June 30, 2008
This economic panic is pushing the planet
right back down the agenda
Oil-dependent countries are focused on growth at all costs, and the pale green political consensus looks unlikely to hold
George Monbiot
The Guardian
July 1, 2008
Almost everyone seems to agree: governments now face a choice between saving the planet and saving the economy. As recession looms, the political pressure to abandon green policies intensifies. A report published yesterday by Ernst & Young suggests that the EU's puny carbon target will raise energy bills by 20% over the next 12 years. Last week the prime minister's advisers admitted to the Guardian that his renewable energy plans were "on the margins" of what people will tolerate.
But these fears are based on a false assumption: that there is a cheap alternative to a green economy. Last week New Scientist reported a survey of oil industry experts, which found that most of them believe global oil supplies will peak by 2010. If they are right, the game is up. A report published by the US department of energy in 2005 argued that unless the world begins a crash programme of replacements 10 or 20 years before oil peaks, a crisis "unlike any yet faced by modern industrial society" is unavoidable.
If the world is sliding into recession, it's partly because governments believed that they could choose between economy and ecology. The price of oil is so high and it hurts so much because there has been no serious effort to reduce our dependency. Yesterday in the Guardian, Rajendra Pachauri suggested that an impending recession could force us to confront the flaws in the global economy. Sadly it seems so far to have had the opposite effect: a recent Ipsos Mori poll suggests that people are losing interest in climate change. Opportunities for energy populism abound: it cannot be long before one of the major parties abandons the pale green consensus and starts invoking an oil cornucopia it cannot possibly deliver.
The British government maintains both positions at once. In his speech last week, Gordon Brown said he wanted "to facilitate a reduction in short-term global oil prices" while seeking "to reduce progressively our dependence on oil". He knows that the first objective makes the second one harder to achieve. The government's policy is to build more of everything - more coal plants, more nuclear power, more oil rigs, more renewables, more roads, more airports - and hope no one spots the contradictions.
Is there a way out? Could we abandon the fossil fuel economy without provoking a blistering backlash? Two things are obvious. We need a global system, and the current one, the Kyoto protocol, is bust. It sets no cap on global carbon pollution, its targets bear no relation to current science and are unenforceable anyway, it contains loopholes and get-out clauses wide enough to sail an oil tanker through.
Until recently I supported an alternative system called contraction and convergence. Every country, this system proposes, should end up with the same quota of carbon dioxide per person. The richest countries must produce much less than they do today; the poorest ones could pollute more. Another proposal flows logically from this one: carbon rationing. Having been assigned its carbon quota, each nation would divide up part of it equally among its citizens, who could use it to buy energy or trade it among themselves. These proposals have the merit of capping global pollution, of being fair, progressive and easy to understand and of encouraging us to think about our use of energy.
But, after reading the proofs of a book by the independent thinker Oliver Tickell, to be published next month, I have changed my view. In Kyoto2: How to Manage the Global Greenhouse, Tickell slaughters my favourite ideas. He shows that there is no logical basis for dividing up the right to pollute among nation states. It gives them too much power over this commodity, and there is no guarantee that they would pass the pollution rights on to their citizens, or use the money they raised to green the economy. Carbon rationing, he argues, requires a level of economic literacy that's far from universal in the most advanced economies, let alone in countries where most people don't have bank accounts.
Instead Tickell proposes setting a global limit for carbon pollution then selling permits to pollute to companies extracting or refining fossil fuels. This has the advantage of regulating a few thousand corporations - running oil refineries, coal washeries, gas pipelines and cement and fertiliser works for example - rather than a few billion citizens. These firms would buy their permits in a global auction, run by a coalition of the world's central banks. There's a reserve price, to ensure that the cost of carbon doesn't fall too low, and a ceiling price, at which the banks promise to sell permits, to ensure that the cost doesn't cripple the global economy. In this case companies would be borrowing permits from the future. But because the money raised would be invested in renewables, the demand for fossil fuels would fall, so fewer permits would need to be issued in later years.
Tickell calculates that if the cap were set low enough to ensure that the world became carbon neutral by 2050, the total cost of permits would be about $1 trillion a year, or roughly 1.5% of the global economy. The money would be spent on helping the poor to adapt to climate change, paying countries to protect forests and other ecosystems, developing low-carbon farming, promoting energy efficiency and building renewable power plants.
But his figure seems too low. Like many of the world's climate scientists, Oliver Tickell proposes that the concentration of greenhouse gases should eventually be stabilised at 350 parts per million (carbon dioxide equivalent) in the atmosphere, and his calculations are based on this target. Last week Lord Stern suggested that meeting a less stringent target (500 parts per million) would cost 2% of world gross domestic product. If the price of the carbon permits sold at auction were much higher than Tickell suggests, the extra money could be used for massive tax rebates and social spending, aimed especially at the poor. But could the world afford it?
This money doesn't disappear, it gets spent. Tickell's proposal could represent a classic Keynesian solution to economic crisis. The $1, $2 or even $5 trillion the system would cost is used to kick-start a green industrial revolution, a new New Deal not that different from the original one (whose most successful component was Roosevelt's Civilian Conservation Corps, which protected forests and farmland). This would not be the first time that business was rescued by the measures it most stoutly resists: there's a long history of corporate lobbying against the kind of government spending that eventually saves the corporate economy.
Do we want to save it, even if we can? It is hard to see how the current global growth rate of 3.7% a year (which means the global economy doubles every 19 years) could be sustained, even if the whole thing were powered by the wind and the sun. But that is a question for another column and perhaps another time, when the current economic panic has abated. For now we have to find a means of saving us from ourselves.
monbiot.com
More pipeline capacity needed
New lines worth $23B may be on way
Reuters, Calgary Herald
Friday, June 27, 2008
Capacity is tight on Canada's crude oil pipelines, but as much as $23 billion in new lines could be on the way to help supply current and as-yet-untapped markets, the country's energy regulator said Thursday.
The National Energy Board said new pipeline space is needed to handle rising production from the oilsands and to give producers flexibility in where they can ship their crude.
In a report on the 45,000 kilometres of oil and gas pipelines it regulates, the NEB said there was some rationing of space in 2007 on Enbridge Inc.'s 1.9 million barrel a day system to the U.S. Midwest and beyond, and that the system ran at or near capacity in this year's first quarter.
The industry will get some relief in November when Kinder Morgan Energy Partners is slated to have a 40,000 barrel a day expansion of its Trans Mountain system to the West Coast completed, the board said.
The Canadian Association of Petroleum Producers estimated last week that the country's production could nearly double to 4.5 million barrels a day by 2020, as a host of new oil sands projects start up.
That has the oil industry considering new markets, such as the U.S. Gulf Coast, California and Asia.
Pipeline projects currently under development include Enbridge's 450,000 barrel a day Alberta Clipper project to Superior, Wisc., from Hardisty, Alta., and TransCanada Corp.'s 590,000 barrel a day Keystone line to Southern Illinois and Oklahoma from Alberta.
Keystone is scheduled to be in service late next year and Alberta Clipper in 2010.
Among longer-term proposals, TransCanada is considering a 750,000 barrel a day pipeline to Texas as well as a 400,000 barrel a day line to California.
Enbridge has rekindled plans for the 400,000 barrel a day Gateway line, which would ship Alberta crude to the West Coast, where it could be loaded on tankers bound for Asia.
It is also studying the re-reversal of Line nine between Sarnia, Ont., and Montreal to give Quebec refiners access to western Canadian crude.
Use of natural gas pipelines, meanwhile, declined with waning western Canadian gas production and increased competition with western U.S. supply basins in 2007, the NEB said.
"Pipeline capacity is adequate across the country although there may be occasions of short-term limitation at some points depending upon markets, storage and seasonal shifts," it said.
© The Calgary Herald 2008
Suppose Alberta had this huge surplus - wait, it does!
JEFFREY SIMPSON
Globe and Mail
June 27, 2008
Later this summer, the Alberta government will announce the first-quarter estimate for its 2008-2009 budget surplus.
On budget day, the government based its analysis on $78-a-barrel oil. It predicted a $1.6-billion surplus, even after huge spending increases.
With oil trading between $130 and $140 a barrel, it now looks as if the Alberta budget surplus for this fiscal year will be between $11-billion and $12-billion. Forecasters are already suggesting that the 2009-2010 budget surplus could hit $20-billion.
In Ottawa, the Harper government bought Quebec's argument that a "fiscal imbalance" existed between the federal government and the provinces. The argument ran that Ottawa had too much money, and provinces too little. So Ottawa had to hand over billions of dollars, which the Harper government did.
That was a so-called vertical imbalance between two levels of government. Canada now faces the most severe horizontal imbalance since the 1970s. One province, Alberta, has a surplus 10 times greater than Ottawa's and larger than all the provincial surpluses combined. In fact, Alberta's surplus will be greater than the federal and other provincial surpluses combined.
If oil prices remain high, or go higher, the huge gap between Alberta's revenues (and, to a lesser extent, Saskatchewan's) will widen every year.
Until now, almost no one in the country dared mention this gap. People outside of Alberta were scared of conjuring up memories of the Trudeau era's national energy program. People thought oil would settle back to a lower price. The Alberta government was soaking up the surpluses with a spending spree on infrastructure and health care. The gaps were big, but not that big.
What, if anything, will the national government do faced with this horizontal imbalance? Chances are, nothing, given the Harper government's political base in Alberta and its belief in "open federalism," which invariably translates into letting provinces pretty much do what they want and allowing the chips to fall where they will.
Very high oil prices, however, bring a series of jarring adjustments that do affect Ottawa's ability to run the economy.
The equalization formula, for example, is going to be so out of whack that the Toronto-Dominion Bank anticipates Ontario will be receiving payments from Ottawa within two years.
The Bank of Canada has refused to lower interest rates because it's worried about inflation produced by higher energy (and food) costs.
Manufacturers won't like this approach, since they're being terribly squeezed, but the soaring costs of energy make the bank fear inflation.
The high dollar stems, in part, from the incredible infusion of money into the country from high oil prices that produce gains for producers and losses for consumers. Good luck telling a manufacturer that a dollar at parity with the greenback is a good thing when a productivity gap exists between the United States and Canada.
The Alberta boom sucks up labour from less fortunate parts of Canada. Labour markets, in this sense, are working. Some of the money earned in that province works its way to other parts of Canada, but the gap in the ability of citizens to receive public services among provinces widens.
A national government twice tried to grapple with such huge regional spreads caused by high oil prices. Everyone remembers the NEP, but it's often forgotten that Joe Clark's government tried in 1979 to negotiate a deal with then-premier Peter Lougheed to recycle some of Alberta's petro-revenues across the country. The negotiations were extremely difficult. They remained unfinished when the Clark government fell, with consequences for Alberta.
There will be fierce resistance in Alberta to even discussing the huge challenges associated with this burgeoning gap. We give through equalization, many Albertans will say. End of story. People such as Mr. Lougheed worry about the problem; the current government in Edmonton does not.
A few Albertans talk privately about how the province can spread at least some of its money across the country. Alberta, for example, could take $2-billion of that surplus and launch a crash program with industry and universities across Canada to solve the technical problems of sequestering carbon emissions.
The Harperites apparently won't say boo about the gap, even though the gap makes their life harder as a national government. Since no one can get near Mr. Harper to ask him a question, his views on the situation are unknown.
June 29, 2008
Oil disquiet on the Western front
North American media, Andrew Nikiforuk says, take for granted how much oil undermines democracy, powers our food system, feeds our drug-addled medical industry and concentrates our cities like bovine feedlots
ANDREW NIKIFORUK
Globe and Mail
June 28, 2008
Oil has fantastic powers: Like the genie from One Thousand and One Nights, it can grant impossible political wishes both fair and foul. This is why the U.S. oil baron John D. Rockefeller once, in a moment of reflection, called oil "the Devil's tears," and why Sheik Ahmed Zaki Yamani, in a moment of exasperation, wished that Saudi Arabia had discovered water, and why the late Venezuelan writer Jose Ignacio Cabrujas, in a moment of subversion, wrote that oil can create "a culture of miracles" that erases memory.
Canadians, the newly minted inhabitants of "an emerging energy superpower," now stand at the gas pumps cursing the price of oil and the prospect of shortened summer vacations. Yet they forget that many of our ancestors agonized about the price of slaves only 200 years ago. We too complained bitterly about the cost of feeding indentured labour, and dismissed the ugly rhetoric of abolitionists as offensive.
A barrel of oil, as analyst Dave Hughes often reminds me, equals 8.6 years of human labour. Think about that. "A human life span could produce about three barrels of oil-equivalent energy," he adds. We often miss this Hummer-sized truth because, as the Arabs know, petroleum induces lazy thinking and even lazier economics.
In fact, the North American media take for granted how much oil undermines democracy, powers our food system, feeds our drug-addled medical industry and concentrates our cities like bovine feedlots. It has done so as assuredly as cheap labour built Rome. "Slavery," a Wall Street Journal scribe recently wrote, "was the oil business of its time - profitable, essential, permitting piracy, demanding collusion in countless ills."
I don't think anyone has yet written a good book about how oil has replaced the true meaning of capital, let alone the energy of slaves, but Walter Youngquist has certainly chronicled the miraculous importance of "the Petroleum Interval." Youngquist, the author of GeoDestinies: The Inevitable Control of Earth Resources Over Nations and Individuals (National Book Company, 1997), is no green prophet. For most of his life, the thoughtful, Oregon-based geologist has worked for the world's major oil companies in 70 countries.
Unlike most environmentalists, Youngquist sensibly appreciates the versatility and portability of oil. But unlike most economists, he recognizes that oil is a finite treasure and that most of the world's endowment (the so-called cheap stuff) has been consumed in less than one human lifetime. The oil glass, now half empty, sits on a global table where China and India want a long draught of the economic elixir too. "There is no parallel in history for such a rapid development of and use of a resource as in the case of oil. ... It will be but a brief bright blip on the screen of human history."
Although Youngquist's book is now dated, his wisdom is not. Just a decade ago, he predicted that converting food to gasoline was wasteful nonsense; that industry's faith-based ideology in "technological fixes" was no answer to unrestrained growth; and that the tar sands could not prolong the Petroleum Interval. However, he did think the sands' prudent, well-sequenced development would be "important to Canada as a long-term source of energy and income." He recommended that we conserve the resource, not liquidate it.
Although debates about tar sands and its dirty character now dominate the news, most Canadians still know little about the world's largest energy project. But Larry Pratt does and did. In 1976, then a University of Alberta political scientist, he recognized that this Earth-destroying economy (and that's just what it is) would change the nation. His brilliant book The Tar Sands: Syncrude and the Politics of Oil (Hurtig, 1976) makes for disturbingly prescient reading today.
Pratt argued that the rapid development of the tar sands, which seemed imminent in the 1970s, would hollow out the nation's economy, enrich multinationals, impoverish Alberta and create what even federal bureaucrats then called "a biologically barren wasteland" along the Athabasca River. Pratt also recognized that the tar sands concerned us all: "Every Canadian, and every Canadian's children and their children, have a stake in the future of development of our energy resources." From an environmental standpoint, he predicted that Alberta was "walking blindfolded into the industrialization of the tar sands."
Even an industry consultant told Pratt, more than 30 years ago, "that before commencing development on the scale presently being contemplated, the government should have initiated ecological studies back about 1948 to monitor water flows, climate changes, soil conditions, temperature inversions etc., on a long-term basis. But such concerns were not taken seriously."
In the past decade, the moral carelessness of the Alberta and federal governments has grown exponentially. As a consequence, even U.S. mayors and British energy consumers are now talking about Canada's "dirty oil," because bitumen, no matter how you spin it, is a corrosive, smog-making, water-fouling, bottom-of-the-barrel product. Make no mistake about it: Canada now faces an intractable political emergency. It can either slow down tar sands development to serve a planned national transition to renewable energy sources, or it can rape the world's last great oil field and put the nation on a road to hell.
But however destructive the energy policies of government may be, the root of the problem "is always to be found in private life." That is the argument of U.S. man of letters and farmer Wendell Berry in Sex, Economy, Freedom and Community (Pantheon, 1993), and I share it reluctantly because of its inconvenient and personal implications: The boreal forest and the Mackenzie River basin aren't being destroyed by bad oilmen, but by popular demand and my driving habits. Berry's book, as fresh as newly baked bread, stands as one of the most powerful and conservative critiques of North American life ever written. "We face a choice that is starkly simple: we must change or be changed. If we fail to change for the better, then we will be changed for the worse."
Canadians, a mining people, now face a challenge more daunting than Ypres at the pumps and in the sands.
Andrew Nikiforuk's next book, The Tar Sands: Dirty Oil and the Future of a Continent, will be published this fall.
Envisioning a world of $200-a-barrel oil
As forecasters take that possibility more seriously, they describe fundamental shifts in the way we work, where we live and how we spend our free time.
By Martin Zimmerman
Los Angeles Times
June 28, 2008
The more expensive oil gets, the more Katherine Carver's life shrinks. She's given up RV trips. She stays home most weekends. She's scrapped her twice-a-month volunteer stint at a Malibu wildlife refuge -- the trek from her home in Palmdale just got too expensive.
How much higher would fuel prices have to go before she quit her job? Already, the 170-mile round-trip commute to her job with Los Angeles County Child Support Services in Commerce is costing her close to $1,000 a month -- a fifth of her salary. It's got the 55-year-old thinking about retirement.
"It's definitely pushing me to that point," Carver said.
The point could be closer than anyone thinks.
Three months ago, when oil was around $108 a barrel, a few Wall Street analysts began predicting that it could rise to $200. Many observers scoffed at the forecasts as sensational, or motivated by a desire among energy companies and investors to drive prices higher.
But with oil closing above $140 a barrel Friday, more experts are taking those predictions seriously -- and shuddering at the inflation-fueled chaos that $200-a-barrel crude could bring. They foresee fundamental shifts in the way we work, where we live and how we spend our free time.
"You'd have massive changes going on throughout the economy," said Robert Wescott, president of Keybridge Research, a Washington economic analysis firm. "Some activities are just plain going to be shut down."
Besides the obvious effect $7-a-gallon gasoline would have on commuters, automakers, airlines, truckers and shipping firms, $200 oil would drive up the price of a broad spectrum of products: Insecticides and hand lotions, cosmetics and food preservatives, shaving cream and rubber cement, plastic bottles and crayons -- all have ingredients derived from oil.
The pain would probably be particularly intense in Southern California, which is known for its long commutes and high cost of living.
"Throughout our history, we have grown on the assumption that energy costs would be low," said Michael Woo, a former Los Angeles city councilman and a current member of the city Planning Commission. "Now that those assumptions are shifting, it changes assumptions about housing, cars and how cities grow."
Push prices up fast enough, he said, and "it would be the urban-planning equivalent of an earthquake."
Consumers
With every penny hike in the price of gas costing American consumers about $1 billion a year, sharply higher pump prices would lead to "significant bankruptcies and store closings," said Scott Hoyt, director of consumer economics at Moody's Economy.com.
Consumer spending has held up surprisingly well in the face of skyrocketing pump prices -- bolstered in part, perhaps, by federal tax rebates. But the same day the government reported a 0.8% rise in May consumer spending, a research firm said consumer confidence had plunged to its lowest level since 1980 -- hinting at the catastrophic effect another big gas price surge could have on retailers and customers.
"The purchasing power of the American people would be kicked in the teeth so darned hard by $200-a-barrel oil that they won't have the ability to buy much of anything," said S. David Freeman, president of the L.A. Board of Harbor Commissioners and author of the 2007 book "Winning Our Energy Independence."
BIGresearch of Worthington, Ohio, said more than half of Californians in a recent survey said they were driving less because of high gas prices. Almost 42% said they had reduced vacation travel and 40% said they were dining out less.
If any retailers would benefit, it would be those on the Internet. In a recent survey by Harris Interactive, one-third of adults said high gas prices had made them more likely to shop online to avoid driving.
Restaurant operators such as Brinker International, which owns the Chili's and Romano's Macaroni Grill chains, are suffering and are likely to struggle even more as consumers look for ways to reduce spending. Fast-food chains wouldn't be immune, experts say, although they might fare better as families downscale their dining choices.
Vehicle sales, too, would probably continue to tank. Sales of new cars, sport utility vehicles and light trucks fell more than 18% in California in the first quarter compared with a year earlier. Although some consumers have been shopping for smaller, more fuel-efficient vehicles, many dealers are demanding premiums for gas-sipping hybrids, wiping out much of the financial advantage of buying one.
Nationwide, $200 oil and $7 gasoline would force Americans to take 10 million vehicles off the roads over the next four years, Jeff Rubin, chief economist at CIBC World Markets, wrote in a recent report.
As for the state's beleaguered housing market, prices are falling faster in areas requiring long commutes -- such as Lancaster and Palmdale -- than in neighborhoods closer to job centers.
Sky-high gas prices "would basically reorient society to where proximity would be more valuable," said Tom Gilligan, finance professor at USC.
Americans may also feel the effects of a rise in energy-related crime. Ads for locking gas caps are becoming more prevalent. Restaurant owners are complaining that thieves are helping themselves to used barrels of cooking oil, which can be home-brewed into biodiesel fuel.
Transportation
Workers stuck with long commutes and gas-guzzling cars would look increasingly to public transit, experts say.
Already Californians' mobility is being curbed. Traffic on the state's freeways fell almost 4% in April compared with a year earlier, and ridership on many subway and bus lines operated by the L.A. County Metropolitan Transportation Authority has risen in recent months.
But a huge influx of riders would strain aspects of the system, MTA says, noting that many buses are overcrowded at rush hour now.
Quickly adding capacity to meet demand from new riders wouldn't be easy, because new buses cost hundreds of thousands of dollars and take up to two years to deliver.
Transit advocate Kymberleigh Richards said new riders on popular routes such as Wilshire Boulevard, Vermont Avenue or Sherman Way in the San Fernando Valley "are going to have a bit of a culture shock. It's a different world to be using public transit when you're used to being in your own vehicle by yourself."
Just how many drivers would become public-transit riders if oil surges to $200 a barrel is hard to predict, but there's a big pool of potential customers. About 87% of Southern Californians commute by car, according to 2005 data from transportation expert Alan Pisarski. That compares with 63% in New York and its environs.
Travelers can also expect much fuller airplanes and much more expensive flights -- when they're available at all. Delta Air Lines Inc., for example, recently said it was cutting about 13% of its flights from Los Angeles International Airport to save fuel.
It also could mean shifting flights from outlying airports such as Ontario to LAX to cut overhead costs, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. Carriers probably would also trim flights in highly competitive air corridors such as L.A. to the San Francisco Bay Area.
Even the cost of getting away from it all on Santa Catalina Island would go up. Greg Bombard, president of the Catalina Express ferry service, has trimmed schedules, raised fares and reduced hiring to make up for fuel costs that have risen sevenfold since 2002. Another big increase and he says he'll have to ask state regulators, who control his rates, to OK another fare hike.
Trade
The fee increases on the ferry would be nothing compared with the added cost of transoceanic shipping if oil goes to $200. Some experts say high energy costs are altering global trade and slowing the pace of globalization.
It takes about 7,000 tons of bunker-fuel to fill the tanks of a 5,000-container cargo ship for a trip from Shanghai to Los Angeles. Over the last year and half, the cost of that fuel has jumped 87% to $552 a ton, according to the World Shipping Council, boosting the cost of a fill-up to more than $3.8 million.
"To put things in perspective, today's extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America," said Rubin of CIBC World Markets. "At $200 per barrel, the tariff equivalent rate will rise to 15%."
If oil continues to rise from current levels, officials at the Port of Los Angeles believe West Coast ports would gain business because they are 10 to 12 days' sailing time from Asia, versus the 18-to-20-day route from Asia to the East Coast through the Panama Canal.
But local ports could lose business if shipping costs get so out of hand that companies begin shifting production back to North America from Asia -- something that's happening in the steel industry, Rubin said.
Local distribution patterns could change too. Stephen Gaddis, chief executive of Pacific Cheese Co., a Hayward, Calif., cheese processing and packaging firm, thinks high fuel prices will push restaurants, retailers and food manufacturers to look for suppliers closer to their operations.
"Local sourcing is ideal. You won't pay as much for freight, and when you use less fuel it's better for the environment," Gaddis said.
Soaring diesel prices will make companies rethink whether they should have large, centralized plants or build smaller ones around the country.
That's what Pacific Cheese is doing. It's building a packaging plant in Texas to be closer to one of its larger suppliers and expects to serve its Southwestern clients from there.
In the near future, however, consumers can expect to pay for the higher cost of producing food and moving it around the country, say food executives, farmers and economists. Even having a deep-dish pizza with extra cheese brought to your door costs more now that chains such as Pizza Hut are charging for delivery.
The workplace
Dramatically higher transportation costs would usher in an era of virtual mobility, or zero mobility, for many workers.
"We're seeing companies go to four-day workweeks, place increased emphasis on working at home, show bigger interest in setting up satellite offices -- anything that gets commute times down and gets people off the road," said analyst Rob Enderle of Enderle Group in San Jose.
Videoconferencing, touted as "the next big thing" for years, would finally have its day, thanks to improved technology and a desperation to cut corporate travel budgets.
Telecommuting, or working from home, is easier than ever because of the spread of high-speed Internet access, said Jonathan Spira, chief analyst at Basex Inc., a business research firm in New York. In particular, workers in "knowledge" jobs that can be performed with computers and phones would benefit.
But Gilligan of USC noted that lower-income workers tend to be in jobs that don't favor telecommuting, such as retail and food service.
"These are the same people who are already being creamed by the mortgage crisis," he said. "The impacts of energy price increases are highly disparate."
Although white-collar workers may be able to telecommute, they could also take a serious financial hit because soaring energy prices tend to wreak havoc on the stock market. The explosion of 401(k) plans and similar retirement accounts in the last few decades -- and the decline of traditional pensions with guaranteed payouts -- have tied workers' financial futures more closely to stocks than they were during the 1970s oil shocks. A prolonged Wall Street downturn could mean a no-frills retirement, or none at all.
Upsides
It wouldn't all be bad, of course. Some industries could boom, providing jobs and tax dollars. California has seen a jump in drilling activity as oil companies try to extract more crude from the state's fields. Regulators expect a record 4,000 wells to be drilled in the state this year.
"Every rig and every crew that's available is working right now," said Hal Bopp, the state's oil and gas supervisor.
And as rising oil prices make alternative-fuel vehicles more cost-effective, California companies such as Tesla Motors Inc., which recently began production of a $100,000 all-electric sports car, could become important leaders in an emerging industry.
Tourist attractions may also see an upswing in local business as families look for less-expensive vacation alternatives close to home. A recent survey by travel insurer Access America found that 26% of Americans would cut back on recreational travel as a first response to higher gas prices.
In Southern California, with its many natural wonders, theme parks and other attractions, the prospect of a "staycation" may be less disappointing than for a resident of, say, Nebraska. And movies, a staple of the local economy, may prosper as Americans seek escapism and a (relatively) cheap night out.
And spending less time stuck in traffic on the 405? Priceless.
"More carpooling, fewer people on the freeways, more telecommuting -- in many ways, what would happen is what people have been trying to make happen for a long time," USC's Gilligan said.
Times staff writers Ken Bensinger, Leslie Earnest, Jerry Hirsch, Peter Pae and Ronald D. White contributed to this report.
June 24, 2008
Global Warming Twenty Years Later
see also Put oil firm chiefs on trial
by James Hansen
www.worldwatch.org
June 23, 2008
Tipping Points Near
Today, I will testify to Congress about global warming, 20 years after my June 23, 1988 testimony, which alerted the public that global warming was under way. There are striking similarities between then and now, but one big difference.
Again a wide gap has developed between what is understood about global warming by the relevant scientific community and what is known by policymakers and the public. Now, as then, frank assessment of scientific data yields conclusions that are shocking to the body politic. Now, as then, I can assert that these conclusions have a certainty exceeding 99 percent.
The difference is that now we have used up all slack in the schedule for actions needed to defuse the global warming time bomb. The next President and Congress must define a course next year in which the United States exerts leadership commensurate with our responsibility for the present dangerous situation.
Otherwise, it will become impractical to constrain atmospheric carbon dioxide, the greenhouse gas produced in burning fossil fuels, to a level that prevents the climate system from passing tipping points that lead to disastrous climate changes that spiral dynamically out of humanity's control.
Changes needed to preserve creation, the planet on which civilization developed, are clear. But the changes have been blocked by special interests, focused on short-term profits, who hold sway in Washington and other capitals.
I argue that a path yielding energy independence and a healthier environment is, barely, still possible. It requires a transformative change of direction in Washington in the next year.
Then: Time to "Stop Waffling"
On June 23, 1988, I testified to a hearing chaired by Senator Tim Wirth of Colorado that the Earth had entered a long-term warming trend, and that human-made greenhouse gases almost surely were responsible. I noted that global warming enhanced both extremes of the water cycle, meaning stronger droughts and forest fires, on the one hand, but also heavier rains and floods.
My testimony two decades ago was greeted with skepticism. But while skepticism is the lifeblood of science, it can confuse the public. As scientists examine a topic from all perspectives, it may appear that nothing is known with confidence. But from such broad open-minded study of all data, valid conclusions can be drawn.
My conclusions in 1988 were built on a wide range of inputs from basic physics, planetary studies, observations of ongoing changes, and climate models. The evidence was strong enough that I could say it was time to "stop waffling." I was sure that time would bring the scientific community to a similar consensus, as it has.
While international recognition of global warming was swift, actions have faltered. The United States refused to place limits on its emissions, and developing countries such as China and India rapidly increased their emissions.
The Coming Storm
What is at stake? Warming so far, about two degrees Fahrenheit over land areas, seems almost innocuous, being less than day-to-day weather fluctuations. But more warming is already "in-the-pipeline," delayed only by the great inertia of the world ocean. And climate is nearing dangerous tipping points. Elements of a "perfect storm," a global cataclysm, are assembled.
Climate can reach points such that amplifying feedbacks spur large rapid changes. Arctic sea ice is a current example. Global warming initiated sea ice melt, exposing darker ocean that absorbs more sunlight, melting more ice. As a result, without any additional greenhouse gases, the Arctic soon will be ice-free in the summer.
More ominous tipping points loom. West Antarctic and Greenland ice sheets are vulnerable to even small additional warming. These two-mile-thick behemoths respond slowly at first, but if disintegration gets well under way it will become unstoppable. Debate among scientists is only about how much sea level would rise by a given date. In my opinion, if emissions follow a business-as-usual scenario, sea level rise of at least two meters is likely this century. Hundreds of millions of people would become refugees. No stable shoreline would be reestablished in any time frame that humanity can conceive.
Animal and plant species are already stressed by climate change. Polar and alpine species will be pushed off the planet, if warming continues. Other species attempt to migrate, but as some are extinguished, their interdependencies can cause ecosystem collapse. Mass extinctions, of more than half the species on the planet, have occurred several times when the Earth warmed as much as expected if greenhouse gases continue to increase. Biodiversity recovered, but it required hundreds of thousands of years.
Getting to 350 ppm
The disturbing conclusion, documented in a paper[1] I have written with several of the world's leading climate experts, is that the safe level of atmospheric carbon dioxide is no more than 350 ppm (parts per million), and it may be less. Carbon dioxide amount is already 385 ppm and rising by about 2 ppm per year. Stunning corollary: the oft-stated goal to keep global warming less than two degrees Celsius (3.6 degrees Fahrenheit) is a recipe for global disaster, not salvation.
These conclusions are based on paleoclimate data showing how the Earth responded to past levels of greenhouse gases and on observations showing how the world is responding to today's carbon dioxide amount. The consequences of continued increase of greenhouse gases extend far beyond extermination of species and future sea level rise.
Arid subtropical climate zones are expanding poleward. Already an average expansion of about 250 miles has occurred, affecting the southern United States, the Mediterranean region, Australia, and southern Africa. Forest fires and drying-up of lakes will increase further unless carbon dioxide growth is halted and reversed.
Mountain glaciers are the source of fresh water for hundreds of millions of people. These glaciers are receding worldwide, in the Himalayas, Andes, and Rocky Mountains. They will disappear, leaving their rivers as trickles in late summer and fall, unless the growth of carbon dioxide is reversed.
Coral reefs, the rainforests of the ocean, are home for one-third of the species in the sea. Coral reefs are under stress for several reasons, including warming of the ocean, but especially because of ocean acidification, a direct effect of added carbon dioxide. Ocean life dependent on carbonate shells and skeletons is threatened by dissolution as the ocean becomes more acid.
Such phenomena, including the instability of Arctic sea ice and the great ice sheets at today's carbon dioxide amount, show that we have already gone too far. We must draw down atmospheric carbon dioxide to preserve the planet we know. A level of no more than 350 ppm is still feasible, with the help of reforestation and improved agricultural practices, but just barely - time is running out.
Moving Away from Fossil Fuels
Requirements to halt carbon dioxide growth follow from the size of fossil carbon reservoirs. Coal towers over oil and gas. Phasing out the use of coal except where the carbon is captured and stored below ground is the primary requirement for solving global warming.
Oil is used in vehicles, where it is impractical to capture the carbon. But oil is running out. To preserve our planet we must ensure that the next mobile energy source is not obtained by squeezing oil from coal, tar shale, or other fossil fuels.
Fossil fuel reservoirs are finite, which is the main reason that prices are rising. We must move beyond fossil fuels eventually. Solution of the climate problem requires that we move to carbon-free energy promptly.
Special interests have blocked the transition to our renewable energy future. Instead of moving heavily into renewable energies, fossil fuel companies choose to spread doubt about global warming, just as tobacco companies discredited the link between smoking and cancer. Methods are sophisticated, including funding to help shape school textbook discussions of global warming.
CEOs of fossil energy companies know what they are doing and are aware of the long-term consequences of continued business as usual. In my opinion, these CEOs should be tried for high crimes against humanity and nature.
But the conviction of ExxonMobil and Peabody Coal CEOs will be no consolation if we pass on a runaway climate to our children. Humanity would be impoverished by ravages of continually shifting shorelines and intensification of regional climate extremes. Loss of countless species would leave a more desolate planet.
If politicians remain at loggerheads, citizens must lead. We must demand a moratorium on new coal-fired power plants. We must block fossil fuel interests who aim to squeeze every last drop of oil from public lands, off-shore, and wilderness areas. Those last drops are no solution. They yield continued exorbitant profits for a short-sighted, self-serving industry, but no alleviation of our addiction or long-term energy source.
Pricing Carbon Emissions
Moving from fossil fuels to clean energy is challenging, yet it is also transformative in ways that will be welcomed. Cheap, subsidized fossil fuels engendered bad habits. We import food from halfway around the world, for example, even with healthier products available from nearby fields. Local produce would be competitive were it not for fossil fuel subsidies and the fact that climate change damages and costs, due to fossil fuels, are also borne by the public.
A price on emissions that cause harm is essential. Yes, a carbon tax. A carbon tax with a 100 percent dividend[2] is needed to wean us off of our fossil fuel addiction. A tax and dividend allows the marketplace, not politicians, to make investment decisions.
A carbon tax on coal, oil, and gas is simple, applied at the first point of sale or port of entry. The entire tax must be returned to the public-an equal amount to each adult, a half-share for children. This dividend can be deposited monthly in an individual's bank account.
A carbon tax with a 100 percent dividend is non-regressive. On the contrary, you can bet that low- and middle-income people will find ways to limit their carbon tax and come out ahead. Profligate energy users will have to pay for their excesses.
Demand for low-carbon, high-efficiency products will spur innovation, making U.S. products more competitive on international markets. Carbon emissions will plummet as energy efficiency and renewable energies grow rapidly. Black soot, mercury, and other fossil fuel emissions will decline. A brighter, cleaner future, with energy independence, is possible.
America's Role
Washington likes to spend our tax money line-by-line. Swarms of high-priced lobbyists in alligator shoes help Congress decide where to spend, and in turn the lobbyists' clients provide "campaign" money.
The public must send a message to Washington. Preserve our planet, and creation, for our children and grandchildren, but do not use that as an excuse for more tax-and-spend. Let this be our motto: "One hundred percent dividend or fight!"
The next President must make a national low-loss electric grid an imperative. It will allow dispersed renewable energies to supplant fossil fuels for power generation. Technology exists for direct-current high-voltage buried transmission lines. Trunk lines can be completed in less than a decade and expanded, in a way analogous to interstate highways.
Government must also change utility regulations so that profits do not depend on selling ever more energy, but instead increase with efficiency. Building-code and vehicle-efficiency requirements must be improved and put on a path toward carbon neutrality.
The fossil fuel industry maintains its stranglehold on Washington via demagoguery, using China and other developing nations as scapegoats to rationalize inaction. In fact, the United States produced most of the excess carbon in the air today, and it is to our advantage as a nation to move smartly in finding ways to reduce emissions. As with the ozone problem, developing countries can be allowed limited extra time to reduce emissions. They will cooperate: they have much to lose from climate change and much to gain from clean air and reduced dependence on fossil fuels.
The United States must establish fair agreements with other countries. However, our own tax and dividend should start immediately. We have much to gain from it as a nation, and other countries will copy our success. If necessary, import duties on products from uncooperative countries can level the playing field, with the import tax added to the dividend pool.
Democracy works, but sometimes it churns slowly. Time is short. The 2008 election is critical for the planet. If Americans turn out to pasture the most brontosaurian congressmen, and if Washington adapts to address climate change, our children and grandchildren can still hold great expectations.
Dr. James E. Hansen, a physicist by training, directs the NASA Goddard Institute for Space Studies, a laboratory of the Goddard Space Flight Center and a unit of the Columbia University Earth Institute, but he testifies here as a private citizen.
[1] J. Hansen et al., "Target Atmospheric CO2: Where Should Humanity Aim?" submitted 18 June 2008. See http://arxiv.org/abs/0804.1126 and http://arxiv.org/abs/0804.1135.
[2] The proposed "tax and 100% dividend" is based largely on the cap-and-dividend approach described by Peter Barnes in Who Owns the Sky: Our Common Assets and the Future of Capitalism (Washington, DC: Island Press, 2001). See http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=116&subsecID=149&contentID=3867.
June 23, 2008
Put oil firm chiefs on trial,
says leading climate change scientist
Turning Up the Heat on Climate Issue
David A. Fahrenthold, Washington Post, 23-Jun-2008
Put oil firm chiefs on trial, says leading climate change scientist
Ed Pilkington, The Guardian, 23-Jun-2008
see also Global warming twenty years later
Turning Up the Heat on Climate Issue
20 Years Ago, a 98-Degree Day Illustrated Scientist's Warning
By David A. Fahrenthold
Washington Post Staff Writer
Monday, June 23, 2008
NASA's James E. Hansen will mark the
anniversary with new testimony.
(2004 Photo By Melanie Patterson --
Daily Iowan Via Ap)
There have been hotter days on Capitol Hill, but few where the heat itself became a kind of congressional exhibit. It was 98 degrees on June 23, 1988, and the warmth leaked in through the three big windows in Dirksen 366, overpowered the air conditioner, and left the crowd sweating and in shirt sleeves.
James E. Hansen, a NASA scientist, was testifying before the Senate Energy and Natural Resources Committee. He was planning to say something radical: Global warming was real, it was a threat, and it was already underway.
Hansen had hoped for a sweltering day to underscore his message.
"We were just lucky," Hansen said last week.
Today, 20 years later, a series of events around Washington will commemorate Hansen's appearance before the Senate committee. Hansen himself will appear before a House committee on global warming. [speech]
This anniversary comes just after a major setback for environmentalists, as a bill that would have begun to regulate greenhouse-gas emissions failed in the Senate.
But still, activists say that Hansen's 1988 testimony will look to history like a turning point -- a moment when the word "if" started to disappear from the national debate about climate change.
"Before Jim Hansen's testimony, global climate change was not on the political agenda. It was something that a few environmentalists and a few politicians . . . were talking about," said Jonathan Lash, president of the World Resources Institute, an environmental group.
"Hansen was clear, explicit and unequivocal," Lash said. "It absolutely put global climate change at the center of the discussion."
Hansen, the director of NASA's Goddard Institute for Space Studies in New York, will give a speech on climate change at noon at the National Press Club. In the afternoon, he is scheduled to give a briefing before the House Select Committee on Energy Independence and Global Warming.
He is now semi-famous, at least in Washington, for his warnings about the growing danger of climate change -- and for his repeated showdowns with higher-ups who have sought control over his message. The clashes have been particularly frequent with the administration of George W. Bush.
In 1988, however, Hansen was just a government scientist, and his cause was almost equally obscure.
He told the sweltering senators that 1988 was shaping up to be the warmest year in recorded history, and that -- with heat-trapping gases building up in the atmosphere -- this was probably not a coincidence.
"The greenhouse effect has been detected, and it is changing our climate now," Hansen said, according to a Washington Post account of the hearing. "We already reached the point where the greenhouse effect is important."
Christopher Flavin of the Worldwatch Institute said Hansen's testimony made a crucial point: that rising temperatures were a problem for the present, not just for future generations.
"Until there was some evidence that it was actually happening, it was virtually impossible to motivate anyone," said Flavin, whose group is hosting Hansen's lunchtime speech today. "That will really sort of go down in history as a kind of pivot point."
Two decades later, climate change has become a global cause. Last year, the United Nations Intergovernmental Panel on Climate Change -- a collaboration of scientists from around the world -- won the Nobel Peace Prize for research establishing a consensus that the phenomenon is real. The panel shared the prize with former vice president Al Gore, who was recognized for his film "An Inconvenient Truth."
But things look different on Capitol Hill. In the two decades since Hansen's testimony, Congress has not passed any law mandating major cuts in greenhouse-gas emissions. In that interval, 21 new coal-fired generating units have been built at power plants around the United States. The country's total emissions of carbon dioxide have climbed by about 18 percent, according to the latest statistics.
The most recent attempt to pass a law, sponsored by Sens. Joseph I. Lieberman (I-Conn.) and John W. Warner (R-Va.), was pulled from the Senate floor June 6, after its supporters could not muster the votes to overcome a filibuster threat.
Opponents of the bill said that it would impose huge costs on the U.S. economy by raising fuel prices and that it would deliver only uncertain results.
In an e-mailed statement, Sen. James M. Inhofe (R-Okla.) said the bill's failure was proof that Hansen's message had not caught on.
"Hansen, Gore, and the media have been trumpeting man-made climate doom since the 1980s. But Americans are not buying it," Inhofe said. "It's back to the drawing board for Hansen and company as the alleged 'consensus' over man-made climate fears continues to wane and more and more scientists declare their dissent."
Today, Hansen said, he intends to repeat his message from two decades ago -- this time with even more urgency. He said he believes that the United States must wean itself almost totally off fossil fuels, and do it as quickly as possible, to stave off the most catastrophic consequences of warming.
"We're at the situation again when there's this big gap between what we understand scientifically and what is known, recognized by the public and policymakers," he said. "This time, we have to close that gap in a hurry, because we're running out of time."
This time, though, the weather won't help as much. The high for today is supposed to be only in the low 80s.
Staff writer Joel Achenbach contributed to this report.
Put oil firm chiefs on trial, says leading climate change scientist
· Speech to US Congress will also criticise lobbyists
· 'Revolutionary' policies needed to tackle crisis
Ed Pilkington in New York
The Guardian,
Monday June 23, 2008
James Hansen, one of the world's leading climate scientists, will today call for the chief executives of large fossil fuel companies to be put on trial for high crimes against humanity and nature, accusing them of actively spreading doubt about global warming in the same way that tobacco companies blurred the links between smoking and cancer. [speech]
Hansen will use the symbolically charged 20th anniversary of his groundbreaking speech to the US Congress - in which he was among the first to sound the alarm over the reality of global warming - to argue that radical steps need to be taken immediately if the "perfect storm" of irreversible climate change is not to become inevitable.
Speaking before Congress again, he will accuse the chief executive officers of companies such as ExxonMobil and Peabody Energy of being fully aware of the disinformation about climate change they are spreading.
In an interview with the Guardian he said: "When you are in that kind of position, as the CEO of one the primary players who have been putting out misinformation even via organisations that affect what gets into school textbooks, then I think that's a crime."
He is also considering personally targeting members of Congress who have a poor track record on climate change in the coming November elections. He will campaign to have several of them unseated. Hansen's speech to Congress on June 23 1988 is seen as a seminal moment in bringing the threat of global warming to the public's attention. At a time when most scientists were still hesitant to speak out, he said the evidence of the greenhouse gas effect was 99% certain, adding "it is time to stop waffling".
He will tell the House select committee on energy independence and global warming this afternoon that he is now 99% certain that the concentration of CO2 in the atmosphere has already risen beyond the safe level.
The current concentration is 385parts per million and is rising by 2ppm a year. Hansen, who heads Nasa's Goddard Institute for Space Studies in New York, says 2009 will be a crucial year, with a new US president and talks on how to follow the Kyoto agreement.
He wants to see a moratorium on new coal-fired power plants, coupled with the creation of a huge grid of low-loss electric power lines buried under ground and spread across America, in order to give wind and solar power a chance of competing. "The new US president would have to take the initiative analogous to Kennedy's decision to go to the moon."
His sharpest words are reserved for the special interests he blames for public confusion about the nature of the global warming threat. "The problem is not political will, it's the alligator shoes - the lobbyists. It's the fact that money talks in Washington, and that democracy is not working the way it's intended to work."
A group seeking to increase pressure on international leaders is launching a campaign today called 350.org. It is taking out full-page adverts in papers such as the New York Times and the Swedish Falukuriren calling for the target level of CO2 to be lowered to 350ppm. The advert has been backed by 150 signatories, including Hansen
Canada tries to cool oil price anxiety
COMMENT: In this article, T. Boone Pickens is quoted: "... price is going to continue to rise until you kill demand." You don't need to be a market fundamentalist to understand the essential logic of this comment. On the other hand, the amazing price of oil today is hardly explainable just on supply-demand fundamentals. The Bye, Bubble? article from Barron's which I've sent out with this email, proposes that the price of oil may be significantly influenced by commodity investment and speculation - a "bubble", unsupported by fundamental conditions. It also notes that the high price of oil corresponds to high share prices for oil producers - and share prices will be the first to collapse if the price of oil collapses. Hmm.
Nothing should have advanced the climate change agenda more, and reduced fossil fuel use more effectively, than the recent screaming rise in oil prices. Had a carbon tax been applied around the world that had that effect on oil prices, the governments that created the taxes would have been unelected, juntad, couped, assassinated en masse. Yet the increase in the price of oil has not been accompanied with a corresponding reduction in global demand. Why is that? Inelasticities in the oil market? The Exxon Valdes effect - big things are slow to respond?
It suggests to me that carbon taxes, even whacking great ones, might not be as effective as we have hoped.
Shaun Polczer
Calgary Herald
Sunday, June 22, 2008
CALGARY - Canada is pushing for more transparency in global energy markets at a special meeting of producing countries in Saudi Arabia, Natural Resources Minister Gary Lunn said Sunday.
Speaking from Jeddah on Saudi Arabia's Red Sea coast, Lunn said Canada has a role to play in calming jittery oil prices that have more than doubled from a year ago.
"All of the countries recognize this is a longer-term problem," he said following the meeting of big oil oil majors and producing countries.
Although Canada accounts for less than three per cent of the world's oil production, it sits on 15 per cent of the world's reserves - second only to Saudi Arabia - mostly concentrated in northeast Alberta.
"It was recognized that there is an adequate supply of oil reserves that remain for decades to come, but we do need to make strategic investments in development of some of these reserves as well as refining capacity."
Despite its relatively small share of the world oil market, Lunn noted that Canada is one of the few countries capable of significantly increasing production.
The Canadian Association of Petroleum Producers said last week Canada's output will nearly double to 4.5 million barrels per day by 2020. More than $100 billion worth of investments are on the books to triple oilsands production which is currently supplying slightly more than one million barrels per day.
Lunn described a "very co-operative approach" at the meeting, which committed to increasing oil production in a manner that recognizes the impact on the environment.
At the meeting, the Saudis suggested they would increase production over and above the 200,000 barrels per day they pledged last week.
But speaking in Calgary Friday, legendary Texas oil man T. Boone Pickens called the Saudi's additional production "peanuts" and said at least world two million additional barrels per day are needed to make a meaningful dent in oil prices.
He said blaming speculators for higher prices is "silly" and told the U.S. Senate last week that global oil production has peaked at 85 million barrels per day.
"So, what is going to happen is that price is going to continue to rise until you kill demand."
Earlier Sunday, King Abdullah said Saudi Arabia is not to blame for soaring oil prices, blaming speculators and surging demand in such developing economies as China and India.
"There are several factors behind the unjustified, swift rise in oil prices and they are: Speculators who play the market out of selfish interests, increased consumption by several developing economies and additional taxes on oil in several consuming countries," the king said in speech.
Despite their best intentions, doubts lingered as to whether the meeting will have an impact on oil prices.
"What I've heard so far are basically all good ideas, but it will probably not change the price tomorrow morning," Royal Dutch Shell CEO Jeroen van der Veer told Reuters in Jeddah.
Energy Minister Mel Knight of Alberta Friday told the Illinois Chamber of Commerce on Friday he expects oil prices to "spike" to $200 and said anything over $150 would damage the world economy.
Gerry Protti, an executive vice-president with Calgary-based EnCana Corp., also doubted whether the Jeddah meeting would accomplish its stated goal of lowering oil prices.
Speaking at the company's investor day on Thursday, Protti said Canada is a "price taker" rather than a "price setter" in the world market. He also said Canada is a marginal player despite its position as the number one supplier of oil and products to the United States.
"It's a market driven by huge forces, of which Canada, from a supply side, is one relatively small component."
There is also the question of whether lower oil prices are actually good for Canada and could threaten the economic viability of oilsands production.
Canada has consistently been pegged as one of the planet's highest-cost suppliers by advisory firms such as J.S. Herold in Connecticut.
Oilsands producers like Canadian Natural Resources' Steve Laut have said the company needs at least $75 US a barrel to cover costs and generate "acceptable" rates of return.
Speaking at the OPEC summit in November, Saudi oil minister Ali al-Naimi said Canada's "sands of oil" rely on unsustainable oil prices to be economically viable.
spolczer@theherald.canwest.com
© Calgary Herald 2008
Bye, Bubble? The Price of Oil May Be Peaking
Andrew Bary
Barron's
June 23, 2008
IT'S PERILOUS TO CALL THE TOP IN A BOOMING MARKET, but the price of oil may be peaking in the current range of $130 to $140 a barrel.
Oil's sharp move up -- prices have doubled in the past year -- caught the world by surprise, including almost everyone involved in the petroleum market, from major exporting nations to big energy companies to the global analyst community. The rally has emboldened oil bulls, who argue the world is bumping up against oil-supply constraints, and that demand will rise inexorably, despite sharply higher prices, as the four billion to five billion people in emerging economies like China and India get a taste of the energy-intensive good life, replete with the cars, air conditioners, refrigerators and computers that Americans and Western Europeans have long enjoyed. Statistics support their view that demand growth is in its infancy in the developing world: U.S. per-capita oil consumption is 25 barrels annually, while Japan uses 14 barrels per person. China's 1.3 billion people consume just two barrels each per year, however, and India's 1.1 billion use less than a barrel a year.
In the next decade, oil indeed may hit $200 a barrel. But prices could fall to $100 a barrel by the end of this year if Saudi Arabia makes good on its pledge to increase production; global demand eases; the Federal Reserve begins lifting short-term interest rates; the dollar rallies, and investors stop pouring money into the oil market. China raised prices on retail gasoline and diesel fuel by 18% Thursday, in a move that is expected to curb demand.
It's tough to know how much of the surge in crude-oil prices -- up 40% just this year -- reflects fundamental supply and demand, and how much is due to other factors, including the dollar, commodity speculation and interest from institutional investors. Like some others, we suspect the run-up was fueled by more than economics.
Jason Edmiston
THERE IS GROWING TALK OF AN OIL BUBBLE, THOUGH evidence of asset bubbles isn't conclusive until they burst. The trajectory of oil prices in the past eight years looks eerily similar to the Nasdaq's eight-year run to a peak of more than 5,000 in March 2000. More than eight years later, the Nasdaq is at half that level.
"My basic message to those who say that prices have to go up forever is that the oil markets have been cyclical for 140 years. Why should that have stopped?" says Edward Morse, chief energy economist at Lehman Brothers.
Saudi Arabia, the world's biggest oil exporter, has pledged to boost production from a recent 9.5 million barrels a day to about 9.7 million in order to reduce prices. The Saudis are hosting a summit of oil producers and consumers on June 22.
"The analytic community is divided on what the recent Saudi comments mean for the market," says Morse, who believes the Saudis will put more oil on the market as they raise production. "That, combined with a declining rate of consumption, should create an inventory surplus that will be palpable as the year progresses."
Morse thinks oil could fall to $100 by year end.
Skeptics say the Saudi vow to boost production is merely talk, and that the country is struggling simply to maintain production because of aging, overworked fields like the huge, 60-year-old Ghawar reservoir. The Saudi government refuses to allow in outsiders to evaluate the state of its oil industry, which has fueled talk the Saudis are hiding something.
Likewise, the size of speculative positions and commodity indexers is impossible to determine, as most trading occurs away from the major commodity exchanges in over-the-counter transactions.
It is hard to argue that oil demand supports $135 crude. Now at 86 million barrels a day, global demand could show little or no increase this year after averaging 1% gains in recent years. Sanford Bernstein analyst Neil McMahon projects that by the fourth quarter, global oil demand could be running below the fourth quarter of 2007.
Consumption is down in '08 in the 30 member nations of the Organization for Economic Cooperation and Development (OECD), which includes the U.S., Western Europe, Japan and Australia. OECD nations account for 57% of global oil demand.
While Americans are married to their cars, $4-a-gallon gasoline has begun to bite; the number of vehicle miles traveled in the U.S fell in March on a year-over-year basis for the first time since 1979. Further declines in gasoline consumption may follow as drivers opt for more fuel-efficient cars, and as innovations like plug-in cars reach the market after 2010. Major U.S. airlines have announced widespread capacity reductions, which could cut demand for jet fuel by 5% or more later this year.
Oil demand continues to grow in the developing world and the Middle East. In Europe, stiff energy taxes generally blunt the impact of higher prices, but diesel fuel, now at nearly $10 a gallon in Britain (double the American price), may be at an unsupportable level. Demand growth could cool in emerging markets, too, as subsidies in many Asian countries are reduced. There is also speculation China has been hoarding diesel fuel ahead of the Olympics in August, in order to cut the use of coal for power generation around Beijing in the hope of cleaning up the city's notoriously polluted air. Once the games are over, China will go back to burning cheaper coal, the story goes.
The supply/demand argument for higher oil prices has some merit. "Name another commodity that has gone up two-and-a-half times in three-and-a-half years and the world hasn't found a way to make more of it," says Byron Wien, chief investment strategist at Pequot Capital Management. "The world isn't finding oil fast enough to replace the 3% to 4% that gets pumped every year."
Wien's boss, Art Samberg, who heads the Westport, Conn.-based investment firm, stated in Barron's midyear Roundtable, published last week, that the commodity bubble "isn't going to burst. It's going to continue to expand." Older oil fields in Mexico and the North Sea are running dry while new sources in places like Kazakhstan and Brazil may prove difficult to bring on stream. In addition, oil increasingly is in the hands of government-run monopolies that may be more interested in maximizing future revenue than boosting current production.
Attachment: An Oil Overview
The dollar's slide and the Federal Reserve's neglect of the greenback have supported commodity prices, oil in particular. But Fed Chairman Ben Bernanke and his colleagues finally seem to have realized that the Fed's aggressive easing actions since last summer, which dropped the key federal-funds rate to 2% from 5.25%, may be fueling global inflation. If the Fed moves to lift rates later this year, as financial markets anticipate, it could buttress the dollar and spur an exodus of speculators from the oil market.
One little-discussed way the U.S. could try to bring down oil prices is to sell oil from the strategic petroleum reserve (SPR). The SPR, intended as a source of oil for national emergencies, now holds 705 million barrels of crude, equal to about 35 days of domestic consumption. With prices higher, Congress moved in May to stop adding to the SPR as it neared capacity. A sale of 100 million barrels of oil would shock the markets and potentially drive down prices.
Long term, the U.S. could benefit through lower oil prices if Congress and the states back President Bush's proposal to allow drilling off Florida, the East and West coasts, and in the Alaskan National Wildlife Reserve, where billions of barrels of oil may lie.
A SHARP DROP IN ENERGY PRICES WOULD HELP WHOLE swaths of the U.S. economy, including retailers, food and household-goods makers, auto makers and transportation concerns. Beleaguered U.S. airlines would benefit because they're expected to spend $61 billion on fuel this year, up $20 billion from 2007.
Few oil stocks would be safe if crude falls $20 to $30 a barrel. Independent exploration and production companies like Devon Energy (DVN), Apache (APA) and XTO Energy (XTO) could get hit hard because they're up sharply in the past year. The majors, including ExxonMobil (XOM), Chevron (CVX) and ConocoPhillips (COP), might hold up better because they have refining and related businesses like chemicals, whose profitability isn't directly linked to crude and natural-gas prices.
Some of the biggest oil companies, notably ExxonMobil, Royal Dutch Shell (RDS/A) and BP (BP), have badly lagged in the past year. BP, for one, has been beset by problems, including a troubled joint venture in Russia.
The majors may be the best energy values because they trade for less than 10 times this year's earnings and around eight times estimated 2009 profits. The '09 earnings consensus reflects an assumption of $100 crude, not the current $135. Bernstein's McMahon estimates Exxon could earn $12 share in 2009, versus the current consensus of $9, if oil holds $130 and natural gas averages $11 per thousand cubic feet; it is now around $13. This suggests Exxon, at 86, may be trading for just seven times estimated '09 profits. Conoco and Chevron also could earn far more than the current '09 consensus under the same oil and gas scenario, Bernstein estimates. McMahon favors BP, Royal Dutch and Marathon Oil (MRO).
One reason for the strength in crude has been modest U.S. inventories. Bill Klesse, chief executive of Valero Energy (VLO), the largest North American oil refiner, told analysts last month that the inventory data may be misinterpreted as a sign of oil scarcity, though it is more a function of the recent state of the oil market, in which futures prices were below spot prices, giving refiners little incentive to maintain excess supply. If the Saudis sell enough oil to drive down spot prices relative to futures prices, refiners and others will be induced to buy and hold more oil in inventory, he said. The oil market is moving to such a configuration, with the current, or spot price of $135 below the December 2008 price of $136.
OIL-MARKET EXPERTS ACKNOWLEDGE THAT commodity-indexing strategies employed by endowments, pension funds and other institutional investors have helped push up prices in the past year. Such investments are thought to have totaled $260 billion as of March, up from $13 billion at the end of 2003, according to Michael Masters, the head of Masters Capital Management, an Atlanta investment firm. Some $55 billion may have flowed into commodity investments during the first quarter alone. The energy complex is the largest commodity market, and gets a disproportionate share of fund flows. Masters estimates index participants may control over 1 billion barrels of crude.
Managers of leading university endowments, including those at Harvard, Yale and Princeton, in recent years have generated outsized returns from investments in hard assets, prompting other investors, such as the giant California Public Employees Retirement System, with over $200 billion in assets, to attempt the same. Calpers is upping its commodity exposure to $7 billion from under $500 million.
This activity is spurring a backlash in Congress, where pension funds and others have been accused of driving up food and energy costs through their increased commodity investments. Lawmakers including Senator Joe Lieberman (independent, Conn.) have proposed a ban on commodity-related investments by pension funds, which Masters supports. Last month he told Congress that commodity regulators need to close a loophole that lets indexers evade commodity-position limits by purchasing over-the-counter swaps and other derivatives.
A selloff in oil and other commodities could cool the ardor for index strategies. Ross Margolies, head of Stelliam Investment Management, in New York, says financial investors would do better buying the shares of commodities producers, not actual goods. Over time, it may be more difficult to make money in commodity investing because holders effectively incur financial costs to carry and store commodities, even if they never take physical delivery.
Though little noticed, short-covering by independent oil and gas producers might have contributed to the recent strength in oil and gas prices. U.S. exploration and production companies like Devon, XTO and Chesapeake Energy (CHK) have hedged an average of about 40% of their 2008 production by selling oil and gas futures, options or derivatives, according to Credit Suisse analyst Jonathan Wolff. As prices have surged, the hedges have slipped underwater, and some producers have sought to unwind their money-losing bets.
Newfield Exploration (NFX) recently announced a $500 million hedge-related loss, and more red ink could follow. Total hedge losses among E&P companies could top $15 billion for 2008, and $8 billion for 2009, Wolff estimates.
While supply challenges could continue to dog the oil market, current prices seem excessive in light of weakening demand and other factors. But it's impossible to know with precision when the bubble will burst. The Saudis could roil the markets with a pronouncement June 22; the dollar could revive or demand could plummet, or all three. And if prices start falling, the downturn could accelerate, sending crude back to $100 -- where it would be cheaper, but still far from cheap.
E-mail comments to mail@barrons.com
June 22, 2008
A Green Coal Baron?
Photograph by John Foxx/Getty Images; Illustration by Geoff McFetridge
THE INVISIBLE HAND ON THE SCALES: In a cap-and-trade system, the government caps the amount of carbon dioxide that energy companies can emit. Then it distributes a new kind of currency — carbon allowances — that each firm must possess to be allowed to release their CO2. If Utility A figures out how to reduce its emissions faster than required — by using cleaner fuels, say, or investing in meliorative technologies — it can trade (sell) its unused allowances to Utility B. The cap is lowered regularly, and because market forces reward those that make the biggest cuts, the system should produce a race to see whose carbon footprint can shrink the fastest.
By CLIVE THOMPSON
New York Times
June 22, 2008
When I met with Jim Rogers one day this spring, he tossed back two double espressos in a single hour. A charming and natty 60-year-old, Rogers is the chief executive of the electric company Duke Energy. But he has none of the macho, cowboy stolidity you might expect in an energy C.E.O. Instead, he lives to brainstorm. He spends more than half his time on the road, a perennial fixture at wonky gatherings like the Davos World Economic Forum and the Clinton Global Initiative, corralling “clean energy” thinkers and listening eagerly to their ideas. The day we met, he was brimming with enthusiasm for a new approach to solar power. Solar is currently too expensive to make economic sense, according to Rogers, because the cost to put panels on a roof is greater than what a household would save on electricity. But what if Duke bought panels en masse, driving the price down, and installed them itself — free?
Photograph by Peter Hapak;
Illustration by Geoff McFetridge
Jim Rogers is the chief executive
of the electric company Duke Energy.
“So we have 500,000 solar units on the roofs of our customers,” he said. “We install them, we maintain them and we dispatch them, just like it was a power plant!” He did some quick math: he could get maybe 1,000 megawatts out of that system, enough to permanently shutter one of the company’s older power plants. He shot me a toothy grin.
Even in this era of green evangelism, Rogers is a genuine anomaly. As the head of Duke Energy, with its dozens of coal-burning electric plants scattered around the Midwest and the Carolinas, he represents one of the country’s biggest sources of greenhouse gases. The company pumps 100 million tons of carbon dioxide into the atmosphere each year, making it the third-largest corporate emitter in the United States.
Yet Rogers, who makes $10 million a year, is also one of the electricity industry’s most vocal environmentalists. For years, he has opened his doors to the kinds of green activists who would give palpitations to most energy C.E.O.’s. In March, he had breakfast with James Lovelock, the originator of the Gaia theory, which regards the earth as a single, living organism, to discuss whether species can adapt to a warmer earth. In April, James Hansen, a climatologist at NASA and one of the first scientists to publicly warn about global warming, wrote an open letter urging Rogers to stop burning coal — so Rogers took him out for a three-hour dinner in Manhattan. “I would dare say that no one in the industry would talk to Lovelock and Hansen,” Rogers told me. Last year, Rogers astonished his board when he presented his plan to “decarbonize” Duke Energy by 2050 — in effect, to retool the utility so that it emits very little carbon dioxide.
Perhaps most controversial, though, Rogers has long advocated stiff regulation of greenhouses gases. For the last few years, he has relentlessly lobbied Washington to create a “carbon cap” law that strictly limits the amount of carbon dioxide produced in the United States, one that would impose enormous costs on any company that releases more carbon than its assigned limit. That law is now on its way to becoming reality: last fall, Senators Joe Lieberman and John Warner introduced a historic “cap-and-trade” bill that would require the country to reduce its co2 emissions by 70 percent before 2050. Earlier this month, the bill failed to advance, but its sponsors will most likely reintroduce it next year once a new president is in office; meanwhile, a half-dozen other rival bills are currently being drawn up that all seek the same thing. One way or another, a carbon cap is coming.
Prominent environmentalists, thrilled, credit Rogers for clearing the way politically; many are his friends. “It’s fair to say that we wouldn’t be where we are in Congress if it weren’t for him,” says Eileen Claussen, head of the Pew Center on Global Climate Change. “He helped put carbon legislation on the map.” This should be a golden moment for Rogers: he has godfathered a bill that could significantly reshape the electricity industry, help balance the world’s climate and establish his legacy as a visionary C.E.O. — a “statesman,” as he puts it. Instead, he is very, very worried, fearful that the real-world version of his dream legislation may end up threatening the company he has spent so many years building.
Though the details are devilish, the basic cap-and-trade concept is simple. The government makes it expensive for companies to emit carbon dioxide, and then market forces work their magic: those companies aggressively seek ways to avoid producing the stuff, to try to get a competitive edge on one another.
This is precisely how the government dealt with acid rain, back in the late ’80s. Acid rain, like global warming to a great extent, was caused by dangerous byproducts from burning coal: the chemicals sulphur dioxide and nitrogen oxide, or “sox and nox,” as they were known colloquially. Environmentalists in the ’80s tried to get Ronald Reagan’s Environmental Protection Agency to crack down on sox and nox, but an antiregulatory mood prevailed. So a group of politicians and forward-thinking environmentalists turned to the marketplace instead.
Through legislation, the government first set a limit, or cap, on how much sox and nox could be discharged by the nation’s coal-burning utilities. These companies then regularly received allowances based on their historic levels of emissions. At the end of a predetermined period, every company had to possess enough in the way of allowances to cover the gases it released or face stiff penalties. Over time, the cap and the number of allowances were slowly reduced.
A system like this creates a carrot and a stick. An electrical utility that reduces its pollution below the cap has leftover allowances to sell to other companies. In theory, a virtuous cycle emerges: a company that invests money to clean up its emissions can more than recoup its outlay by selling unused allowances to its dirtier, laggard competitors. Furthermore, entrepreneurs have an incentive to develop cleanup technologies. And sure enough, following the Clean Air Act amendments in 1990, innovations emerged quickly, ranging from new coal blends to chemical “scrubbers” that removed sox and nox from the smokestacks. Government and industry officials predicted that solving the problem of acid rain could cost $4 billion in new investment — but the marketplace was so efficient that only an estimated $1 billion was needed.
A cap-and-trade program for co2 would try to harness the same dynamics. There are several bills under development — Lieberman-Warner is the most advanced, and the one most likely to pass next year — but they all take roughly the same approach. Greenhouse-gas emissions are capped in key carbon-dioxide-producing industries like gas, oil and electricity. Allowances are issued and companies are free to sell them to one another. Then the cap and number of allowances are ratcheted down over time, sparking, it’s hoped, the same Cambrian-like explosion in the development of cheaper, cleaner technologies.
If Rogers is keen on the idea of cap and trade, it’s because the acid-rain fight was one of his formative experiences as a C.E.O. His first job was a three-year stint as a journalist in Lexington, Ky. — “I was a journalist, so I’m allowed to be a little cynical at times,” he likes to joke — before heading to law school and working as a public advocate in his home state of Kentucky. In 1988, by then 40 years old, he switched sides — the Indiana electrical utility PSI Energy teetered on the verge of bankruptcy, and Rogers was offered the job of turning it around.
Part of what ruined PSI was a $2.7-billion write-off of its nuclear plant when local environmentalists forced PSI to halt its construction after the Three Mile Island accident. Rather than demonize the environmentalists, Rogers instead decided to “put on a flannel shirt” and meet with them in a cafe in Madison, Ind. Phil Sharp, a U.S. representative for Indiana at the time, recalls the activists’ astonishment. “They couldn’t believe it,” he says. “They were always used to taking on the big utility companies. Then he came in and instead of saying, What craziness is this, he said, O.K., let’s talk.” It was partly self-protection, of course; Rogers knew that public opinion could ruin a company. Aware that the environmentalists were also worried about acid rain, Rogers decided it was a problem he should head off.
When cap and trade was proposed as a solution to acid rain, most energy executives whose companies burned coal hated the idea and lobbied fiercely against it. It wasn’t merely that they tended to resist regulation. They also didn’t believe it would work: they didn’t trust that the necessary technology would evolve fast enough. If it didn’t, they worried, very few firms would have extra allowances to sell, and the price of those on the open market would skyrocket. Companies might go broke trying to buy extra allowances to meet their cap.
Rogers was the outlier. He loved the elegance of the market-based approach, and he had a nerd’s optimism that the technology would bloom quickly. “And we were right,” he says. “So that’s what gave me the faith that this approach works. All you have to do is set the market up right.” PSI spent only $250 million to clean up its smokestacks, and allowances were “cheap and plentiful,” Rogers says.
Even as acid rain was being confronted in 1990, climate change was entering the public debate. By this time, Rogers was friends with a number of environmentalists and decided to dive into the science of global warming. He began inviting climate experts from Harvard, NASA and various research firms to brief him. “Pretty soon, I could see that the science was persuasive,” Rogers recalls. Many policy makers behind the acid-rain cleanup suspected that a cap-and-trade program could whip the carbon problem too. Rogers agreed. “What’s unusual about Jim is that he recognized these problems not as a woe-is-me burden but as real growth opportunities, opportunities to change his industry,” says Tim Wirth, president of the United Nations Foundation and a former senator from Colorado who helped write the acid-rain legislation. “That allows him to be cheerful in the face of the opposition.”
And there was plenty of opposition. Back then, merely acknowledging the existence of global warming was a thought crime among coal-burning energy executives. But as early as 2001, Rogers told a meeting of fellow C.E.O.’s in the industry that they should all work to pass a federal carbon cap. “They were stunned,” recalls Ralph Cavanagh, an energy program director at the Natural Resources Defense Council, who was present at the meeting. “That was the first time I had heard a major energy executive say anything like this. But because he was chairman of their energy committee, he wasn’t just a flaky maverick.” Sharp, a longtime friend, chuckles when he remembers how much ire Rogers generated. “They hated him,” he says. “Nobody would invite him for golf.”
Rogers’s environmentalism has a weird flavor to it. Most people involved in the cap-and-trade process talk about their polar-bear moment — the instant when they realized the earth is imperiled. (John Warner, the Republican co-sponsor of the Lieberman-Warner bill, told me his inspiration came when he visited a forest he worked in as a teenager and found it decimated by a change in weather patterns.) In eight months of meeting with Rogers, listening to his speeches and watching him in action, I kept waiting to hear about his polar-bear moment, but it never came. Rogers’s environmentalism is practical, enthusiastic and intrigued by clean-tech innovations, not given to heartstring-tugging rhetoric about vanishing species or redwood trees.
Rogers does, however, talk frequently about “the grandchildren test.” “I want them to be able to look back and say, ‘My granddaddy made a good decision, and it’s still a good decision,’ ” he says. Though he’s only 60, Rogers already has seven grandchildren, and he frequently takes them on trips around the world. He told me, when we met for dinner in Charlotte, N.C., how he asked his 10-year-old granddaughter Emma what she wanted to do when she grew up; she said she wanted to “protect endangered species.” He found it striking that such a young child would already have a sense of the precariousness of nature. “She’s an old soul, let me tell you,” he says.
When asked why Rogers ended up taking such a contrary approach to his job, friends point to the fact that he never trained as an engineer — the background of most energy executives. He isn’t as insular, Sharp points out, so he’s interested in what critics have to say. “Usually what people do is circle the wagons,” Sharp says, “but he listens.”
It is also true that Rogers’s green focus has a purely strategic element. Anyone who was paying attention to public opinion on climate change could see that the government would, sooner or later, have to limit carbon emissions. So why not plan for that — start thinking about how your company would respond, start making friends in Washington? Rogers sunnily agrees that this was a large motivation for his environmental work. “I wanted to get out ahead of it,” Rogers told me the very first time I met him last August, in Washington, which he was visiting nearly weekly to brief and cajole senators.
“It’s the old saw — ‘If you’re not at the table, you’re going to be on the menu,’ ” he says. Last June, Rogers delivered a speech to the Senate environment committee, led by Barbara Boxer, which was beginning to assess the Lieberman-Warner bill. “I want the Senator Boxers, Senator Lieberman or Warner — I want them to feel confident that they can turn to me as an energy expert and trust me,” he said then.
To get a sense of the awesome challenge posed by “decarbonizing” electricity, go to one of Duke’s largest coal-fired plants, near Charlotte. When I visited last summer, I first wandered into the building that houses the furnace, a long tubular mass of steel with surprisingly graceful, almost art-deco lines. Then I climbed a flight of metal stairs to the rooftop, ascending through 120-degree air that left my shirt damp with sweat. Off to one side were the “scrubbers” — enormous metal contraptions that capture some of the acid-rain components by pumping the coal fumes through great waterfalls of limestone slurry. The process produces gypsum, a safe and inert mineral, which Duke sells for use in drywall. Looking down from the roof, I saw huge piles of limestone that dwarfed the trucks scurrying around them. Then it hit me: of the half-dozen structures in the coal plant, the majority are devoted not to producing energy but to cleaning it up. Or put another way, burning coal is trivially easy; it’s cleaning up the emissions that requires all sorts of work and machinery.
“Sometimes I tell people that Duke is really just a company that processes chemicals to produce clean air, and we get electricity as a byproduct,” Rogers said with a laugh when we met in his office afterward. If it’s this difficult to strip out acid-rain chemicals, I can hardly imagine what prodigious feats of engineering will be necessary to remove co2 from electricity production.
Rogers, however, maintains that it is possible to cut Duke’s co2 emissions to half of today’s levels by 2030. That would put the company in line with the goals set by the Lieberman-Warner bill or any of the other cap-and-trade alternatives, which mostly call for a 70 percent reduction in emissions by 2050. Rogers put a pad on his desk and began sketching a pie chart to show me how he’ll do it.
Currently, nearly all of Duke’s emissions come from its coal-fired plants. But those plants are aging; by 2050, every one of them will have to be replaced. If the company is going to replace them anyway, Duke might as well phase in “clean” sources.
It isn’t quite that simple, of course. No low-carbon sources are currently big or cheap enough — and it’s not clear when they will be. For example, Rogers calculates that Duke needs two new 2,200-megawatt nuclear plants. (One of them is currently under development in South Carolina.) But these plants are hellishly difficult to construct. They’re so expensive — many billions apiece — that historically they have required government guarantees, because Wall Street is loath to invest so much in such politically fraught projects. Rogers suspects that public opinion will shift in favor of nuclear energy eventually, because it offers huge amounts of reliable power with no direct co2 emissions.
What about renewable energy, like wind and solar? Rogers says that by 2030 they could make up as much as 12 percent of Duke’s energy supply, but they won’t be a big factor for another decade, because sunshine and wind are too irregular and the plants to harvest them are still too small. This year, Duke signed a 20-year deal to buy the entire electric output of the largest solar farm in the country, SunEdison’s plant in Davidson County, N.C. — it generates all of 16 megawatts, compared with 800 megawatts from a coal plant.
He drew another wedge in the pie chart for coal: it will shrink from producing nearly two-thirds of Duke’s power to just over a quarter. Rogers predicts coal will never go away, because it’s cheap and more accessible than any other energy source. The technology to remove co2 from the smokestacks and “sequester” it affordably is, he estimates, 10 to 15 years away. Duke is planning to build an experimental plant in Edwardsport, Ind., that will “gasify” coal, a tentative first step to capturing carbon. But Duke embarked on this venture only after securing a government subsidy of $460 million. Even if someone manages to make carbon sequestration feasible, Rogers worries that there’s a limit to what the public will tolerate. “We don’t know what happens if the carbon leaks back out of the ground, and we’ve never done it successfully on scale,” he told me. Later, he said, “So you’ll get the next version of Not in My Backyard — it’ll be Not Under My Backyard.”
When Rogers finished, his pie chart was neatly divided into the various fuel options. This plurality is a key part of his vision: no single energy source will save us. None is so plentiful or without costs that it dominates the others. “There’s no silver bullet,” he concluded, “just silver buckshot.”
Interestingly, the one green initiative Rogers says he hopes will emerge most quickly is focused not on generating power but on conserving it. Last year, he concocted the Save-a-Watt plan, which would let Duke profit from helping its customers drastically cut their energy use. Like roughly half the utilities in the United States, Duke is regulated; it can charge more for power only if it builds a new power plant and persuades the regulator to approve a rate increase to pay for it. But the fastest way to reduce a carbon footprint is by improving efficiency. Under Save-a-Watt, Duke would, for example, distribute “smart” meters that automatically turn off customers’ appliances during periods of peak power use. For its first experiment, Duke plans to cut the consumption of its customers in the Carolinas by 1,800 megawatts, which is equal to the output of two new coal-fired plants. The regulator would then let Duke charge higher rates for the electricity its customers do use to pay for all the efficiency technology. Save-a-Watt thus turns the power business on its head: rather than charge customers more to build plants, Duke will effectively charge them not to do so.
“I would rather spend $8 billion implementing efficiency than spend $8 billion on building a nuclear plant,” Rogers told me. Nuclear power has enormous construction and political risks. Efficiency doesn’t. After Rogers spoke with Bill Clinton at a private retreat last year, the former president was so fired up that when he later went onstage at the annual Clinton Global Initiative conference he raved about Save-a-Watt, declaring it “a simple, brilliant idea. It has the capacity to fundamentally change what we do in the United States.”
As the Lieberman-Warner bill took shape last spring and summer, Rogers ought to have been feeling triumphant. Instead, he was increasingly uneasy with what the senators were doing. He was particularly alarmed by the way they planned to hand out co2 allowances.
Among the many mind-numbing details in cap-and-trade politics, the allowances — permission to pollute, essentially — are the most charged. In the acid-rain trading market, the government freely gave the worst polluters the largest allowances, under the assumption that they faced the biggest challenges and needed the most financial help. But the Lieberman-Warner bill, like virtually every other cap-and-trade bill in the works, gives away only 75 percent of the allowances; the government auctions off the rest. Year by year, the percentage of allowances that will be auctioned off steadily rises, until nearly all of them are. In essence, with the stroke of a pen, the government creates a new and valuable form of property: carbon allowances. And for the government, we are talking about staggering amounts of money, the biggest new source of cash in years. Carbon allowances are projected to be worth $100 billion in the first year alone, rising to nearly $500 billion by 2050. To put that in context, an estimate prepared by the Congressional Budget Office predicts that the annual revenues from auctioning allowances will be equal to 15 percent of what the I.R.S. takes in.
Rogers sees this as a financial disaster for Duke. By his calculations, Duke would spend at least $2 billion in the first year alone and have to raise its rates immediately by up to 40 percent to cover that. Worse, coal-fired utilities would not get the special treatment they did under the acid-rain legislation. This time around, a large number of allowances would be given away to nuclear and hydroelectric utilities that already produce very little carbon dioxide. Those companies would not need their allowances and so could sell them for a healthy profit in coal-dependent states. The Lieberman-Warner rules, Rogers says, will effectively impose a “hidden tax” on those states — and they’re primarily the heartland states, where energy costs are already pinching industry and working-class families.
What especially enrages him, though, is how the government wants to spend the cash it raises from the allowances. As Lieberman-Warner worked its way through the Senate environment committee, senators attached assorted riders: $800 billion over the life of the bill for tax refunds to help consumers pay for their higher electric bills, $1 billion for deficit reduction and billions more in handouts to state governments. In industry speeches, Rogers characterized the bill as a “bastardization” of cap-and-trade economics. (He later apologized.) In conversations with me, he expressed special disdain for Barbara Boxer, the California senator who shepherded the bill through the Senate environment committee.
“Politicians have visions of sugarplums dancing in their head with all the money they can get from auctions,” Rogers told me last month. “It’s all about treating me as the tax collector and the government as the good guy. I’m the evil corporation that’s passing through the carbon tax so Senator Boxer can be the Santa Claus!” If the government was going to collect cash from carbon auctions, Rogers figured, at least it ought to invest that money in green-tech research. “A billion dollars for deficit reduction,” he vented. “A billion dollars! What is [Boxer] smoking? I thought we were solving carbon here.”
For all of Rogers’s careful effort to position himself as a forward thinker — and an advocate for the Midwestern coal states — that did not gain him any slack. Congressional insiders who watched Rogers lobby the Senate committee say that regional politics actually worked against him. The Democratic deal makers who promised to deliver the votes for the bill were “a left-center coalition” of senators, most of whom come from urban and coastal states that do not rely heavily on coal. (Boxer, for example, hails from California, which gets only a small percentage of its energy from coal.) “And a lot of people, Jim Rogers in particular, really didn’t play in the negotiations,” says a Congressional aide close to the Lieberman-Warner negotiations who did not have approval to talk to the press. “The members on the Democratic side aren’t particularly responsive to his concerns.”
So by this spring, Rogers found himself in the curious position of fighting tooth-and-nail against a bill he spent years pushing for. It is entirely possible that Rogers is right, and that the auctioning of allowances will lead to economic shocks. Many economists worry about the price of allowances rising out of control. “Clean” technology might not emerge fast enough. Nuclear power could flounder. Desperate to move away from coal, utilities might switch to burning natural gas, driving up its price and thereby substantially inflating the cost of heating American homes.
As Rogers went on the attack, critics countered that he sounded less like an environmental statesman and more like an old-school C.E.O. fighting for government pork, arguing baldly that what’s best for Duke is what’s best for the country — that cap-and-trade will only work if it’s set up in a way that best benefits Duke. John Rowe, the chief executive of Exelon — the country’s largest nuclear power company, which will profit handsomely by selling its allowances — argues that it’s only fair to hit Duke and others with higher costs. Customers in nuclear states have paid higher electric bills for years, because nuclear power is inherently more expensive to generate, Rowe points out. Duke could have switched to nuclear decades ago but didn’t, so now it must pay the price.
“Duke’s customers had a big cost advantage for a very long time,” Rowe told me. “And our feeling is you’re not entitled to have that made virtually permanent.” And he added, “This is sausage making, but Lieberman-Warner makes a pretty good sausage.”
The truth, perhaps inevitably, is that as carbon-cap laws become closer to reality, almost no one is happy. Coal-burning energy firms fear they’ll be destroyed. Environmentalists worry that the energy lobby will gut the bills.
This conflict was laid bare at Duke’s annual shareholders’ meeting in early May. Rogers started things off by devoting a full hour to his 40-year plan to decarbonize Duke. But when it was time for the question period, a dozen environmentalists lined up at the microphones and took up another hour lambasting Rogers for his new coal plant, now being built in Cliffside, N.C. If Rogers was really committed to breaking away from co2 emissions, why wasn’t he pouring the money into renewables?
“Business as usual for even another decade will be disastrous,” said Jim Warren, executive director of the North Carolina Waste Awareness and Reduction Network. A 25-year-old shareholder pleaded with Rogers to stop buying coal from mountaintop mines and foreswear nuclear energy. “What you invest in today, my generation has to pay for in the future,” she said. “Please do not steal from your grandchildren and leave us with a mess to deal with.”
But most of the shareholders, who numbered 250 or so, rolled their eyes as the environmentalists spoke; some openly heckled. “I would just like to caution our company not to get on this global-warming bandwagon,” one shareholder stood up to say. “I’ve read a lot of scientists, and there’s no agreement.” Rogers remained unwaveringly polite to the opposition, though — at several points shushing the hecklers, and thanking each speaker who laid into him.
When I saw Rogers a few days after the event, he grimaced at the memory of it. He is annoyed by opposition to his new coal plant; he also seems genuinely puzzled that local environmentalists don’t see the big picture as he does, that they don’t trust his 40-year plan to slash Duke’s carbon output. He maintains that the new plant will partly replace two older coal-fired ones, and because it is much more efficient, it will produce 30 percent less co2. “Our overall carbon footprint is going to go down,” he insisted. His frustration is the flip side of his desire to talk endlessly to critics of coal; he says he believes he can persuade anyone, which is probably why he seems so alarmed when he fails.
Yet many local environmentalists no longer believe Rogers, and they have precisely the opposite view of how the future should unfold. They view the Lieberman-Warner bill not as too strong but as too weak. They point out, correctly, that Duke stands to reap tens of billions in free allowances, even under the existing bill, money that will subsidize the burning of coal. “This bill gives huge windfall profits to a company that buys a lot of coal, like Duke,” says Frank O’Donnell, the head of Clean Air Watch, an environmental group. “I happen to think that it’s immoral. In a sense, you’re paying the polluter. You’re rewarding the very companies that are the source of the problem.” He says he doesn’t believe that coal-dependent companies will move fast enough unless they feel the tighter pressure of even more aggressive carbon caps. Rogers is simply “greenwashing” his company, saying all the right things so he can wear the mantle of the revolutionary without having to make the hard sacrifices.
Allegations like these perturb Rogers no end. Many protesters, he told me, are an “eco elite” who don’t understand the need working-class people have for affordable energy. But then, in another breath, he admits he also understands why they view him askance.
“There’s an interesting contradiction in my position,” he said. “I’ve struggled with it. On the one hand, I want to smooth out the transition for the customers, because we’ve got low prices. But on the other hand, and this is sort of the awkwardness of it, the other truth is as prices go up, people’s behavior is modified.” Change needs to come, but how fast?
“That’s the art in this, and not the science.”
Clive Thompson, a contributing writer for the magazine, writes frequently about technology.
Copyright 2008 The New York Times Company
June 21, 2008
Don't let the right carbon policy get lost in the screams
JEFFREY SIMPSON
Globe and Mail
June 20, 2008
CALGARY — Consider these words: "For us, there is no debate about climate change. It's real. It needs to be addressed in a serious way and there is no time to lose. The longer action is delayed, the harder it will get."
Words from a greenie environmentalist? A speech by David Suzuki? Something from Stéphane Dion?
No, the words are those of Shell, one of the Seven Sisters of world oil. What to do? the company asks. Many things, to be sure, but one is to "put a price on emitting greenhouse gases."
There you have it: a price. We can fool around, as we have, with voluntary programs, exhortations to do the "right thing," public-awareness campaigns. We can subsidize here, there and everywhere. And we will get next to nowhere in combatting greenhouse gas emissions.
You can sort out politicians (and business people) who are serious about significant GHG reductions by asking a simple question: Who wants to put a price on carbon, and who doesn't?
Then, you can sort out the really serious one from the semi-serious by asking: Who wants the price to be universal, instead of directed only at selected targets, such as "big polluters" in industry?
The really serious ones will be those who espouse a carbon tax to drive up the price of polluting behaviour over time, recycling the additional revenue into lower personal and business taxes. The semi-serious politicians, or the not-at-all-serious ones, will dismiss this idea out of hand, grossly misrepresent it and finance television advertisements against it.
Yesterday, Mr. Dion, the Liberal Leader, showed himself to be a really serious politician about climate change, almost.
He got the formula for a serious attack on greenhouse gas emissions right - mostly - at what will undoubtedly be considerable risk to himself and his party.
The Harper government, lacking a really serious policy and apparently content for Canadian federalism to display complete incoherence, with provinces going off in all different directions, started spreading falsehoods about the Liberal proposal even before it was announced. Nothing suggests these falsehoods will stop. And the media, if the past is any guide, will concentrate on the political cockfight rather than examining the policy's substance, thereby inhibiting public understanding.
The essence of the Liberal plan is simple. It's an approach endorsed by leading economists (see the latest book by Yale's William Nordhaus), deemed theoretically acceptable by the Canadian Council of Chief Executives, preferred (quietly) by many CEOs (including those in the oil patch), already introduced by the British Columbia government, used in some European countries, but nonetheless very politically risky.
Risky, because it takes 30 seconds to explain in a sound-bite world of 10 seconds. So the second part of the explanation - that revenues from the carbon tax will be recycled back into the economy - gets lost in the critics' screams about the first part: They're Raising Your Taxes! Tax Grab! Insane (Mr. Harper's word)!
It doesn't matter that the plan asks the Auditor-General to report on the neutrality of the tax shift. It doesn't matter if, as in B.C., the finance minister's salary must decline if the tax shift is not neutral. In the crude world of attack politics, the risk falls on those who propose really serious policies.
The Dion plan acknowledges this reality, in that it fails to apply the carbon tax to gasoline. This fuel is ubiquitous and politically volatile. But no really serious attempt to use price to change behaviour over time can be complete without applying the tax to the fuel used to power most vehicles.
Instead, the Liberals are taking the existing 10-cents-a-litre federal excise tax on gasoline and calling it a carbon tax, then extending that tax to all other fuels. The greatest impact will be felt on home heating fuels, which is a bit backward in a cold climate such as ours, in contrast to changes from higher prices to vehicles and driving patterns. With gas prices having recently soared, the Liberals got scared, for understandable if regrettable reasons.
But the Liberals got the essence of a serious policy right: Tax the behaviour that pollutes, then use that revenue to reduce personal and corporate taxes. Bravo to the brave.
June 19, 2008
The Big Pander to Big Oil
Editorial
New York Times
June 19, 2008
It was almost inevitable that a combination of $4-a-gallon gas, public anxiety and politicians eager to win votes or repair legacies would produce political pandering on an epic scale. So it has, the latest instance being President Bush's decision to ask Congress to end the federal ban on offshore oil and gas drilling along much of America's continental shelf.
This is worse than a dumb idea. It is cruelly misleading. It will make only a modest difference, at best, to prices at the pump, and even then the benefits will be years away. It greatly exaggerates America's leverage over world oil prices. It is based on dubious statistics. It diverts the public from the tough decisions that need to be made about conservation.
There is no doubt that a lot of people have been discomfited and genuinely hurt by $4-a-gallon gas. But their suffering will not be relieved by drilling in restricted areas off the coasts of New Jersey or Virginia or California. The Energy Information Administration says that even if both coasts were opened, prices would not begin to drop until 2030. The only real beneficiaries will be the oil companies that are trying to lock up every last acre of public land before their friends in power - Mr. Bush and Vice President Dick Cheney - exit the political stage.
The whole scheme is based on a series of fictions that range from the egregious to the merely annoying. Democratic majority leader, Senator Harry Reid, noted the worst of these on Wednesday: That a country that consumes one-quarter of the world's oil supply but owns only 3 percent of its reserves can drill its way out of any problem - whether it be high prices at the pump or dependence on oil exported by unstable countries in Persian Gulf. This fiction has been resisted by Barack Obama but foolishly embraced by John McCain, who seemed to be making some sense on energy questions until he jumped aboard the lift-the-ban bandwagon on Tuesday.
A lesser fiction, perpetrated by the oil companies and, to some extent, by misleading government figures, is that huge deposits of oil and gas on federal land have been closed off and industry has had one hand tied behind its back by environmentalists, Democrats and the offshore protections in place for 25 years.
The numbers suggest otherwise. Of the 36 billion barrels of oil believed to lie on federal land, mainly in the Rocky Mountain West and Alaska, almost two-thirds are accessible or will be after various land-use and environmental reviews. And of the 89 billion barrels of recoverable oil believed to lie offshore, the federal Mineral Management Service says fourth-fifths is open to industry, mostly in the Gulf of Mexico and Alaskan waters.
Clearly, the oil companies are not starved for resources. Further, they do not seem to be doing nearly as much as they could with the land to which they've already laid claim.
Separate studies by the House Committee on Natural Resources and the Wilderness Society, a conservation group, show that roughly three-quarters of the 90 million-plus acres of federal land being leased by the oil companies onshore and off are not being used to produce energy. That is 68 million acres altogether, among them potentially highly productive leases in the Gulf of Mexico and Alaska.
With that in mind, four influential House Democrats - Edward Markey, Nick Rahall, Rahm Emanuel and Maurice Hinchey - have introduced "use it or lose it" bills that would force the companies to begin exploiting the leases they have before getting any more. Companion bills have been introduced in the Senate, where suspicions also run high that industry's main objective is to stockpile millions of additional acres of public land before the Bush administration leaves town.
This cannot be allowed to happen. The Congressional moratoriums on offshore drilling were put in place in 1981 and reaffirmed by subsequent Congresses to protect coastal economies that depend on clean water and clean coastlines. This was also the essential purpose of supplemental executive orders, the first of which was issued by Mr. Bush's father in 1990 after the disastrous Exxon Valdez oil spill the year before.
Given the huge resources available to the energy industry, there is no reason to undo these protections now.
June 12, 2008
U.S. oil law 'won't affect Canada'
Leading U.S. senator says oilsands don't qualify as a 'dirty' product
Shaun Polczer
Canwest News Service
June 12, 2008
CALGARY -- American legislation to bar so-called "dirty" fuels doesn't apply to Canadian oilsands, a leading U.S. senator said yesterday.
Speaking to a forum of Canadian and American business people in Washington, Senator Jeff Bingaman (D-N.M.), chairman the senate energy committee, said oil from Alberta's oilsands doesn't qualify as dirty oil under U.S. law.
The provision, Section 526, bars the U.S. government from buying alternative fuels that create high levels of greenhouse gas.
President George W. Bush signed the bill into law last December, but a special interpretation committee is deciding if Canadian oilsands products qualify for punishment under the law.
Bingaman said it doesn't.
"Since Canadian feedstocks are commingled with U.S. feedstocks at oil refineries, it's hard to see how Section 526 could be enforced against Canadian oilsands in any case," he told the Canadian American Business Council. "I do not believe that Section 526 will be a barrier to oil imports from Canada."
Environmental groups on both sides of the border have been lobbying to have oilsands declared "dirty oil."
Various delegations to Washington, including one led by Premier Ed Stelmach, have faced protests from environmentalists who see oil produced from bitumen as a major source of greenhouse gases linked to global warming.
Yesterday, the Wall Street Journal reported that a coalition of environmental groups led by the Sierra Club succeeded in having air permits for the Wood River, Ill, refinery expansion halted.
The facility, the 10th-largest refinery in the U.S., would process more than 350,000 barrels per day of heavy oil from the ConocoPhilllips-EnCana oilsands venture.
The project was expected to be complete by the first quarter of 2011, but Conoco spokesman Bill Graham said it's unclear if it will be delayed.
The expansion will actually allow the refinery to produce cleaner fuels such as low-sulphur diesel and reformulated gasoline, Graham said. He suggested the public at large is starting to blame the environmental lobby and government red tape for high fuel prices.
Most Americans are happy to have reliable oil supplies from Canada, he said.
"The environmental groups are certainly more aggressive, but what's interesting is the opinion of the public as a whole."
Greg Stringham, the Canadian Association of Petroleum Producers' vice-president of markets and fiscal policy, said Bingaman's comments are a positive indicator. But he cautioned that the environment has become a bipartisan issue that will cross party lines in the upcoming presidential election.
He said he doesn't expect the dirty oil issue to be resolved before November.
"We just have to wait and see how they interpret it [Section 526]," he said.
Dan Woynillowicz, a senior policy analyst with the Pembina Institute, an environmentalist organization, said it's still possible that punitive measures against oilsands will be adopted in the U.S. He dismissed Bingaman's comments as a personal opinion.
"They really are nothing more than the senator's interpretation of Section 526 and how it might be implemented," he said.
Even if oilsands is exempted from clean fuel legislation, Woynillowicz said the American government is still likely to take action to improve its environmental performance.
June 09, 2008
Questions flow from gas line proposal
A primer on the pipeline and the issues legislators are now pondering.
By WESLEY LOY
Anchorage Daily News
(06/08/08 00:05:09)
JUNEAU -- OK, listen up. Are you baffled by this whole natural gas pipeline thing? Are you wondering why Alaska legislators and Gov. Sarah Palin are stuck in Juneau in June instead of out fishing for salmon? Don't have any idea who TransCanada is, or how "Denali" could be anything but a mountain?
Let's take a time out for a little pipeline primer.
Q. So why are the lawmakers in Juneau?
A. Because Palin called them there for a special session.
She wants them to award a license and up to $500 million in state money to TransCanada Corp. as an incentive to build a pipeline from the Prudhoe Bay oil field to a gas distribution network in Alberta, Canada.
The pipeline would be 1,715 miles long and would follow the Alaska Highway.
Q. But don't we already have a pipeline? Why do we need another one?
A. We do have the 800-mile trans-Alaska pipeline from Prudhoe to Valdez. It started up in 1977 and is a famous engineering marvel.
But the pipeline is designed to carry crude oil, not natural gas. So we need a separate line to carry the huge gas reserves stuck in the ground in Prudhoe and other North Slope oil fields.
Q. Three oil companies -- BP, Conoco Phillips and Exxon Mobil -- are the main owners of the North Slope oil fields and the trans-Alaska pipeline. Why haven't they built a gas line?
A. That's a question that's vexed Alaska politicians and economic development boosters for decades.
The oil pipeline has been a money hose for the state, pouring out thousands of jobs and billions of dollars in tax revenue. The politicians and boosters can see another boom in a gas line.
Two words sum up why the oil companies seem to be so stubborn: cost and risk.
A gas line would be super expensive, probably more than $30 billion. Its success would depend largely on future gas prices. In recent years, prices have soared. But will they stay high? The oil companies also worry that Alaska politicians might raise taxes after they've invested in a pipeline.
Given those factors, the oil companies have chosen to stake their money on safer projects elsewhere in the world.
Besides, they've had a lucrative use for the gas -- for a couple of decades they have pumped the gas back underground to pressure more oil out of Prudhoe.
Q. So who is TransCanada?
A. It's a Calgary-based energy company that specializes in running gas and oil pipelines. It's also involved with nuclear, gas, coal, wind and hydroelectric power plants.
The company doesn't drill for oil and gas like BP, Conoco and Exxon do.
TransCanada is small compared to the oil companies. According to a study done for legislators, TransCanada has a market value of $23 billion compared to $144 billion for Conoco, the smallest of the three oil companies.
Alaska's gas could fill TransCanada's existing pipeline network for many years -- a wonderful thing for the company, according to financial experts.
TransCanada is the only company eligible for the state license and the $500 million in incentive money. That's because Palin picked it from among five bids received last fall under a new law, the Alaska Gasline Inducement Act or AGIA.
The oil companies chose not to bid.
Q. If legislators grant the license, the welders will finally go to work on the gas line, right?
A. Wrong! The license is not a construction contract. All it does is obligate TransCanada to try to line up customers for its pipeline, and to get permission to build from federal pipeline regulators.
Q. Who would the customers be?
A. BP, Conoco and Exxon, plus any other drillers with gas to move to market.
It's these customers, not TransCanada, who ultimately pay for the pipeline through shipping fees.
Under the rules, they'd have to pay the fees over many years even if for some reason they didn't have gas to ship, or the price of gas crashed. Think of it like your gym membership -- you pay even if you skip your workouts.
This is why a gas pipeline is so risky for the oil companies, even if somebody else builds it.
Q. If TransCanada does sign up customers and wins federal permission, when might it build the gas line?
A. According to the schedule the company gave the state, construction could start in seven years with the first gas flowing in late 2017.
Q. If the legislators give TransCanada the AGIA license, does this mean only TransCanada has the right to build a pipeline? And would the oil companies have to use it?
A. No and no. In fact, two of the oil companies, BP and Conoco, now say they have their own plan to build a pipeline to link into the North American distribution grid in Alberta. The project looks very much like TransCanada's.
The oil companies have coined a name for their pipeline -- Denali, like the mountain.
Federal pipeline regulators conceivably could grant permission to either or both pipelines.
Q. When will the legislators vote on the TransCanada license?
A. Under the law, they have until the end of July. House Speaker John Harris, R-Valdez, says he expects the vote will come by the middle of next month. Before they vote, lawmakers plan to hold hearings around the state, including Anchorage the week of June 16.
Q. What happens if they reject a TransCanada license?
A. That's a gray area. Some lawmakers have serious reservations -- they don't see the need to hand TransCanada a half-billion dollars when BP and Conoco say they'll build a pipeline without the state subsidy.
Other lawmakers, tired of waiting so many years for a gas line, favor the license, saying they just don't trust what the oil companies say.
Awarding TransCanada the license is a top priority for the popular governor. Palin says the pipeline company has the right stuff.
Failing a yes vote on the license, we might see a new round of bidding under AGIA.
Find Wesley Loy online at adn.com/contact/wloy or email him at wloy@adn.com
or call him in Juneau at 1-907-586-1531.
June 05, 2008
In Houston, all eyes are on Canada
Enthusiasm about oilsands - and insecurity elsewhere - put Canada at the forefront of global petroleum play
Claudia Cattaneo
Canwest News Service
Thursday, June 05, 2008
Rich natural gas deposits in northeastern B.C.
are among the petroleum resources in Canada
that are drawing more interest from the U.S.
CREDIT: Stuart Davis, Vancouver Sun files
HOUSTON -- Americans may show little appreciation or awareness at times of Canada as their top energy supplier, but in this global oil industry centre, Canada is hot.
It's a big change in sentiment from a few years ago, when U.S. companies would rather cozy up to Russia or the Middle East than tough it out in the frozen North. Now, the size of the oilsands, the strong Canadian currency, even the emerging Horn River natural-gas play in northeast British Columbia, a lookalike of the fabulously successful Barnett Shale near Fort Worth, Tex., are big topics of conversation in this city's grand oil towers.
Ed Stelmach and Danny Williams, premiers of oil-and gas-rich Alberta and Newfoundland, respectively, are well-known, and securing close relations with them has become a priority. Royalty policies are debated and compared. Curiosity about oilsands or East Coast offshore extraction technologies runs high. Energy Magazine, a Houston-based publication that covers the global energy scene, last month named Canada Country of the Year.
Indeed, industry heavyweights such as Chevron Corp. would like a lot more Canada right now. "If you want me to put one word on it, it's 'enthusiastic,' " said Gary Luquette, Chevron vice-president and one of the highest-ranking executives for the company based in the city. "Chevron has targeted Canada as one of the areas where we really would like to grow."
Part of the reason is that there is a greater understanding of the oilsands, what it takes to produce them, and the U.S market for Canadian oil, said Luquette, president of Chevron North America Exploration and Production Co. The San Ramon, Calif.-based oil supermajor was an early believer in the Northern Alberta deposits, as a partner in the Athabasca Oilsands Project run by Royal Dutch Shell PLC.
"Access around the globe has changed, and so as you find more and more areas that are off-limits or problematic in terms of entering, you come back to Canada and say, 'My goodness, you have a huge resource base, why not Canada?' "
The oil nationalization policies sweeping other oil-producing jurisdictions, such as Venezuela, have placed Canada in such a favourable light that the Houston-based staff of Enbridge Inc. have an inside joke: "Hugo Chavez is the Enbridge employee of the year because he's done a lot to help us," said Stephen Letwin, the top executive in the United States for the Canadian oil-pipeline company. Enbridge is expanding aggressively in the country and working to bring oilsands oil all the way to the U. S. Gulf Coast.
Some refineries it deals with are going out of their way to buy Canadian.
John Lowe, executive vice-president for exploration and production for Houston-based ConocoPhillips, said Canada is so important to his company that one out of seven dollars it will invest this year is going north, much of that to Alberta. The oilsands "still have lower returns than some other projects, but they are one of the largest resources we have in the company, so they are extremely important because of the size and scale that can be achieved."
"The resource is just enormous, it's a very unique resource around the world," he said in an interview from Edmonton, where he told the Chamber of Commerce recently that "this province, its resources and its people are vital to us and to the world's energy future."
Even Rex Tillerson, the chairman and CEO of Exxon Mobil, which only recently recommitted to the oilsands with the Kearl project, called the deposits "a tremendous resource opportunity to meet our energy needs.
"It's very difficult in terms of the technology, but a lot of the technology has been developed and is continuing to be developed that is going to make more of that resource affordable and deliverable in a way that is less intrusive to the environment," Tillerson said after addressing shareholders last week in Dallas.
All the talk about Canada is fuelling buzz that U. S. companies will increase their oilsands exposure by making sizeable acquisitions.
From the standpoint of U.S.-based firms, "When you look around the world, and where you are going to get the secure access to resource, there are two areas that pop to mind -- first is oilsands, and the other is the U.S.," said Brian Reinsborough, president of Nexen Petroleum U.S.A., the Dallas-based U.S. affiliate of Nexen Inc.
"I think you will see more U. S. companies taking a position in Canada."
ConocoPhillips, which has been talked about as a potential bidder for EnCana's oilsands spinoff once EnCana splits itself into two entities next year, doesn't have any acquisition plans, Lowe said. However, he said ConocoPhillips knows EnCana's oilsands assets better than anybody else through a joint venture involving EnCana's two major thermal projects in Alberta and ConocoPhillips' two U.S. refineries.
Chevron, which has been trying to expand in the oilsands, has been finding it difficult to make a move. "It's challenging economically, all of the acreage is pretty much tied up now."
The Alberta government didn't help by increasing royalties that have made the oilsands even more of a challenge, a message that Chevron has conveyed to Stelmach, Luquette said.
For Chevron, the momentum is moving to another Canadian basin -- the East Coast offshore, where it is looking at expanding an already sizeable position that includes a stake in the Hibernia field, the proposed Hebron heavy-oil field, and exploration in the Orphan basin.
"We now look at the East Coast of Canada in a preferred way," Luquette said. "We can be competitive in the East Coast. The oilsands for us has fallen to the bottom."
© The Vancouver Sun 2008
June 04, 2008
Protect Waterton-Glacier park, groups implore UN
MARK HUME
Globe and Mail
June 4, 2008
VANCOUVER -- Several leading environmental groups in the U.S. and Canada have written to the United Nations asking that proposed energy developments along British Columbia's Flathead River be investigated as threats to a World Heritage Site.
In a letter sent yesterday, the organizations state that Waterton-Glacier International Peace Park, which links globally significant national parks in Alberta and Montana, be placed on the UN's World Heritage in Danger list.
"There is substantial danger that the existing statutory and regulatory framework will fail to adequately protect Waterton-Glacier International Peace Park and its surrounding lands from adverse impacts caused by mining and CBM [coal bed methane] development in the headwaters of the Flathead River," the groups state in a letter to Francesco Bandarin, director of the UN's World Heritage Centre.
The UN has recognized Waterton-Glacier International Peace Park as a World Heritage Site since 1995, when it was listed because of its "outstanding universal value" and its extraordinary densities of grizzly bears, wolves, lynx and wolverine.
Chloe O'Loughlin, executive director of the B.C. chapter of the Canadian Parks and Wilderness Society, one of eight groups that signed the letter, said placement on the World Heritage in Danger list would bring intense scrutiny to the coal and coal bed methane projects, which environmentalists say will pollute the Flathead River.
The proponents, whose projects have not yet been approved by government, have said they will operate within strict guidelines that are meant to protect the environment.
But critics claim the massive open-pit coal mine, which would remove 40 million tonnes of coal and create 300 million tonnes of waste rock, and the methane project, which could potentially see thousands of wells drilled in a 500-square-kilometre zone, would inevitably pollute the Flathead River.
The Flathead rises in the southeast corner of B.C., with Waterton National Park lying directly east of the Rocky Mountains in Alberta, and Glacier National Park to the south in Montana.
The Flathead forms the western border of Glacier National Park, and the proposed B.C. developments have drawn criticism from Montana's leading politicians, and recently from Barack Obama, who was campaigning in the Democratic primary in Montana earlier this week.
Ms. O'Loughlin said the environmental groups, which include the Sierra Club BC, National Parks Conservation Association and the Wilderness Society, have turned to the UN because of concerns that B.C. will approve development in the Flathead despite growing opposition.
She said protesting to the World Heritage Committee is a logical step because the developments could not only pollute the Flathead, but might also fragment habitat used by wildlife that now move easily back and forth from B.C. into the parks in Alberta and Montana.
"A World Heritage site is in danger here. It is being threatened by potential energy and mine developments in the Flathead and will be as long as the Canadian portion of the Flathead is open for business," Ms. O'Loughlin said.
She said she expects a response from the World Heritage Committee within six weeks and is hoping an investigation could begin soon after. "There is a sense of urgency about this," she said.
There are 14 World Heritage sites in Canada, including the Rideau Canal, which runs from Ottawa to Kingston and was listed by the UN last year. Nahanni National Park in the Northwest Territories and L'Anse aux Meadows in Newfoundland were the first Canadian sites on the list in 1978.
The UN has 30 sites on its World Heritage in Danger list, none in North America.
Among the sites in danger are Garamba National Park in the Democratic Republic of the Congo, where wildlife have been massacred; the Galapagos Islands, Ecuador, which are threatened by the introduction of alien species; and Simen National Park, Ethiopia, where human settlement and road-building activities are blamed for wildlife declines.
June 03, 2008
Obama opposes plan for mine on B.C. river
MARK HUME
Globe and Mail
June 3, 2008
VANCOUVER — A wild British Columbia river has become part of the political landscape in the U.S. presidential campaign.
With voters in South Dakota and Montana going to the polls today in the last two primaries in a dramatic race for the Democratic nomination, front-runner Barack Obama appealed to environmentalists - and a few superdelegates - by throwing his support behind a campaign to halt a proposed coal mine on the headwaters of the Flathead River, in southeastern B.C.
"Barack Obama supports efforts by Senators Max Baucus, Jon Tester as well as Governor Brian Schweitzer to stop the Cline mine," Matt Chandler, of Mr. Obama's Montana press office, states in an e-mail that was released yesterday.
The three Montana politicians, all superdelegates at the Democratic national convention, have been strong critics of the proposed mine, saying it would pollute waters south of the border and threaten Montana's Glacier National Park.
"The Flathead River and Glacier National Park are treasures that should be conserved for future generations," stated Mr. Chandler in the e-mail, which was released by its recipient, Will Hammerquist, a Montana representative of the National Parks Conservation Association.
Mr. Chandler confirmed the e-mail and said it had been sent after consultation with Mr. Obama over the Flathead issue, but he declined to comment further.
Mr. Hammerquist, whose non-profit U.S. organization works to protect American parks, said it is an important statement by a heavyweight politician who appears on the verge of winning the Democratic nomination and possibly becoming the next president.
"I think it's significant," Mr. Hammerquist said of Mr. Obama's position. "That [statement] about supporting the efforts of Montana's federal elected delegation and the governor, to stop the Cline mine, is really strong."
Mr. Hammerquist said that if Mr. Obama becomes president, his interest in the Flathead would elevate the issue to the highest political level and could lead to an agreement between Canada and the U.S., and Montana and B.C., over collaborative management of the transboundary river.
"It's a huge signal for us on the American position on this issue," said Chloe O'Loughlin, executive director of the B.C. chapter, Canadian Parks and Wilderness Society.
"Here's a potential president of the United States on one of the busiest days of his career, on the eve of his nomination, standing up for this critical piece of wilderness in B.C. This is a very significant statement."
Ms. O'Loughlin said the decision over whether the proposed coal mine goes ahead clearly rests with B.C. and Canada, but Mr. Obama's statement shows how important the issue is south of the border.
"I think Premier Gordon Campbell and Barack Obama could be good diplomats on working towards an international agreement to co-operatively manage the river; that's what I'd like to see," said Ms. O'Loughlin, whose organization has been calling for protection of the Canadian portion of the river for 20 years.
Governor Schweitzer and Senators Baucus and Tester have for years been trying to persuade B.C. and Canada to add the watershed to an international network of parks that protects the Rocky Mountain landscape where B.C., Alberta and Montana meet. East of B.C.'s Flathead Valley region is Waterton Lakes National Park, in Alberta, and south is Glacier National Park, in Montana.
In a recent letter to Mr. Campbell, Governor Schweitzer described the Flathead as "one of the cleanest and wildest rivers remaining in America," and urged B.C. to protect it.
He suggested Montana and B.C. could reach "an agreement that provides B.C. with sustainable economic opportunities along our common border while protecting the upper Flathead River Basin."
Earlier this year, the B.C. government rejected a British Petroleum proposal to extract coal-bed methane in the Flathead basin, and recently the Liberal MLA for the region, Bill Bennett, said that coal mining should not be allowed in the valley.
But the most controversial proposal remains alive. Cline Mining Corporation has plans to remove 40 million tonnes of coal and 300 million tonnes of waste rock during a 20-year open-pit operation.