy-intensive and higher in emissions than is the processing of conventional oil. U.S. refiners processing the heavier oil sands crude will face higher permit costs, cutting into profit margins for producers and refiners.

Both producers and refiners would likely share that cost. A resulting drop in demand would in turn drive down the price of bitumen.

Many U.S. refiners have been moving to retool their refineries in recent years to accommodate the heavy crude from Alberta's oil sands.

But the proposed legislation could put all of that at risk.

“Any climate legislation that we're looking at is going to make refiners think twice about building a dependence on the heavier crudes that are more energy intensive to upgrade and refine,” said Susan Casey-Leftowitz, a lawyer with the Washington-based Natural Resources Defense Council.

The U.S. climate-change policy is clearly aimed at encouraging a shift from oil to electricity in the transportation sector.

“The argument for expanding the tar sands is that there would be expanding demand for that oil in the United States,” Ms. Casey-Leftowitz said. “But this bill signals there is not going to be that expanding demand.”

Critics argue it will be decades before the United States can switch to electric-powered cars and mass transit. In the meantime, the legislation will merely make gasoline more expensive and the United States more dependent on imported petroleum products, said Kyle Isakower, of the American Petroleum Institute.

Still, the oil industry did dodge a major bullet when the House dropped plans to include a low-carbon fuel standard, similar to one adopted in California, that would impose significant costs on oil sands producers. Canada's petroleum industry has carefully monitored the bill's progression and lobbied U.S. legislators in a bid to convince them that a rule that damages Canadian oil production also damages U.S. energy security.

“We're delighted that low-carbon fuel standards are not in the Waxman-Markey bill,” said Tom Huffaker, vice-president of environment and policy at the Canadian Association of Petroleum Producers. “But we're resisting dancing on the table because we know this is a work in progress.”

The banishment of those standards from the Waxman-Markey legislation should lessen the chances that similar legislation will reappear, either in other states or through the U.S. Environmental Protection Agency, Mr. Huffaker said.

Many states, however, have signalled their intention to follows California's lead once it has worked out the complexities of the regulations.

The industry also takes some comfort from Mr. Obama, who warned against border-tariff measures in the bill.

“The last thing we need is anything that could turn into protectionism masking as environmentalism,” Mr. Huffaker said. “We'd be delighted if the President prevails and that language comes entirely out,” when the Senate deals with it.

However, the Waxman-Markey bill became even more protectionist after it was amended to ensure its passage; the amendments make it easier for Washington to impose tariffs.

Canadian concerns “have intensified,” said Elisabeth DeMarco, a Toronto-based lawyer with MacLeod Dixon LLP.

The House bill seeks to prevent “carbon leakage” – meaning the shift of emissions-heavy industries and jobs out of the U.S. to avoid the new regulatory burden.

“The amendments heighten the carbon leakage provisions, which are really trade-protection provisions dressed up as carbon leakage,” Ms. DeMarco said.

Environment Minister Jim Prentice has urged the Americans to ensure that the country's environmental legislation does not represent disguised protectionism, though Ottawa itself has worried about energy-intensive industries moving offshore if countries don't adopt comparable climate change regulations.

The American Petroleum Institute has warned that the equivalent of one in six U.S. refineries could close by 2020 as a result of the new rules.

That could lead to greater imports – a situation that would likely benefit Canadian refiners and upgraders.

But Columba Yeung, the chairman and founder of Calgary-based Value Creation Inc., expects Canada to mirror U.S. policy, ultimately levelling the playing field between the two countries. Value Creation is working to build a facility to upgrade oil sands bitumen into a lighter crude capable of being refined into products like gasoline and jet fuel.

Mr. Yeung is, however, hopeful that stiffer carbon dioxide policy will boost companies like his, which has developed a technology that produces 20 per cent less greenhouse gases than current processes.

House Passes Historic Waxman-Markey Clean Energy Bill

News Release
House Select Committee on Energy Independence and Global Warming
June 26, 2009

Sen. Henry Waxman (left) and Sen. Edward Markey (at the podium) announce the passage of the Energy and Global Warming bill

WASHINGTON, DC — Today the House of Representatives passed the landmark American Clean Energy and Security Act , sponsored by Rep. Henry A. Waxman, Chairman of the House Energy and Commerce Committee, and Rep. Edward J. Markey, Chairman of the House Select Committee on Energy Independence and Global Warming.

This landmark bill will revitalize our economy by creating millions of new jobs, increase our national security by reducing our dependence on foreign oil, and preserve our planet by reducing the pollution that causes global warming.

“Today we have taken decisive and historic action to promote America’s energy security and to create millions of clean energy jobs that will drive our economic recovery and long-term growth,” said Chairman Waxman. “After more than three decades of being held hostage to the influence of foreign energy suppliers, this legislation at long last begins to break our addiction to imported foreign oil and put us on a path to true energy security.”

“Today the House has passed the most important energy and environment bill in our nation’s history,” said Chairman Markey. “Scientists say that global warming is a dangerous man-made problem. Today we are saying clean energy will be the American-made solution. This legislation will create jobs by the millions, save money by the billions and unleash investment in clean energy by the trillions.”

The bill contains the following key provisions:

* Requires electric utilities to meet 20% of their electricity demand through renewable energy sources and energy efficiency by 2020.

* Invests $190 billion in new clean energy technologies and energy efficiency, including energy efficiency and renewable energy ($90 billion in new investments by 2025), carbon capture and sequestration ($60 billion), electric and other advanced technology vehicles ($20 billion), and basic scientific research and development ($20 billion).

* Mandates new energy-saving standards for buildings, appliances, and industry.

* Reduces carbon emissions from major U.S. sources by 17% by 2020 and over 80% by 2050 compared to 2005 levels. Complementary measures in the legislation, such as investments in preventing tropical deforestation, will achieve significant additional reductions in carbon emissions.

* Protects consumers from energy price increases. According to recent analyses from the Congressional Budget Office and the Environmental Protection Agency, the legislation will cost each household less than 50 cents per day in 2020 (not including energy efficiency savings).

For more information on the Waxman Markey legislation, including a resource packet, please CLICK HERE.

Please visit the Committee on Energy and Commerce's website to access the full text of the bill along with additional materials.

DuPont’s new game

Lawrence Solomon
National Post
27 June 2009

In the 1800s, DuPont’s first century as an industrial concern, it cashed in on the money to be made in explosives. In its second century, the 1900s, DuPont morphed into a money machine in chemistry and energy. In this, its third century, DuPont sees green in a new cash cow, one it projects will take it to unprecedented profitability — sustainable development.

This corporate strategy, explains chairman Chad Holliday, is both principled and fundamental: “DuPont’s sustainability commitments aren’t just good for business — they are our business.”

DuPont’s commitment to sustainability began in 1997 when it decided to abandon its membership in The Global Climate Coalition, a high-powered lobby created by the oil, gas, coal, automobile and chemical companies to counter fears of global warming. Although the coalition had been created in 1989, soon after the first meeting of the UN’s Intergovernmental Panel on Climate Change, the coalition was losing the PR battle. DuPont switched sides and began to lobby for government to stop global warming.

In doing so, DuPont took a page out of its own playbook. In 1980, DuPont had spearheaded the creation of the Alliance for Responsible CFC Policy, a lobby group that would successfully fight off regulation of CFCs, a chemical that many companies manufactured. Then in 1986, with patented alternatives to CFCs in hand, DuPont had a change of heart.

In a move its Alliance partners considered a betrayal, DuPont switched sides, called CFCs a danger to the planet, and lobbied the Reagan Administration to ban CFCs. So successful was DuPont that Ronald Reagan became the world’s first head of state to personally push his government to ban CFCs. DuPont’s efforts culminated in the Montreal Protocol, a treaty Reagan described as “a monumental achievement.”

Others were ambivalent about what had transpired. As put by Mostafa Tolba, the Executive Director of the UN Environment Programme, “The difficulties in negotiating the Montreal Protocol had nothing whatever to do with whether the environment was damaged or not. It was all who was going to gain an edge over who; whether DuPont would have an advantage over the European companies or not.”

The advantage went to DuPont, which soon controlled the rich replacement market for CFCs. Du Pont’s Freon Division Director, Joseph Glass, laid out DuPont’s coup succinctly: “When you have $3-billion of CFCs sold worldwide and 70% of that is about to be regulated out of existence, there is a tremendous market potential.”

DuPont is now keen to duplicate its “monumental achievement” with other regulatory coups in the richest regulatory environment of all — that of global warming. To this end, it helped found the United States Climate Action Partnership (USCAP), a coalition of blue-chip business and environmental groups, to lobby the U.S. government for legislation that will suit their agenda. From DuPont’s point of view, USCAP has been another monumental achievement. Yesterday, the U.S. House of Representatives passed a global warming bill — largely a USCAP product — that represents the largest transfer of wealth from U.S. consumers to corporate interests in history. As DuPont’s Holliday told the committee with evident satisfaction, “we are pleased to see that many of the ideas we have developed are reflected in this bill.”

As well he should be. The mammoth bill’s cap-and-trade system not only gives DuPont and other major emitters a windfall in free emission allowances, but also boosts a host of the technologies that DuPont specializes in. As a cherry on top, DuPont will not only receive subsidies for upgrades and other investments it would have made regardless, it could even receive subsidies for such investments made before the bill was passed.

The bill, though endorsed by environmental groups happy with the grand bargain being made, is not without controversy. Greenpeace opposes the bill on numerous grounds, not least because of its corporate giveaways and because it would spur a new generation of coal and nuclear power plants.
Other environmentalists deplore its boost to biofuels, and the effect that carbon offsets can have on the Third World’s environment. But though the bill’s environmental benefits are in doubt, there are no doubts as to its effect on DuPont’s bottom line.

After it helped found USCAP two years ago, DuPont predicted that by 2015 it would be able to grow its annual greenhouse-gas related revenues by at least $2-billion a year, and that its sales of renewable materials that displace fossil fuels would double to $8-billion. If the bill does indeed become law, DuPont’s estimates will look awfully sustainable. As will those of the legions of other corporations whose lobbying has made climate change the world’s largest industry with the world’s largest payoffs for those skilled at gaming the system.

A public tarring in Saudi Canada

Andrew Nikiforuk
Toronto Star
June 28, 2009

A hydraulic shovel digs into the Alberta oil sands north of Fort McMurray June 19, 2003. Some MPs seem more interested in serving the oil industry than the local people who have been affected by pollution. (STAR FILE PHOTO)

Earlier this month, Dr. John O'Connor, a dedicated family physician, and I got badly tarred by another one of Ottawa's disturbing political gangs.

The ambush happened June 11 before the House standing committee on environment and sustainable development, which is studying oil sands and water. We testified not as experts but as concerned citizens. We didn't ask to appear; the committee invited us.

As such, we naively assumed that we were doing our duty as Canadians to speak to the House about the impact of world's largest energy project on water: 130 square kilometres of waste water, acid rain, fish deformities, rare cancers and city-scale withdrawals of freshwater.

But both O'Connor and I made a terrible mistake. We assumed that all committee members would be interested in rigorous dialogue regardless of political affiliation. But that's not what Ottawa delivered. Instead, several Tory MPs subjected us to abusive Republican tactics geared to dismiss, discredit and dishonour.

For the record, O'Connor intimately knows a lot about the health of aboriginals living downstream from the oil sands. From 2001 to 2008, the family physician served the 1,200-member community of Fort Chipewyan where he is dearly beloved. In 2006, he raised some questions about the increasing number of rare blood, lymphoma and bile-duct cancers appearing in his patients.

Even since then, Health Canada has threatened to take away O'Connor's medical licence by accusing him of causing "undue alarm" in the community. The agency has also charged him with hiding medical information and overbilling his patients – allegations all disproved by Alberta's College of Physicians and Surgeons.

O'Connor, a modest and graceful man who upholds the Hippocratic oath, quietly told the committee his incredible story of political persecution. He noted that Health Canada still refuses to withdraw the charge of causing "undue alarm."

As a business and environmental reporter, I've written extensively about the oil and gas industry for two decades. My book on the tar sands, winner of the City of Calgary's W.O. Mitchell Award, argues that the project has slowly transformed the nation into a dysfunctional petro-state that governs mostly for hydrocarbons.

By video conference in Calgary, I highlighted the creation of an acid rain problem in Western Canada; the questionable recycling of waste water (it concentrates pollutants such as ammonia and chloride) and the unprecedented nature of O'Connor's persecution. I referenced several federal studies and reports.

The MPs representing the Liberal, NDP and Bloc Québécois asked many civil questions but showed an uneven grasp of tar sands operations. But the four Conservative MPs on the committee, Peter Braid, Mark Warawa, Blaine Calkins and Jeff Watson, spent most of their time attacking our credibility. They didn't want to talk about water.

Like members of some strange Communist gang, they assumed that Dr. O'Connor was a natural born liar. They insinuated that he had no credibility because he wasn't an industry cancer professional or a highly degreed expert. What, after all, would a family physician know about rare bile-duct cancers, even though his father died of one? They suggested that a 30 per cent higher-than-expected rate for cancers in the community must be a lifestyle issue. In other words, the people living downstream of the tar sands had simply chosen to make themselves cancerous.

Then they questioned O'Connor's patriotism. In May, both O'Connor and I accepted an invitation by Greenpeace to speak in Norway. O'Connor courageously told Norwegians, public investors in the tar sands via their state-owned company Statoilhydro, that unfettered tar-sands development was creating a real public health problem in Fort Chipewyan. The Tories ever so slyly accused O'Connor of taking part in unCanadian activities.

Then came my turn. As a veteran reporter, I didn't expect kid glove treatment but thought the Tories might want to know more about acid rain or the unsustainability of groundwater withdrawals. But they expressed no interest in the conservation of trees and water. They simply belittled me for writing an opinion piece about how oil hinders democracy. They couldn't even hear the irony in their own frat-boy mockery.

At the end of the session, both O'Connor and I reflected on the hearing in disbelief. In Norway, we civilly engaged investors, politicians and environmental groups. We had the right to express differing opinions. We enjoyed the great freedom of association. Yet in Canada, several so-called parliamentarians openly belittled these basic freedoms.

To O'Connor, the Tory MPs "totally had no interest in any of the concerns of the people of Fort Chipewyan." Incredibly, many of the parliamentarians choose to represent the resource instead of ordinary citizens. Not one took up the call for a proper public health study.

The political tarring, just normal conduct in Ottawa, left O'Connor and I with one disturbing question: Is this the parliamentary future for Saudi Canada, the world's largest supplier of oil to the United States?

Andrew Nikiforuk is the author of Tar Sands: Dirty Oil and the Future of a Continent.

Energy firms get $3B boost

COMMENT: This is the fifth time in two years that Ed Stelmach's government has unwound Fair Deal recommendations in response to unrelenting whining and pressure from the petroleum industry. And listen to them in this article complaining that it isn't enough, they need more, more, more.

By Dan Healing
Calgary Herald
June 26, 2009

Royalty credits welcomed as temporary relief

CALGARY - Oil and gas industry players welcomed up to $3 billion in Alberta royalty credits under an extended drilling incentive program unveiled Thursday, but continued to demand long-term answers to the province’s fiscal competitiveness woes.

The one-year program announced three months ago was estimated to cost the treasury $1.5 billion in foregone royalties if fully utilized, but the extension to March 2011 will double the cost, Alberta Energy Minister Mel Knight said.

“For that investment, what we get is jobs,” he said in a conference call. “We get jobs for Albertans, we generate some wealth in the province of Alberta. We will generate additional royalty revenue and production over 10, 20, maybe 30 years.”

The plan, the fifth time the royalty regime has been adjusted, was welcomed for its temporary relief, but energy executives said its impact will be muted by low natural gas prices and continued to call for basic changes to the underlying royalty regime.

John Dielwart, chief executive of ARC Energy Trust, listened to the conference call and said he was disappointed with Knight’s response when asked where Alberta should rank in competitiveness with other jurisdictions.

“He could have said, ‘Most competitive,’ but he didn’t and that causes me great concern,” Dielwart said.

“What the Alberta government is saying is, ‘We’re committed to doing a competitiveness study, but we’re not committed to being competitive.’ ”

ARC has assets in all four western provinces and Dielwart said the extension will likely mean more investment in Alberta from his company.

But he added the new price-sensitive Alberta royalty regime that started Jan. 1 makes the province less attractive than B.C., Saskatchewan and Manitoba, especially after the drilling incentives expire and especially if prices rise.

Brian McLachlan, president and chief executive of Yoho Resources Inc., a Calgary company with natural gas production in Alberta and B.C., said the incentives make the complex royalty regime even more difficult to figure out.

“As usual, we don’t have a lot of detail yet, but we don’t have details yet on the first changes they made in the royalty,” he said.

“It will help marginally, but they better hurry up and get their long-term strategy in place because investors don’t invest for one-year time periods. . . . the uncertainty chases away investment.”

The Canadian Association of Oilwell Drilling Contractors had intended to release an updated 2009 western Canadian drilling forecast Thursday that would show a decline from the previous revised forecast of 11,176, a decade low for activity.

But the association held off after getting a call from the government to advise of the announcement.

President Don Herring said it’s hard to tell if the extension will have much impact on this year’s drilling plans.

“There will probably be some additional drilling,” he said, adding a more robust recovery can’t happen until natural gas prices rise.

Neither Duane Mather, chief executive of drilling company Nabors Canada, nor Roger Soucy, president of the Petroleum Services Association of Canada, thought the changes would result in many more drilling.

“The first program didn’t have much impact and neither will this one,” said Mather.

The programs give a drilling royalty credit for new qualifying wells of $200 per metre on a sliding scale based on the company’s production levels from 2008 and offers a maximum five per cent royalty rate for the first year of production from new oil or gas wells.

Knight said the extension won’t likely result in an immediate rebound in land sale revenues for Alberta, a key indicator of future drilling plans. After a $5.8-million sale on Wednesday, the province has taken in $98.3 million in conventional oil and gas bonuses this year, about a third of the $284 million collected in the first half of 2008.

Knight said he couldn’t say when higher revenues promised when the new royalty regime was proposed 20 months ago will materialize, noting that depends on many variables, including energy prices.

But he said the system that takes more as prices rise and less when they fall is working.

“When is it going to happen? It’s happening now,” he said. “The flexibility of the system is working.”

In the recent Alberta budget forecast, energy revenues are expected to fall from $12.2 billion last year to $5.9 billion this year and $7.3 billion in fiscal 2010-11.

NDP MLA Rachel Notley criticized the extension, calling it further erosion of a royalty framework that is already selling Albertans short.

“Minister Knight has just tacked $1.5 billion onto next year’s deficit, and he can’t justify it,” Notley said in a news release. “This government continues to dole out cash to the oil and gas industry, but it’s done nothing to help out-of-work Albertans get back on their feet.”

Gary Leach, executive director of the Small Explorers and Producers Association of Canada, and Dave Collyer, president of the Canadian Association of Petroleum Producers, said the extension is good news.

“It’s the appropriate response to very difficult near-term circumstances,” said Collyer. “It gives the industry certainty for another drilling season in terms of the royalty that will apply and I think the other positive part is the commitment of the government to have a broader look at competitiveness.”

The province’s review of overall competitiveness is expected to be completed by this fall, Knight said. He added that a Fraser Institute report Wednesday ranking Alberta competitiveness behind Manitoba, Saskatchewan and British Columbia is out of date.

In a provincial draft plan revealed in February, the competitiveness review was to be conducted by a panel made up of government officials and representatives of SEPAC and CAPP, but it emerged Thursday that the two industry groups are no longer being given a direct role.

Instead, they will advise government officials who will come up with recommendations.

Neither Leach nor Collyer said they object to the change.

“I don’t see it as significant,” said Leach. “We’re interested in the results of the review as opposed to the actual path that we walk down to get there.”

dhealing@theherald.canwest.com

© Copyright (c) The Calgary Herald

Fraser Institute: Global Petroleum Survey 2009

COMMENT: Big deal. Another report from the Fraser Institute doing what it can to undermine the legitimacy of elected governments which are involved in anything that profit-seeking corporations sniff out - education, health, petroleum production and processing.

It presents its findings with the FI's usual implication that what's best for petroleum industry investment is probably good for citizens and the environment too.

As for the quality or utility of what's here, the entire weight of the report will find a home with bottom-feeding policy makers - those who would accomodate industry by reducing royalties and taxes, removing regulations that protect the environment, workers, and communities.

Arkansas and Alabama rank first and second. British Columbia is at 71st place. Alberta is ranked at 92, mainly because of the "Fair Deal" royalty increases of a couple of years ago.

It can't be a coincidence that the same day the Fraser Institute released the survey, Alberta announced an extension of a reduced royalty program for natural gas. It's the fifth time in two years that Ed Stelmach's government has unwound Fair Deal recommendations in response to unrelenting whining and pressure from the petroleum industry.

If you see any elected officials waving this report around, vote the other way, fast.

What follows are Canadian and US news releases from the Fraser Institute, and news items from Calgary and Fairbanks. The report doesn't appear to have attracted media interest in the US. Its main function appears to be as an industry lobby tool to beat up on the Alberta and BC governments. And perhaps the federal government in Canada's north.

The complete report is available here.

Gerry Angevine
Fraser Institute
June 24, 2009

Manitoba now seen as best bet in Canada for oil and gas investment; Alberta continues to lose ground

CALGARY, AB—Manitoba has dethroned both Saskatchewan and Alberta as the most attractive Canadian province or territory for oil and gas investment, according to an international survey of petroleum executives and managers released today by independent research organization the Fraser Institute.

Saskatchewan, which was the top province in 2008, drops to the number two spot in Canada. But investors are most critical of Alberta, ranking the province as the least attractive among Canada provinces ranked for oil and gas investment. Aside from Manitoba and Saskatchewan, Alberta now also trails Nova Scotia, Ontario, Quebec, British Columbia, and Newfoundland and Labrador.

The results are contained in the Institute's Global Petroleum Survey 2009.

“The survey results clearly show the industry’s dissatisfaction with the Alberta government’s misguided policies. Punitive royalty rates, a lack of consultation, and a growing anti-energy bias are common complaints about the Stelmach government,” said Gerry Angevine, Fraser Institute senior economist and coordinator of the annual petroleum survey.

“Meanwhile, Manitoba has quietly encouraged oil and gas investment with low royalties and an easy to understand regulatory framework.”

While the survey shows a reordering among Canada’s provinces, it also shows Canada losing ground on a global scale.

Manitoba, the highest ranked province in 2009, is 21st internationally. Saskatchewan fell from 10th (of 81) in 2008 to 38th (of 143) worldwide. Nova Scotia ranked 54th, Ontario ranked 60th, Quebec 68th, British Columbia 71st, Newfoundland and Labrador 82nd, and Alberta 92nd.

Alberta’s poor showing puts the province behind China, the Philippines, and Brazil as an attractive place to invest in upstream oil and gas development.

Canada’s three territories also dropped sharply in this year’s survey. The Yukon fell to 105th (of 143) from 31st (of 81); the Northwest Territories dropped to 120th from 65th, and Nunavut is ranked 121st. Nunavut was not ranked in 2008.

“The main issue for the territories seems to be uncertainty around land claims issues and too many overlapping regulatory agencies,” Angevine said.

“You can see these issues reflected in the stalled MacKenzie Valley pipeline development in the Northwest Territories.”

The top 10 most attractive jurisdictions for investment in this year’s survey are: Arkansas, Alabama, Kansas, Austria, Mississippi, Nebraska, South Dakota, Texas, Oklahoma, and Indiana.

Jurisdictions receiving the highest number of negative comments are: Bolivia, Niger, Venezuela, Ecuador, Sudan, Russia, Bangladesh, Nigeria, Kazakhstan, and Ethiopia.

“Petroleum executives responding to the survey say they turn to different jurisdictions when confronted with high royalty fees and tax rates, inadequate infrastructure, price controls, and labor shortages,” Angevine said.

“They prefer to avoid jurisdictions with costly and time-consuming regulations. Other factors being equal, competitive tax and regulatory regimes can attract investment and generate substantial economic benefits. Policy makers should recognize that overly strident regulations and anti-energy sentiment can be costly in terms of lost revenue and jobs.”

The Global Petroleum Survey 2009 is designed to help measure and rank the investment climate of 143 oil and gas producing regions.

A total of 577 respondents completed the survey questionnaire this year, providing sufficient data to evaluate 143 jurisdictions. This is a substantial increase from the 2008 survey, in which 81 jurisdictions were rated, and the inaugural 2007 survey, in which 54 jurisdictions were rated.

The survey questionnaire sought the opinions of senior executives and managers on a range of issues including royalties and licensing agreements, taxation, the cost of regulatory compliance, trade and labour regulations, and political stability among others.

Media contact(s):
Gerry Angevine
gerry.angevine@fraserinstitute.org
(403) 216-7175 ext.224

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The Fraser Institute: Global Petroleum Industry Views Arkansas as Best Place in the World for Investment; Colorado Drops to 81st

Fraser Institute,
finance.yahoo.com
June 24, 2009

CALGARY, Alberta--(BUSINESS WIRE)--Arkansas is the new top dog for oil and gas investment, according to an international survey of petroleum executives and managers released today by independent research organization the Fraser Institute.

Arkansas, which was ranked third out of 81 jurisdictions in 2008, leapfrogged Alabama into the number one spot out of 143 jurisdictions ranked in the 2009 edition of the Fraser Institute’s Global Petroleum Survey 2009. The survey is available as a free PDF from the Fraser Institute web site at www.fraseramerica.org.

Along with Arkansas, U.S. states claimed nine of the top 10 spots in this year’s survey as follows: Alabama, Kansas, Mississippi, Nebraska, South Dakota, Texas, Oklahoma, and Indiana.

Austria, in fourth spot, is the only non-American jurisdiction to crack the top 10.

The Global Petroleum Survey 2009 is administered each year to petroleum executives to help measure and rank the barriers to investment of 143 oil and gas producing regions.

“The dominance of U.S. states as favorable jurisdictions for oil and gas development once again shows how the industry values stability and a clear and transparent regulatory environment,” said Gerry Angevine, Fraser Institute senior economist and coordinator of the annual petroleum survey.

But some states where the oil and gas industry has played a significant economic role are being viewed with increasing skepticism by the industry these days.

Colorado’s ranking has plummeted to 81st out of 143 jurisdictions and worst among all U.S. states included in the survey. In 2008 Colorado ranked 61st out 81 and in 2007, it was number one in the rankings.

“In recent years, Colorado legislators have introduced a swath of new environmental regulations for the petroleum industry. Now, the industry views Colorado as the worst state for investment and companies are looking to other areas,” Angevine said.

California and Alaska, which ranked 79th and 78th overall (second and third worst among U.S. states), have both joined Colorado in introducing extensive new environmental regulations. Alaska also raised oil production taxes last year.

“Investors prefer to avoid jurisdictions with high royalty rates and costly and time-consuming regulations. Other factors being equal, competitive tax and regulatory regimes can attract investment and generate substantial economic benefits,” Angevine said.

“Policy makers should recognize that overly strident regulations and anti-energy sentiment can be costly in terms of lost revenue and jobs.”

Globally, the Australian state of South Australia, the Netherlands-North Sea, and Namibia all ranked in the top 20, along with Austria and 16 U.S. jurisdictions.

Jurisdictions receiving the highest number of negative comments and generally viewed as the worst nations for oil and gas investment are: Bolivia, Niger, Venezuela, Ecuador, Sudan, Russia, Bangladesh, Nigeria, Kazakhstan, and Ethiopia.

A total of 577 respondents completed the survey questionnaire this year, providing sufficient data to evaluate 143 jurisdictions. This is a substantial increase from the 2008 survey, in which 81 jurisdictions were rated, and the inaugural 2007 survey, in which 54 jurisdictions were rated.

The survey questionnaire sought the opinions of senior executives and managers on a range of issues, including royalties and licensing agreements, taxation, the cost of regulatory compliance, trade and labor regulations, and political stability among others.

The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit www.fraseramerica.org

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Survey ranks Alberta last for energy investment

By Shaun Polczer, with files from Renata D'Aliesio And Dina O'Meara
Calgary Herald
June 25, 2009

Think-tank says Manitoba tops in Canada

Alberta has slipped to the back of the pack as least attractive province for oil and gas companies to invest, the Fraser Institute said Wednesday. Photograph by: David Boily/AFP/Getty Images

CALGARY - Alberta has slipped to the back of the pack as least attractive province for oil and gas companies to invest, the Fraser Institute said Wednesday.

In fact, Manitoba ranks ahead of Alberta, Saskatchewan and British Columbia, according to the results of the right-wing think-tank's annual Global Petroleum Survey.

Saskatchewan, which was the top province in 2008, drops to No. 2.Aside from Manitoba and Saskatchewan, Alberta now also trails Nova Scotia, Ontario, Quebec, British Columbia, and Newfoundland and Labrador.

Gerry Angevine, the institute's chief economist and study author, said the results show that the once vaunted "Alberta Advantage" is a distant memory when it comes to oil and gas.

"On the basis of what we've heard from respondents to the survey, Alberta has no advantage in terms of the attractiveness of investing in the upstream," he said.

Angevine credited the Alberta government's decision to unilaterally raise royalty rates over the protestations of industry along with the uncertainty created by subsequent revisions to the program for eroding investor confidence.

"They're finding out now that they're not competitive with other jurisdictions in Canada. The government needs to take a hard look at what its done, and the implications of that, and not continue to keep its head in the sand."

Alberta's poor showing puts the province behind China, the Philippines and Brazil as attractive investment destinations for oil and gas.

The survey sought the opinions of senior executives and managers on a range of issues including royalties and licensing agreements, taxation, regulatory compliance, trade and labour regulations and political stability.

Although it ranked highly in terms of geopolitical security, Alberta ranked 130 out of 143 jurisdictions for its fiscal terms. By contrast, Manitoba ranked 21st, ahead of Michigan, but behind Tunisia.

Steve VanSickle, Farborne Energy's president and CEO, said Manitoba has an "expeditious" attitude that encourages oil and gas development. Fairborne is the third-largest driller in the province behind Canadian Natural Resources.

"Relationships with oil and gas companies are viewed as a partnership," he said. "We are extremely pleased, both with the government's perspective and how good it is to get things done."

Gary Leach, the executive director of the Small Explorers and Producer's Association of Canada, said he isn't surprised by Alberta's fall from grace. "I think our own analysis has indicated for some time that Alberta has slipped down the rankings over the last few years. Our view is that a worthwhile goal for Alberta should be to become the number one destination for investment in North America. That should be our goal if we want a solid economic future in this province."

Nine of one of the top 10 most attractive jurisdictions for investment in this year's survey are in the United States: Arkansas, Alabama, Kansas, Mississippi, Nebraska, South Dakota, Texas, Oklahoma, and Indiana. Jurisdictions receiving the highest number of negative comments are Bolivia, Niger, Venezuela, Ecuador, Sudan, Russia, Bangladesh, Nigeria, Kazakhstan and Ethiopia.

But Alberta's politicians aren't ready to give up the field to its global and homegrown competitors.

Speaking in Calgary Wednesday, Premier Ed Stelmach said the government will offer new incentives to stem the flow of drilling dollars out of Alberta into neighbouring provinces like Saskatchewan and B. C. Government sources indicate Energy Minister Mel Knight will on Thursday extend temporary royalty breaks on natural gas drilling that were slated to end in March.

Stelmach suggested Wednesday that the incentives will improve Alberta's appeal to investors and producers.

"With the announcements that will be made towards the end of this week, that report quite frankly is going to be old news," the premier said.

He noted the energy department is doing a competitiveness review of conventional oil and gas, comparing Alberta's regulations, land practices and royalty scheme. Results of the joint government-industry are expected in the fall.

"The amount of energy we produce is still outstanding. We do have the world's second-largest reserves. We've done a lot of work on the environmental side," Stelmach said in response to the Fraser report.

Meanwhile, B. C. Energy Minister Blair Lekstrom was in Calgary Wednesday to promote what his province has to offer in terms of drilling services at an industry trade show sponsored by the province.

Lekstrom said his province has engaged in "friendly competition" with neighbouring provinces like Alberta to attract investment dollars when designing its various incentive and royalty schemes.

Prospects for rapid development of B. C.'s massive Horn River shale gas resources got a big boost last week after producers including ExxonMobil ponied up $176 million for drilling rights in the extreme northeast corner of the province. It was the largest land sale in any province this year, eclipsing Alberta's full-year tally of about $100 million for both conventional and oilsands rights.

"Our goal was to create an environment where the private sector wants to invest their capital. This capital is mobile, it can go anywhere in the world. We don't compete, and Alberta doesn't compete with British Columbia directly and we don't compete with Alberta directly, we all compete in a global environment and we learn from each other every day."

spolczer@theherald. nwest.com

© Copyright (c) The Calgary Herald

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Report critical of Alaska's relationship with oil industry

By Rena Delbridge
Fairbanks News Miner
Sunday, June 28, 2009

FAIRBANKS — Taxes, royalty rates and environmental regulations in Alaska make oil and gas companies reluctant to invest in exploration and production, according to the 2009 Global Petroleum Report.

The Fraser Institute, a Canadian think-tank, issued the third-annual study on June 24.

Although nine U.S. states ranked in the top 10 among international jurisdictions studied, Alaska did not. Instead, Alaska lodged in the 78th spot. Off-shore Alaska, which is subject to federal taxes and rules, ranked 72nd.

About 80 percent of the state’s income is derived from oil and gas.

Fraser Institute economist and a study author Gerry Angevine said the preponderance of U.S. states in the top 20 jurisdictions demonstrates how much the industry values stability and a clear and transparent regulatory environment.

Alaska’s ranks fell in 2008 compared to 2007, which the authors attributed to increasingly costly fiscal terms and tax rates — factors which continue to affect the state’s position. The state’s 78th position overall probably isn’t encouraging to investors, Angevine said.

“I’d say there are a whole bunch of other places I would consider,” he said. “It’s a totally competitive environment.”

“Generally speaking,” he said, “Australia, other U.S. states, they look a lot more attractive than Alaska, and some of the European countries as well.”

Gov. Sarah Palin’s intergovernmental coordinator Joe Balash said the study affirms Alaska is right where it ought to be.

“We have tough terms; we set the bar high,” he said. “But you know what? We have world-class resources. Arkansas and Mississippi don’t.”

Environmental rules and the costs of regulatory compliance drug Alaska down in overall ranking. While those factors may be a deterrent to oil and gas companies, they protect Alaska, Balash pointed out.

“I don’t think anyone in Alaska is going to apologize for protecting our environment,” he said, adding there may be room to streamline some state processes to encourage development. “But we’re not going to compromise our standards.”

The report ranks 143 states, countries and areas, such as off-shore locations, based on survey responses from 577 petroleum industry executives on how 16 factors encourage or deter investment.

Alaska ranked 67th in fiscal terms, a catchphrase being used increasingly as North Slope producers considering committing gas to one of several proposed natural gas pipelines say they may seek better terms from the state, which insists terms are adequate.

The state scored among the worst of U.S. jurisdictions in the cost of regulatory compliance, and it earned poor marks in environmental regulations. Fiscal terms proved a mild deterrent to investment, and regulatory uncertainty was a mild to strong deterrent. Local public infrastructure was a mild to strong deterrent, although the state does have a plan to remedy access to oil, gas and mineral projects, Balash said.

A compilation of comments by jurisdiction shows only one for Alaska: “Notoriously corrupt government. Essentially a Third World country.”

Alaska Oil and Gas Association executive director Marilyn Crockett said Alaska’s results raise some concern.

“Alaska continues to slip in the overall ranking of attractiveness for industry investments,” she said. “That is not where the state needs to be.”

The study results echo a refrain from companies in Alaska.

“It’s consistent with industry’s message over the last several years about the challenges we face in conducting business here,” Crockett said.

The study evaluated factors which governments control, she noted, and not other factors, such as the general costs of doing business. Alaska slips again there, she said, with its remote location and expensive transportation costs. She said the same factors will weigh in as companies decide whether to build a large-diameter natural gas pipeline, or a smaller, instate line.

Crockett said the state is proactive in focusing environmental and other regulations and permitting for oil and gas and mineral development.

“We certainly applaud the state for those efforts,” she said. “There is some room for additional streamlining and coordination in terms of environmental and regulatory provisions. Any efforts the state could make to streamline some of those processes would go a very long way to increasing the ranking.”

Local natural gas prices also drew down Alaska’s position among the jurisdictions surveyed — but that’s nothing new, Balash said, especially in Cook Inlet where companies are shying from new exploration to feed a fairly small market with limited growth potential.

“It appears to be affecting investment and, ultimately, deliverability,” Balash said. “It is something we need to be paying attention to.”

The study methodology ranks jurisdictions based on composite scores on 16 factors, as awarded anonymously by 276 oil and gas industry respondents representing 276 companies. The exploration and development budgets of those companies was about $200 billion in 2008.

Exxon's Weapon of Gas Destruction

By LIAM DENNING
Wall Street Journal
June 25, 2009

ExxonMobil has a loaded gun pointed at the U.S. natural-gas market -- and it isn't the only one.

The ammunition is liquefied natural gas. Exxon is scheduled to start up another three LNG projects in Qatar this year. They will produce more than 3.0 billion cubic feet per day of natural gas and freeze it for transportation. Europe and Asia are potential markets. But the U.S. could be a magnet for LNG cargoes, despite not really needing it -- a paradox that spells low prices.

LNG is joining up the world's hitherto largely regional natural-gas markets just as demand is faltering. Declining natural-gas production in countries such as the U.S. and U.K., and rising energy prices, prompted LNG production and receiving terminals to sprout on coastlines around the world.

Two things have turned this scenario on its head. One is recession. The other is the development of unconventional natural-gas resources in the U.S., leaving it over-supplied for now. Several Wall Street analysts expect inventories to reach the maximum capacity of around 3.9 trillion cubic feet later this year.

So why would anyone ship LNG to the U.S.? In part, it's simple economics. Many projects were sanctioned and financed when lower natural-gas prices prevailed.

In Exxon's case, valuable liquids also produced in its Qatari projects take the market breakeven price of the natural gas itself "towards zero," says Deutsche Bank analyst Paul Sankey. Factoring in processing and shipping costs, that gas can be landed in the U.S. for less than $2 per million British thermal units, reckons Noel Tomnay, head of global gas at Wood Mackenzie. The current Nymex price is about $4.

Competing markets also look oversupplied. Wood Mackenzie estimates annual demand in Asia east of India will rise by 1.3 trillion cubic feet by 2015. New projects targeting the region and close to final investment decision amount to more than two trillion cubic feet of capacity.

In Europe, the prevalence of long-term pipeline contracts limits the size of the market up for grabs. Wood Mackenzie estimates about 4.9 trillion cubic feet of discretionary piped and liquefied natural gas per year will compete for a market half that size over the next three years.

The U.S., with its large, liquid natural-gas market, will be a natural destination for this surplus LNG. As a cap on prices, this effect of globalization in the natural-gas market is great news for customers.

In a buyer's market, though, higher-cost sellers suffer. A big increase in low-cost LNG supply would displace some U.S. natural-gas production. The average U.S. field requires a Nymex natural-gas price of $7.79 per million BTU to earn a 10% return on capital, according to Jonathan Wolff at Credit Suisse.

Yet, as Mr. Wolff points out, natural-gas drillers' capital expenditure is still outpacing cash flow, as it has since 2006. The number of operating natural-gas rigs actually rose last week.

Increasing globalization means a bigger range of factors affect U.S. natural gas and the fortunes of its producers. An extended spat between Russia and Ukraine this winter, for example, would help draw more LNG cargoes towards Europe.

Barring this, prices and drillers will likely remain under pressure. A question haunting the sector is why majors like Exxon have not rushed in to scoop up distressed companies sitting on large U.S. natural-gas reserves. The answer may be that, with more LNG pointed at already weak markets they can afford to take time, and take aim.

Write to Liam Denning at liam.denning@wsj.com

Report: US natural gas reserves surge 35 percent

By MARK WILLIAMS
AP Energy Writer
SFGate.com
Thursday, June 18, 2009

Thanks to new technology that has allowed producers to drill for gas in shale rock, the Potential Gas Committee in Golden, Colo., said that the country's estimated reserves are 35 percent higher than just two years ago and have reached the highest level since the group started tracking the information 44 years ago. [PGC Report Highlights]

The report comes as natural gas is being touted as a way to help reduce U.S. dependence on foreign oil and cut emissions that lead to global warming.

"We knew it was there. It was a matter of how productive it possibly could be," said John Curtis, professor of geology and geological engineering at the Colorado School of Mines and the committee director.

The committee, a volunteer group backed by natural gas producers and utilities, estimated the country's total natural gas resources at 2,074 trillion cubic feet, an increase of 542 trillion cubic feet from its last report.

The figure includes 238 trillion cubic feet of proven gas reserves as established by the Department of Energy and 1,836 trillion cubic feet of reserves it labeled as probable, possible, and speculative.

The report is similar to a study prepared last summer for the natural gas-backed American Clean Skies Foundation that found the country had 2,247 trillion cubic feet of natural gas reserves — a 118-year supply at 2007 production levels. The U.S. consumes about 22 trillion cubic feet of gas per year, almost all of it produced in the U.S.

Natural gas is used to generate about a fifth of the nation's electricity as well as to heat homes. It emits about half of the heat-trapping greenhouse gas that coal does. Those who are pushing natural gas the hardest, like Texas oilman T. Boone Pickens, have promoted natural gas as a transportation fuel that could be used to reduce dependence on foreign oil.

"I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan," Pickens said Thursday. "On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports."

Thursday's report said shale now makes up one-third of the 1,836 trillion cubic feet of potential resources, much of it from a re-evaluation of shale gas in the Appalachian basin and the Mid-Continent region, Gulf coast and Rocky Mountain areas. Reserves jumped 16 percent overall from the group's last report two years ago, and Curtis said estimates could even go higher because not all areas where there is shale have been tested and explored.

Even with the jump, producers still will need to able to access the areas where gas has been found and then drill and develop the sites, said Chris McGill of the American Gas Association.

Shale is a kind of layered, sedimentary rock that exists in formations throughout the world. In the U.S., gas production from shale dates back to the 1800s.

But the gas, tightly locked in rock formations, had been extraordinarily expensive to extract. That began to change about 15 years ago as producers developed new techniques such as horizontal drilling, where the drill is turned in a right angle to bore into a gas reservoir horizontally.

Gas from shale now amounts to about 5 percent of total U.S. production, according to the Gas Technology Institute.

The report Thursday comes as producers have slashed production of natural gas as demand along with prices have crashed nearly 70 percent since last summer from $13.69 per 1,000 cubic feet to about $4.30 per 1,000 cubic feet.

The Energy Information Administration said this month that demand is expected to decline 2.2 percent this year, led by an 8 percent drop in industrial consumption as the nation's auto and steel companies have shut down plants and slashed production in what has become the longest recession since World War II.

The number of rigs exploring for gas and oil have been cut in half since last summer.

On Thursday, the government reported that U.S. reserves of natural gas surged again, sending prices on the New York Mercantile Exchange tumbling 4 percent.

© 2009 Hearst Communications Inc.

Short-term pain, long-term gain from TransCanada's Keystone purchase: analyst

Lauren Krugel
The Canadian Press
June 17, 2009

CALGARY - TransCanada Corp. (TSX:TRP) will suffer some "short-term pain" after buying the rest of the Keystone crude pipeline from ConocoPhillips' (NYSE:COP), but the purchase will be a beneficial in the long-term, an analyst said Wednesday.

"With the acquisition of ConocoPhillips remaining 20 per cent interest in Keystone and an associated C$1.6 billion equity offering, TransCanada has once again demonstrated its willingness to accept short-term pain in order to position itself for potential long-term growth," Desjardins Securities analyst Pierre Lacroix wrote in a note to clients.

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After markets closed Tuesday, the Calgary-based pipeline giant said it will pay about US$550 million and assume $200 million of short-term debt to buy out its partner in the massive pipeline project, which is currently under construction.

The deal, which is slated to close in the third quarter, means TransCanada will spend US$1.7 billion more on building the pipeline through 2012.

In separate release Tuesday, TransCanada said it raised C$1.6 billion in an equity offering.

A syndicate of underwriters, led by RBC Capital Markets, BMO Capital Markets and TD Securities, agreed to purchase 50.8 million common shares for $31.50 each - about five per cent below TransCanada's Tuesday closing price of $33.06, Lacroix noted.

TransCanada shares were down about five per cent, or $1.70, to $31.36 in midday trading on the Toronto Stock Exchange Wednesday.

"Over the near term, we believe that the dilution from the announced equity offering and short-term power market weakness are likely to constrain TransCanada's share price performance," he wrote.

"Thus, near-term concerns are likely to overshadow the potential positive long-term implications of an increased ownership interest in the Keystone pipeline project."

Lacroix downgraded his recommendation for TransCanada from "buy" to "hold" and lowered its share price target from $39 to $35.25.

He said, however, that TransCanada's full ownership of Keystone will be a good thing in the long run.

"Additional ownership in Keystone should provide TransCanada with full control over a valuable long-life asset, a stable source of primarily contracted earnings and cash flow, as well as a platform for future expansion in the crude oil pipeline industry."

In the release Tuesday, TransCanada chief executive officer Hal Kvisle said the purchase "represents a unique opportunity for TransCanada to become the exclusive owner of an important oil transmission system that will play a vital role in transporting a growing supply of Canadian crude oil to the largest refining markets in the United States for decades to come."

ConocoPhillips has been whittling down its stake in Keystone as a means to direct cash towards other projects.

The U.S. firm originally owned a 50 per cent stake in Keystone, but sold 30 per cent of its holdings to TransCanada last year.

When completed, Keystone will be one of the largest oil delivery systems in North America with the capacity to ship 1.1 million barrels a day of oilsands crude to refineries in the United States.

The first 3,456-kilometre phase of Keystone will carry crude from Hardisty, Alta. to markets in Illinois. That leg, which will have an initial capacity of 435,000 barrels per day, is expected to come into service later this year.

The pipeline will then be expanded to 590,000 barrels per day and extended to Cushing, Okla. Commissioning is expected late next year.

TransCanada envisions a further expansion of 500,000 barrels per day and an extension to terminals in Port Arthur, Texas. That portion will allow oilsands producers to send their crude to the Gulf Coast, the centre of North America's refining industry, by 2012.

The company is seeking approvals from Canadian and U.S. regulators on the final phase. Construction is expected to begin in 2010.

The total cost of the massive project is expected to be about US$12-billion.

Keystone has secured long-term commitments for 910,000 barrels per day for an average term of approximately 18 years which represents 83 per cent of the commercial design of the system.

WGA Day 2 - Clean up Alberta oilsands: U.S. officials

COMMENT: The Western Governors Association (WGA) annual convention runs from Jun 14-16 in Park City, Utah. The agenda is all energy and climate change.

Coverage in Canadian newspapers skews heavily toward any mention of Canada. In US coverage, Canada is barely on the map.

Clearly articulated in this first article is the message that for all the talk about renewables, the US is turning no corners with energy - the traditional big engines - fossil fuels and nuclear - are the way of the future.

JASON FEKETE,
Vancouver Sun
Canwest News Service
June 16, 2009

Obama administration committed to boosting clean-energy production

Two of U.S. President Barack Obama's top advisers on energy and climate change said Monday the Alberta oilsands are a key part of the U.S. energy mix. But they warned its development must be cleaned up, because there's "a lot of concern" south of the border about their environmental footprint.

U.S. Energy Secretary Steven Chu and Nancy Sutley, chairwoman of the White House Council on Environmental Quality, said the Obama administration is committed to increasing clean-energy production in the U.S., and the carbon-intensive oilsands are "very tricky."

They recognized, though, that America's energy portfolio will be diverse for many years, and will include the oilsands, coal-fired power generation, a greater role for nuclear energy, and new opportunities with shale gas.

Speaking to state leaders and premiers at the Western Governors'
Association meeting, Chu and Sutley both said science is critical to moving forward on energy development and climate change, and they're hopeful technology can solve environmental challenges facing the oilsands.

"Canada is a close neighbour. This is energy that one hopes to develop in a clean way, and so that you can decrease the environmental footprint, both in the energy invested in order to recover it, and on the local environmental issues," Chu said.

He noted there's far more energy invested to develop the oilsands compared with conventional sources -- an additional 20 to 25 per cent -- which poses problems in extracting northern Alberta's gooey, tar-like sands, the second-largest proven oil reserves in the world.

"There's also environmental issues with the recovery of the oilsands, the very tarry stuff that's left behind, the residues. There haven't been solutions to that yet," said Chu, who met privately Monday with Alberta Premier Ed Stelmach for about 30 minutes.

Stelmach, Saskatchewan's Brad Wall and Manitoba Premier Gary Doer are participating in the three-day meeting dedicated to energy development and climate change. The talks, which conclude today, have featured a handful of Obama's top cabinet members, including secretaries from the departments of energy, agriculture and the interior.

Sutley, whose department is responsible for coordinating the White House's environmental efforts, said there's promising technology with carbon capture and storage to reduce greenhouse-gas emissions emitted during development of the oilsands and other fossil fuels. But she didn't mince words about some of the worries that U.S. lawmakers have with oilsands development and its environmental impacts on land, air and water.

"There's a lot of concern, frankly, about the environmental footprint associated with the oilsands," Sutley said. "The real approach is to try to look at our energy policy comprehensively, that there isn't just one way we're going to meet our energy future. We need to do it in a cleaner way, and that there's a role for all of the diversified sources of energy to meet that."

Meanwhile, the head of the World Bank delivered a veiled rebuke to governors and cabinet members from the Obama administration about the Buy American provisions in U.S. stimulus spending, and predicted it could take at least another year for the world economy to recover.

World Bank President Robert Zoellick said the global economy will shrink about three per cent in 2009, with some possibility of improvement late this year or more likely in 2010. Nursing the economy back to health could be a slow and painful process, he said, because demand from consumers, businesses and government just isn't near the levels of recent years.

"There's a high degree of uncertainty, a lot of fragility," Zoellick said.
"I wish I could forecast a more robust recovery, but I think it's going to be a challenging couple of years."

Zoellick last week condemned the rules governing the $787-billion US economic stimulus package, warning the Buy American provisions foster protectionism.

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Officials vow support for renewable energy in West

By MIKE STARK
Seattle Post-Intelligencer
June 15, 2009

PARK CITY, Utah -- Cabinet leaders in the Obama administration promised Monday to help Western states develop a robust system for delivering renewable energy.

Interior Secretary Ken Salazar said the West has vast untapped potential for harnessing wind, the sun and geothermal energy to create electricity. But "it doesn't do any good to generate energy if you can't get it to market," Salazar said during the annual meeting of the Western Governors' Association.

That's long been the concern of Western governors eager to develop renewable energy projects but frustrated by limitations in the transmission system and sluggish bureaucracies.

Salazar and Agriculture Secretary Tom Vilsack vowed to make renewable energy a priority and find ways to streamline permitting.

Salazar said four Western states - Arizona, California, Nevada and Wyoming - will get federal renewable energy planning offices to help make sure projects don't get stalled.

In a report released Monday, the association - which represents the governors of 19 Western states and American Samoa, Guam and the Northern Mariana Islands - identified 54 areas with renewable energy potential across the Western U.S. and Canada.

Delivering the kinds of power loads those areas might generate will require an upgrade in the existing transmission system and the likely need for creating new transmission corridors.

Energy Secretary Steven Chu said the United States has fallen behind places such as China in the capacity of transmission lines.

"This is a little bit embarrassing quite frankly," said Chu, who announced $80 million in federal stimulus money to develop the next generation of high-voltage transmission networks.

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Western Governors' Association: http://www.westgov.org/

WGA Day 1 - Canada-U.S. energy corridor idea promoted

COMMENT: This is a picture of Utah Governor Jon Huntsman at the Western Governors' Association annual conference. He welcomed the governors, premiers, and others to his state.

Utah Gov. Jon Huntsman brandishes a Browning over-under at the opening of the Western Governors Association annual convention.

Absent was California's Arnold Shwarzenegger and Alaska's Sarah Palin - who may wish she'd come when she realizes you could bring guns.

I know, I know, cheap shots are not helpful. Shouldn't read too much into this image. The shotgun was presented to outgoing chair Huntsman by incoming chair Montana Gov. Brian Schweitzer.

A quick browse of some US newspapers shows that the "energy corridor" described in this Canadian article idea didn't make the US headlines, though the conference agenda is all about energy and climate change.

WGA portal to the annual meeting
http://www.westgov.org/wga/meetings/am2009/index.htm

Monday's agenda:

Plenary II – Tapping the West’s Renewable Energy Potential

Secretary of the Interior Ken Salazar, Secretary of Energy Steven Chu, Secretary of Agriculture Tom Vilsack and FERC Chairman Jon Wellinghoff will provide their perspectives on developing large amounts of clean energy in the West and the transmission lines needed to bring it to market. Following their remarks they and the Governors will discuss what cooperation is needed between states and the federal government to accelerate progress.

Plenary III -- Combating Global Climate Change

Governors and invited guests will discuss international, U.S. and regional strategies for addressing climate change.
Panelists: Robert B. Zoellick, President of The World Bank; Steven Chu, Secretary of Energy; Secretary of Agriculture Tom Vilsack; Nick Bridge, Counsellor for Global Issues, British Embassy; and Nancy Sutley, Chair of the White House Council on Environmental Quality.

Tuesday's Agenda:

Plenary IV – Fostering International Cooperation on Energy and the Environment

Governors and invited guests will discuss ways national and subnational governments can cooperate to expedite the deployment of new technologies and policies to address energy and climate change.
Panelists: Eric Heitz, President of The Energy Foundation; Susan Shirk, Director of the University of California Institute on Global Conflict and Cooperation.

Jason Fekete,
Canwest News Service
June 15, 2009

Prairie premiers meet governors in Utah to explore possibilities

Western premiers and U.S. governors hailed their push yesterday to develop a cross-border "Western Energy Corridor" that will be the largest on the planet and one that develops both non-renewable and clean-energy options.

Spearheaded by Saskatchewan Premier Brad Wall and Montana Gov. Brian Schweitzer, the initiative could open new markets to the three Prairie provinces, which are all major energy producers in both renewables and fossil fuels.

Wall, Alberta's Ed Stelmach and Manitoba's Gary Doer -- all in Park City, Utah, for the Western Governors' Association annual conference -- met yesterday with state political leaders to explore the potential for a broader energy relationship.

"The western part of North America has this great swath of both renewables and non-renewables in terms of energy sources and huge opportunities around sustainable energy development, but we need to be co-operating,"
Wall told Canwest News Service.

"We know that there's an interest in the part of the consuming states perhaps on the West Coast for more renewables."

Stelmach said the western governors are supportive of the corridor concept and recognize there's a lot of trade possibilities. Energy development is key for global competitiveness, job creation and economic growth, he said, so the entire western region stands to benefit.

"They know that we have an excellent opportunity as neighbours on the North American continent to co-operate," Stelmach said.

Schweitzer, vice-chairman of the Western Governors' Association, declared the oilsands critically important to his country's energy security.

BPs Statistical Review of World Energy2009

The source report for this article posted by John is a very impressive set of data, tools, and documents produced by BP called the Statistical Review of World Energy2009.

First thing you might do is install the charting tool. The first chart it gives you is the big picture: world energy consumption.

World Energy Consumption from 1965 to 2008.

The "Highlights":

- oil consumption declined by 0.6% in 2008
- gas consumption increased by 2.5%
- coal consumption is the fastest growing fuel for the sixth consecutive year
- primary energy consumption grew by 1.4%

The Statistical Report appears to be a vast compendium of energy data, accessible and well-presented.

Not cheering info, however. If we're a global Exxon Valdez, that first chart suggests we're still picking up speed.

Carbon-dioxide emissions jump as countries burn coal

Vancouver Sun
June 15, 2009

World carbon-dioxide emissions from energy use rose 1.8 percent last year as China, India and Russia burned more coal, the most polluting fuel for generating power, data compiled by BP Plc indicate.

Fossil-fuel combustion in electricity plants, vehicles and heaters across the planet released 31.5 billion metric tonnes of the greenhouse gas, 570 million tonnes more than in 2007, the figures show. China's coal consumption climbed 7.1 per cent, adding 366 million tonnes of emissions, using conversion factors provided by BP, the U.K. oil company.

Coal now produces more CO2 than oil, and China's growing share of its use means both themes will drive global talks under way for a new climate-protection treaty.

At the same time, developed countries continue releasing many times more gases per person than less-wealthy economies, a fact China uses in arguing that the biggest emissions cuts should come from richer nations.

Fracking Is: 1) A Process; 2) An Expletive. Choose One

COMMENT: In British Columbia, "fraccing" - whereby fluids are injected into gas-containing substrates, fracturing them, and thereby both increasing and accelerating the release of gas - is on a dramatic rise. And it's something British Columbians need to know more about.

Fraccing is a common practice with conventional natural gas. It is essential with coalbed methane production. And it is a nearly-continuous operation in shale gas production - wells may get fracced up to seventeen times along their entire length. The huge expansion in shale gas drilling in the province means that injection of toxic fraccing fluids is a boom industry - for companies like Texas-based Halliburton which manufacture and sell the fluids.

The first article here focuses on the Marcellus Shales, which underlie a large area of the Appalachian Basin, including primarily parts of Ohio, West Virginia, Maryland, Pennsylvania and New York. But it is entirely applicable to BC.

As noted here, the contents of the fluids are a tightly guarded secret of the companies which sell them. So, we don't know what's being injected into the ground. The fluids are added to huge tonnages of sand, usually trucked in from elsewhere, such as Saskatchewan, and huge volumes of water. The energy required to frac a well is astronomical - 30,000 to 45,000 horsepower. Obviously, the greenhouse gas emissions are more than the family car.

In BC, regulation of fraccing and the fluids is an obscure thing, but essentially, there is none. In a coalbed methane info sheet, the BC government says, "The fluids used are generally biodegradable organic materials, a mixture of nitrogen and water to create thick foam − simply water with a small amount of biodegradable gel. Clean sand can be mixed with these liquids to help hold open the small fractures created." Might as well package it as toothpaste, it's so innocuous!
http://tinyurl.com/m7fv6h

In an info sheet for landowners, the Oil and Gas Commission (OGC), whose job it is to regulate the stuff, asks the question, "What is Fracturing Fluid?" and then doesn't answer it. Instead, we're told this, "Fracturing fluids vary in composition based on engineering requirements specific to the reservoir rock type that will produce the natural gas." Duh.
http://tinyurl.com/lka6oh

Most recently, BC introduced regulation addressing the storage of fluids which are recovered from fraccing operations.
http://tinyurl.com/nz9h3s

So, the situation in BC appears to be that the OGC will let a company inject anything into the ground, but imposes some conditions on what the company can do with the portion of the fluids that are recovered.

The second article here is about the growth in fraccing in western Canada.

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Fracking Is: 1) A Process; 2) An Expletive. Choose One

Andrew Reinbach
Huffington Post
June 8, 2009

Cooperstown, New York -- Whether gas drilling creates rivers of gold or industrial waste is a matter of opinion. What it definitely creates is legislation.

Last week, two members of Congress, Diana DeGette (D.-Colo.) and Maurice Hinchey (D.-NY), said they were re-introducing a 2008 bill to rescind features of a Bush/Cheney bill, the Energy Policy Act of 2005, that exempted energy drillers from important features of the federal Safe Drinking Water Act. The earlier bill died last year in a Republican-controlled committee, but this year it's expected to be reported out of Rep. Henry Waxman's (D-Ca.) Energy and Commerce Committee.

Another bill, introduced to the New York Assembly on June 5th by 12 Assembly members, will substantially regulate all gas drilling in the state, including the controversial practice of horizontal drilling and shale fracturing, or "fracking", which uses chemicals some critics say could contaminate ground water with carcinogens and endocrine disruptors. The exact contents of fracking liquids is a well-defended industry secret, but among the deadly chemicals known to be used include benzene, toluene, and diesel fuel.

No such laws, or others yet to come, would have appeared without the grassroots activists around the country who pushed an environmental agenda during the Bush/Cheney years. "They're the foot soldiers of the movement," says Amy Mall, senior policy advisor of the Natural Resources Defense Council (NRDC). "We rely on them."

These activists can be remarkably persistent -- and successful. Here, for instance, at the headwaters of the Susquehanna River, a loose coalition of citizen activists called Sustainable Otsego managed, after a long campaign, to prompt the otherwise politically conservative Board of Supervisors to adopt a resolution that will, among other things, make drillers disclose the contents of fracking liquids, and pay for any damage they cause to the local roads and pristine farmlands.

In fracking, otherwise known as hydro-fracturing, drillers sink several horizontal wells from a single wellhead; then, under pressure, they pump in millions of gallons of water laced with chemicals and sand. The pressure cracks the shale deposits and releases much more gas than would a conventional well. Most of the fluid is then removed from the well lines; but some remains. The rest is either shipped away, or dumped into a lined, open pit to evaporate; the remaining sludge is later trucked to a disposal site.

The ruckus about fracking is about whether the chemicals left underground, or in the sludge ponds, will leach into local aquifers and poison private wells and municipal water supplies.

The former danger is a matter of conjecture; while there are many recent reports of people's health being damaged by suspected exposure to fracking liquids, either directly or in drinking water -- some quite compelling -- no such events have been officially confirmed since fracking was introduced to the United States in 1948. Also, water wells are typically no more than 200 feet deep, while gas is typically found thousands of feet below the surface, in wells drillers insist are well protected from leakage.

But environmentalists point out that the depth of the wells means that left-over fracking liquids would migrate from such depths over long periods -- at least 30 years -- so that any potential contamination wouldn't emerge for years. These groups likewise say that the industry wants to keep the contents of fracking liquids a secret because there would be a direct line of responsibility -- and legal liability -- between fracking and contamination, if any fracking chemical ever did appear in local drinking water.

They also point out that the danger isn't limited to underground water supplies. Last week, the Pittsburgh Post-Gazette reported that a leaking pipe at a local Marcellus drilling site sent stored fracking liquid into a small stream that feeds a lake in a popular park; the contamination killed fish and other water critters for three-quarters of a mile downstream. The Post-Gazette reports that Pennsylvania's Department of Environmental Conservation (DEC) has taken water samples above and below the leak, and is mulling appropriate action.

But at least the Pennsylvania DEC discovered the spill. In New York, there are reportedly only 18 drilling-related DEC field investigators on staff, while the gas industry already has 13,000 wells in operation, and expects to sink another 15,000 or so once the Marcellus play begins in earnest. The DEC likes to insist that drillers are liable for the damage they cause; but it all depends on that handful of inspectors. And after all, speeding is against the law too, though people have been known to occasionally exceed the speed limit.

The spur to the recent spate of laws is the ongoing development of the Marcellus formation, a rich deposit of gas-bearing shale stretching from the southern border of West Virginia to New York's Route 20, which parallels the Mohawk Valley. The Marcellus deposits are estimated to contain anywhere from 1.9 trillion cubic feet of gas -- according to the U.S. Geological Survey -- to 50 trillion cubic feet, worth some $1 Trillion, according to a study by Professors Terry Englander of Pennsylvania State University, and Gary Lash of the State University of New York at Fredonia.

Numbers like that, combined with the fact that developing our natural gas resources is national strategic policy, mean that anybody who stands in front of that freight train to stop it will wind up a wet spot. Not even the NRDC opposes responsible development of the Marcellus, or similar deposits in Texas, Colorado, Wyoming and elsewhere; the key word being "responsible."

All in all, it seems unlikely that the Bush/Cheney approach to energy policy, openly displayed in the 2005 exemptions for drillers to the Safe Drinking Water Act, will survive much longer; the obvious trend is to regulate, or re-regulate, with an eye towards protecting the environment and, by extension, the health of local citizens.

The premise, of course, is that responsible adults clean up after themselves. Predictably, the energy industry is lumbering on with the usual claims that the oppressive costs of such onerous regulation will stop gas drilling in its tracks. But the all-in cost per well of compliance with these laws is estimated to be about $100,000, which doesn't seem much against the millions of dollars per month thrown off by a successful well. The worst that can be said about those costs is that it would force drillers to concentrate on the most promising wells; looked at this way, these laws are doing drillers a favor.

The other argument, heard in a June 4th hearing of Congress' Natural Resources Subcommittee on Energy and Mineral Resources, is more subtle -- that regulating gas drilling should be left to the states. But opponents will doubtless counter with Congress' powers to regulate interstate commerce. Even energy industry lobbyists concede privately that in this game they've got a weak hand, a dwindling pile of chips, and few powerful allies who can step in to save their bacon.

http://www.huffingtonpost.com/andrew-reinbach/fracking-is-1-a-process-2_b_212905.html

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Just a ‘FRAC’ away

Peter McKenzie-Brown
Alberta Oil Magazine
April 01, 2009

New gas mega-wells threaten to strain contractor fleet

If unconventional natural gas is a revolution in the making, so are the services required to make it happen. Industry spending patterns are shifting, with much bigger investments now being poured into operations below the ground.

Traditional ways of doing business are changing. Multiple wells are drilled from single sites, known as “pads,” to tap the new gas target. The old oilfield rhythm of busy winters and quiet summers is also changing as work grows in the warm seasons.

Despite the economic downturn, there is even a hint of a gas counterpart to the former oil sands labor shortage in the air. There is a risk that in the near future Western Canada will find itself short of powerful hydraulic equipment needed to make the networks of underground channels that make unconventional gas deposits flow. This would be a blow to exploration and production companies, but possibly a considerable financial boon to service companies with the right stuff to do the rock fracturing, a field known as “fraccing” in the industry.

The specialty is a well stimulation technique which improves production from geological formations where natural flow is restricted. Hydraulic fracturing pushes a mix of water, sand and some soluble chemicals into well bores at high pressure, both to spread cracks across the formation and hold them open for gas and oil to flow.

Originally a simple operation, fraccing has evolved into a high industrial art that uses multi-stage techniques in horizontal wells, reports Dave Russum, geosciences vice-president for AJM Petroleum Consulting. “Between the heel [start] and the toe [end] of a horizontal well, you isolate an interval close to the toe and frac that region,” Russum says. “Then you move back towards the heel, isolate another interval and do another frac.”

The technique is a powerful production tool. “This breaks up a lot of rock, making a lot more gas available. These new technologies are enabling us to access a whole lot more low-permeability [poorly flowing] rock than you would ever be able to reach with a vertical well,” Russum says.
In the old days of vertical drilling, producers generally fracced just one or two zones per well. With today’s technology, it is possible to frac a single well up to 17 times. A well that requires so much work would likely have a horizontal reach of 3,000 metres or more.

Analyst Kevin Lo of FirstEnergy Capital Corp. estimates that fraccing just one of EnCana Corp.’s Horn River shale gas wells in northeastern British Columbia requires a crew equipped with more than 30,000 horsepower of compression. In Western Canada, there is perhaps 800,000 horsepower available.

“We do not believe that there will be sufficient capacity to perform all of the jobs necessary” if B.C.’s Horn River and Montney shale gas drilling hot spots grow, Lo says in a research note. He also worries about the heavy lifting required to deliver enough fraccing materials. Fracturing a single horizontal well in the new unconventional gas reservoirs can require up to two thousand tonnes of sand.

Dale Dusterhoft, a senior vice-president at Trican Well Service Ltd. describes FirstEnergy’s estimates of requirements for the new gas production as conservative. “Some of the Horn River wells require up to 45,000 horsepower of compression,” Dusterhoft reports. “With 10 holes per pad, you may have 40,000 horsepower tied up for 10 weeks.”

The Trican executive predicts, “There will be shortages of equipment when we get up to full development of the shales.” If it happens, the squeeze will be a plus for service companies like his, which will then charge premium day rates, but a worry for the gas producers in the region.

Environmentalists have voiced concern that fraccing chemicals may contaminate groundwater. But Dusterhoft says that, before wells are fracced, the formations are securely sealed away from potential fresh-water reservoirs.

Use of chemicals is also limited in the unconventional wells in northeastern B.C. “We only use a polymer as a friction reducer, and maybe something to stabilize the clays. Mostly we just run water and sand,” Dusterhoft says.

Fraccing’s goal is to create a web of flow channels. When the technique is completely successful, he says, all of the fractures connect with each other to provide maximum production, he says. “We like to say we can ‘farm’ the reservoir.”

Huge fraccing jobs in northeastern B.C. require vast logistical support. Each well can require 2,000 to 3,000 tonnes of fine-grained sand. Parades of trucks deliver vast harvests of ancient sand mined from fossil beaches, often from quarries in Saskatchewan. Such a project may require a 40-member crew, operating 20 or more hydraulic compression systems mounted on large fraccing trucks.

High volumes of water are also used. A typical job requires a large water storage pit in addition to a string of high-volume steel tanks. The amount of water being used in these jobs has contributed to the developing seasonal shift in the fraccing business. “Now the industry is drilling during winter freeze-up, as we always have, but fraccing in the summer. All the bigger operators are trending in that direction,” Dusterhoft reports.

Water is easier to handle in warmer weather. In the longer term, the changing work pattern will require upgrading to all-weather roads to Horn River and Montney. Until those improvements are completed, service companies have to leave equipment in the area during freeze-up.

The shift to unconventional gas occurred much more quickly than anyone expected, Dusterhoft says. Among numerous implications of the switch, an old barometer of industry health –the sheer number of wells drilled – is becoming obsolete.

The production change, while increasing oilfield work, is contributing to a reduction in the total number of Canadian wells being drilled. In 2008, nearly 40 per cent of the wells involved horizontal or directional drilling – twice the level of 10 years ago. For the first time, FirstEnergy Capital said in a recent research note, the number of horizontal wells across reservoirs will soon match the number directionally drilled at angles. Greater proportions of industry spending on wells are going into completion services like fraccing.

Unconventional gas operations are not cheap. Drilling costs are in the range of $5 million to $7 million per well at Horn River, and $4 million to $5 million at Montney. Fraccing costs are estimated to be $2 million to $3 million per well.

But the production profiles for these wells make them worth their costs. Each may produce 7.5 million cubic feet of gas per day in their first year. Production declines rapidly but typically levels off at around two million cubic feet per day then stays steady for years. When gas prices improve, the new wells will be cash registers.

http://www.albertaoilmagazine.com/?p=720

The answer's blowing in the wind, but not all of us want to hear it

Roy MacGregor
The Globe And Mail
Mon Jun 8 2009

Quick now! What do Canadians have in common with Kermit the Frog?

And with Van Morrison? Frank Sinatra? Tony Bennett?

Simple: We all have our versions of It's Not Easy Being Green.

We have all seen them: those huge tractor trailers with warning trucks front and back flashing their emergency lights as the tractor trailers carry massive white steel tubes so long and high and wide that they take up far more than their share of the road. So massive are these loads that the convoys sometimes have to stick to the secondary roads in order to stay away from low overpasses.

Most of us now know that, when assembled, they are wind turbines. You sometimes see rows of them standing, like some Star Wars warning, when you stare down from a plane passing over the Great Lakes or when driving about the Gaspé, or near Shelburne in the farm country of Ontario, or south of Calgary near Lethbridge. There is even one, odd as it looks, virtually in downtown Toronto.

To see them fully assembled and running is a jaw-dropping experience the first time. To see them every day, however, is causing some people's teeth to grind.

Michael Lansbury is just one of many cottagers in the Upper Ottawa Valley attempting to block a wind farm that could mean as many as 60 of the giant windmills going up in the heart of what could be described as a Group-of-Seven postcard.

Mr. Lansbury at first didn't like the idea of going down to the dock with a morning coffee and having to stare at a horizon that would look more like a bad science-fiction set than dawn slipping over the high hills of the Canadian Shield.

That is undeniably a Not-In-My-Back-Yard response and Mr. Lansbury concedes the point easily, saying he is "motivated by selfishness to the extent that I don't want the countryside ruined."

But he also considers himself an environmentalist, living simply on the lake, believing in solar panels and even personal windmills - but not these behemoths.

And yet, Mr. Lansbury and a whole lot of other Canadians are going to have to get used to them. According to a detailed feature in this month's Canadian Geographic (canadiangeographic.ca) the wind of this vast country is being harnessed these days at remarkable speed.

Over the past five years, says the magazine, "some provincial policy-makers have begun to realize that wind could do for Canada's 21st century what hydro did for its 20th: marshal an immense resource in this rugged, windswept country. "

While the growth has been impressive here, Canada is still light years behind the Danes, Germans and Spaniards and may soon by outstripped by the Americans following a push by President Barack Obama for significant investment in wind and solar power.

Ontario is currently pushing hardest, having promised to put an end to its coal-fired generating plants by 2014. Premier Dalton McGuinty and provincial Energy Minister George Smitherman have both said that personal selfishness will not be tolerated.

"Don't say, 'I don't want it around here,' " McGuinty said four months ago in London, Ont. "NIMBYism will no longer prevail."

But just try and stop it from trying. Already Torontonians have organized to fight a plan to erect the giant turbines off the scenic Scarborough Bluffs. Residents of bucolic Wolfe Island are fighting back, as are cottagers along Georgian Bay. And Michael Lansbury's group along Highway 60 is daily more negative about this cleanest imaginable of energy sources. There is even a website (windconcernsontario.org) where the various groups share anti-turbine information.

The opponents have connected with Nina Pierpont, a New York physician who has raised concerns about the health effects caused by low-frequency noise. Her own website (windturbinesyndrome.com) is filled with medical detail and even contains a few of the accusations thrown back at her, including one town meeting where she was accused of claiming "wind turbines cause mad cow disease."

Dr. Pierpont writes about "Wind Turbine Syndrome," while in Japan they talk about "Wind Turbine Disease" and in Europe there is a consortium of 300 groups (epaw.org) that is calling for an international moratorium on the giant windmills.

To no surprise, there are arguments from both directions, Dr. Pierpont and others claiming scientific proof of illness, others stepping forward to claim they live near them with no ill effects at all.

As Canadian Geographic notes, this very strange story has those who are trying to bring clean energy -what can be more natural than the wind? - battling those who believe the windmills can cause headaches, sleep depravation, tinnitus and even heart palpitations and will destroy bird habitat and even flight paths.

"It appears to pit one environmental good against another," says the magazine.

Kermit the Frog must have seen all this coming.

"When green is all there is to be," he sang - or croaked.

"It could make you wonder why ... " And that, says Michael Lansbury, is all he is himself singing: Why? Why now? And why in such a hurry?

"Surely," he asks, "these wind turbines do not have to be next door to everyone before we have some accurate information in this country."

rmacgregor@globeandmail.com

© 2009 CTVglobemedia Publishing Inc. All Rights Reserved.

Posted by Arthur Caldicott at 08:41 AM | Comments (0)