The Round-Up: November 3rd 2006
Posted by Stoneleigh on November 3, 2006 - 1:01pm in The Oil Drum: Canada
How long can Canada go on behaving like America's most compliant energy colony?Not very long, according to David Hughes, a petroleum geologist with the Geological Survey of Canada. Speaking before the World Peak Oil Conference held in Boston last week, Hughes painted a remarkably pessimistic picture of Canada's energy future, especially regarding natural gas.
Despite record drilling activity, natural gas extraction volumes have slipped from the peak set in 2002, and output per well is now declining at an annual rate of 28%. Put another way, energy companies must add 3,000 more wells in 2007 on top of the 15,000 now in production just to keep output from diminishing.
That would be a daunting challenge even if there were spare rigs and drilling crews standing by. As it now stands, there is no spare capacity of this sort anywhere in North America.
With only eight years of proven reserves left in Canada, Hughes suspects that natural gas output is about to fall off a cliff. Barring a miracle or two, Canada will soon experience challenges in providing for its own citizens, let alone producing surplus volumes bound for American furnaces.
"If the tax proposal is enacted as presented, we believe that Canada will lose control of its energy sector and investment activity will decline in conventional oil and gas production," the capital markets unit of investment firm Canaccord Capital said in a report Thursday."This tax proposal puts a 'for sale' sign on Canadian energy resources by removing a competitive cost of capital advantage - a wave of foreign takeovers is likely to emerge. As a result, Canadian energy decisions will eventually be made outside of our borders."
Canaccord suggested the government has effectively increased the cost of capital for the Canadian oil and gas sector.
Income trust tax angers Alberta oil patch
"What you have amongst a lot of people in the oil patch is an intense sense of disillusionment," he said. "There was billions of dollars bet by ordinary people, companies, executives on the strength of this promise. To have this result, to have billions of dollars lopped off, seems to have struck a raw nerve."
If he had merely ended the investment trust mechanism, he could have halted the erosion of the Canadian tax base, without also destroying $25 billion of shareholder wealth in a single day, shutting down the existing investment trust apparatus, violating the trust of every investor in Canadian assets, imperiling future investment in the country, eroding the Canadian government's credibility, undermining the Canadian dollar and looking like an incompetent buffoon.
Talisman puts off $1B in projects
Talisman Energy Inc. is deferring $1 billion in exploration projects in 2007. It's the latest oil and gas producer to pull back on drilling amid high costs for labour and equipment........Talisman ex-pects to spend $4.8 billion on exploration in 2007, the same amount as 2006. But given spiralling costs for drilling and other services in the energy industry, Buckee said that's a real decrease of between 10% to 15%.
Two of Talisman's larger competitors in the Canadian oilpatch -- EnCana Corp. and Canadian Natural Resources -- have cut their drilling plans for 2007, citing rapidly escalating costs and softer natural gas prices.
Officials pushing for natural-gas alliance
Russian officials are pushing for the formation of a "natural gas OPEC" that would link Moscow with major suppliers in Central Asia and Iran to gain more clout against customers in the West. If successful, the alliance would control more than half of the world's known gas reserves and give Moscow powerful leverage as it seeks to strike a new long-term deal on energy with the European Union........Russian President Vladimir Putin first floated the idea of a natural gas cartel in 2002. Genadi Zodanov, a Communist Party member of parliament, said a gas cooperation deal with Iran would create a strategic alliance with Tehran, giving the world's two largest natural-gas producers the kind of clout OPEC's Persian Gulf producers have wielded in the oil market for decades.
And they still won't even get the 1.5, I'll bet. People think gas drops like oil, but it goes much faster.
A bit of a shame that the writer doesn't dig deeper. And Canada can decrease its exports, but only in increments calculated over the prior 36 months. A fixed quota is not a fixed amount or percentage. The real NAFTA danger may turn out to be in what Canada imports rather than produces, as the NDP grasps, see below.
Some of his phrases are so similar to mine, they make me think my MTL articles get read in Wisconsin. Shameless self promotion? Not really, the paper's audience dictates a much different approach, less knowledge can be assumed. And never enough space.
It's just that these issues will control Canada life and politics soon, there's no way out of that.
When will there be political will to invoke number one and when will the NEB feel politically un-encumbered to act on the mandate. Number two will happen after one I would guess.
For the first the question is: "When will be willing to risk the USA locking our manufacturing, other resource areas and sevice sectors out of their economy?" Any answer would be a guess but I think the debate must be joined in Canada at the political level to even hope to raise the prospect. No matter what political party or position we have we need to get people in all parties and provinces discussing it ASAP. Maybe there will be enought political weight in the new ASPO Canada to begin?
Having an anti-urban sprawl plan
Getting banks involved to help add plans for people to renovate their homes for efficiency, add geothermal pipes , and solar/thermal panels.
We have nothing. We don't value the money it would take. It's too expensive we say, but it just means it's not free. But getting these add-ons would reduce load and make houses powerplants, creating cottage industries. During a crisis the costs will soar.
The timescales are too short for government policy to act with prudence and priorities. I wish I was more optimistic but in the end, they will just blame each other.
I would rather look at your local community. What are they doing? some links for ideas. Basically, when the global and national systems fail, go local.
http://sustainable.ie/powerdown/index.html
http://www.ibiblio.org/tcrp/pres/tcrp-intro.pdf
So while it is possible in theory, it's not in practice. The signees were well aware of this. That's probably why they chose to leave it in.
Another effect of NAFTA is the facilitation for US investors to purchase and hold Canadian assets. Hence, abrogation would mean endless litigation with potentially devastating financial penalties.
The only feasible step would seem to be a separate renegotiation of the energy part of NAFTA. But the first demands the US would bring to the table, if it were to agree to negotiations, would be a long list of extremely expensive ones.
From
Resource Imperialism
Energy Policy under NAFTA
by David Lapp
NAFTA is a commerical accord that Canada can legally abrogate with 6 months notice. Anyone who asserts that Canada will be forced to continue to ship NatGas to the US while her citizens freeze to death - is an absolute and utter moron.
Roel may envision a thriving Canadian economy without heat in our homes but I most certainly do not.
As for the NEB...
The posted example of the NEB giving up on a cost/benefit argument in a time of surplus is a strawman.
In truth, no one really knows how the above will play out, however, we have a few years left to ponder the consequences or better yet, lay the groundwork for a neighborly agreement that will see Canadians share - as they always have.
Canada (and the US, for that matter) can implement regulations to limit exports only if exports are maintained in relative proportion to the average of the 36 months preceeding implemenation of the regulation. Otherwise, it's all open markets, all the time. Note that the average is based on exports as a percentage of total supply, defined as production plus imports.
In practical terms this means that in the face of falling production the one thing that Canada cannot do is make regulations to ensure that Canadians' needs are met first before allowing exports. It must either let the market do the allocation or force Canadians to accept a proportional cut in supplies.
Interestingly, at the provincial level the Alberta Energy and Utilities Board still has a requirement to ensure that Alberta's needs for the next 15 years can be met before issuing an export license.
Roel--
Thanks for the feedback. Bear in mind I am writing for a general audience which includes one independent weekly newspaper in norhtern Illinois. Suffice it to say I wasn't at all prepared for the cold shower that came in the form of two David Hughes presentations at the ASPO-USA conference 10 days ago. After ruminating on his sobering conclusions (WI is loaded with ruminants:<p) I decided to capture the basic thrust first and drill a little deeper into this issue in future columns. <BR>
This issue is more than just a passing concern to us. Enbridge is proposing to build a dual-purpose pipeline to and through Wisconsin. This pipeline will transport Canadian bitumen to American refineries and carry diluents back to Alberta. After his presentations, Hughes told me that the pipeline is a "done deal". I'm not so sure about that. The more people here become aware of Canada's natural gas woes and how that might stop the tar sands rush dead in its tracks, the more the resistance against Enbridge's will build.
Sorry to disappoint, but I have not read your articles nor do I know what MTL stands for. Would you kindly enlighten me. I'd like to read them.
Michael, Madison