Friday, 27 November 2015

Lengthy Seismic Acquisition Downturn Reduces The Number Of Companies In Western Canada

By: Carter Haydu

Article was originally published on Nov 24, 2015 by the Daily Oil Bulletin and can be found here: 

The number of seismic acquisition crews working in Western Canada for the 2015-16 season will be drastically reduced from even a couple of years ago, as the smaller companies are essentially gone and those medium-to-large companies remaining are grappling with the impact of a multi-year downturn for the sector.
“In general, we predict a softer winter than last year, and last year was bad,” Mike Doyle, president of the Canadian Association of Geophysical Contractors (CAGC), told the Bulletin. He said the season prior to Alberta’s single regulator implementation in November 2013, there were about 30 to 35 seismic crews in Western Canada. Due to timing of regulation, there were around 22 to 25 crews in Q1 2014.
With the drop in oil prices and market uncertainty, the 2014-15 seismic acquisition season saw only about 15 crews operating in Western Canada.
With the stress of hard times and mergers and acquisitions impacting the seismic sector over the past couple of years, Doyle noted, the number of seismic acquisition companies in Western Canada has been whittled down significantly.
Companies still operating in Western Canada include Eagle Canada Inc.Geokinetics Exploration Inc.GeoStrata Resources Inc., SAE Exploration Holdings Inc. and Tesla Exploration Ltd. An example of a company no longer in business is Sourcex Geophysical Corp., which closed its doors in March.
“It is a long way down from days of past,” Doyle added. “The way we see it, we are sort of on the backend of a 24-month downturn, as perhaps compared to other sectors of the industry, which have seen more like a year’s [downturn].”
Even with fewer firms left in Western Canada, there are still too many companies for the amount of seismic acquisition work available, said Richard Habiak, president and chief executive officer at Tesla. “Most of our work is oilsands related, and most of our work is production related — it is monitoring steam injection, and there really is very little exploration work in Alberta anymore.”
According to his company’s Q3 financial and operational results, (DOB, Nov. 18, 2015), Tesla operated up to two crews for part of the seasonally-slow third quarter, using the multi-component wireless acquisition system known as “Hawk.” While demand for this wireless equipment continues, increased efficiency has yet to correspond to revenue and margin increases.

Where the work is

Every year at the annual CAGC conference in Red Deer, the Alberta government provides a status update of current activity levels based on applications to the province. Typically, there are around 230 applications for seismic acquisition projects, said Forrest Burkholder, general manager at SAExploration. However, in 2015 the province only received approximately 25 proposals.
“It certainly is not a healthy industry at all in Canada, and every single company in town has done either one of two things, or a combination,” he told the DOB. “They have either done layoffs and transferred people to international operations, or stayed on a course for just a complete closing of the doors.”
Fortunately for his company, Burkholder said, there is still a fair amount of 4D seismic activity, which is mostly heavy-oil related and for which companies only apply to the province on the basis of multiyear approvals (meaning those projects do not necessarily show up on the province’s annual status updates to CAGC).
“Certainly, most of the activity that we are seeing, generally speaking, is more heavy oil than anything else, but there are some condensate plays that are being chased.”
Despite the impacts of an extended downturn on the seismic acquisition sector, Doyle said there is still seismic work this winter in Western Canada. “There will be some work in the oilsands. Typically, you need some 4D dealing with SAGD, and that type of work still tends to occur because it is linked to production. There will be some work in terms of microseismic, which includes monitoring of fracs or the induced-seismicity stuff.
“There will be very little work in B.C. That may change, but most of the stuff going on in B.C. is more the drilling in the Montney and such, and so areas like the Horn River have been quiet for the last two winters. There is always some work in Saskatchewan in the south, the Bakken to some degree, as well as for the potash. However, the potash stuff generally tends to be more in the summer and the fall.”
Outside of oil and gas, SAExploration does some seismic work for the mining industry, and the company conducts seismic work for Western Canada’s potash sector, Burkholder told the DOB.
However, potash producers are not without their own problems. For example, Potash Corporation of Saskatchewan Inc. saw net income fall 11 and five per cent, respectively, to $282 million and $1.07 billion for the three and nine months ended Sept. 30, 2015, compared to the same periods one year prior. 
"Broader emerging market concerns have weighed on customer sentiment, contributing to a weaker fertilizer environment in the second half of 2015." Jochen Tilk, president and chief executive officer, told a recent third quarter conference call. In response to market constraints in potash, the company is planning various cost-saving measures.

The importance of being global

For Tesla, the biggest driver in last year’s activity was international oil and gas exploration. While the immediate future may not look very bright for North America’s seismic acquisition companies, Habiak said one “bright spot” for his firm remains the potential in Africa, which has a bit of “wildcat exploration” underway.
Of those seismic acquisition firms still working in Western Canada listed earlier, their commonality is they all work internationally, noted Burkholder. While being able to access markets in the U.S. and abroad is an advantage, he said the real key to surviving the downturn is maintaining positive cash flow until the market recovers.
However, Burkholder worries the hard times for seismic acquisition might be a “new normal” and will not necessarily go away when crude prices increase, as the problems in seismic acquisition have been going on for longer than the current industry downturn.
“In the mid-1980s we saw a significant downturn, and we saw another significant downturn in the 1990s. The 2000 downturn was bad, but it was only for the year. Now, we are kind of going onto ‘Year Three’ in the geophysical side of it. I don’t think the drilling markets were hit quite as hard. They seemed to keep working a bit longer, just to the nature of their contracts, and then obviously they are closer to production. Seismic, however, gets shut off fairly quickly.”
He added: “For 2015, it varied between acquisition companies, but overall most everyone would agree that it was not a great year. Unfortunately, 2016 is looking to be even worse.”
With fewer competitors, Burkholder hopes pricing improves so those companies remaining at least get paid a bit more for the work they find, rather than breaking even or losing money with each job. He added: “We need to focus on working for the majors, as they typically have larger projects, and they work more consistently.”

When the downturn ends

In order to see a significant boost to the seismic acquisition sector for oil and gas, it will take a bottoming of the market, followed by evidence of a return to higher commodity prices, Doyle said. A natural gas export industry would help as well. “If something comes along like LNG one day, then I think you will have a vibrant market once again. But there has been heavy consolidation and certainly we have seen companies disappear from the marketplace.”
With so few crews left in Canada, Doyle worries about the sorts of challenges associated with fulfilling seismic acquisition needs when oil prices return to higher numbers and there is an increased demand for seismic work. “You have core groups of people, but once things are down for too long a period of time, those people move on,” he said. “They have to make a living somewhere else, whether if it is a different industry or different geography completely.
“Expertise at the higher end will be where things are most challenged in order to ramp crews back up to numbers of anything like three or four years ago.”
In Canada, Tesla successfully reduced field overhead costs, resulting in significantly-improved margins and margin percentages during the third quarter. With all the cost-cutting measures required to survive a downturn, though, Habiak said there will be challenges meeting increased demand when an upturn hits the energy sector.
SAExploration is a “very nimble company,” and is mitigating the downturn, in part, by moving assets, said Burkholder. While Canadian business has slowed, the company has transferred crews and equipment abroad, thus reducing its number of layoffs. Management has taken other measures to maintain its valued staff as well.
He said: “We are fortunate because we have had discussions with our people and we have people who are doing jobs that aren’t their normal jobs, but they are still getting paid salaries. We feel that we are in a good position for the upswing when it comes in. We obviously have to remain optimistic about things and we try to remain that way, and so we are planning as if we will be back at work in more of a normal market — whatever normal is. 
"At some point, companies are going to choose to go back to work, or else those energy companies are going to have to make some decisions. At some point, they are just going to have to start working their assets, just finding efficient ways of doing so."

Eagle Canada positioned for recovery

Late last year, TGC Industries Inc. and Dawson Geophysical Company announced a proposed strategic business combination, with the combined company to be called ‘Dawson’ in the U.S. and ‘Eagle Canada’ north of the 49th Parallel (DOB, Nov. 25, 2014). In February 2015, the companies completed their combination, putting the emerging entity in a position to respond to market conditions quickly, says top brass.
“It is our belief that the seismic business is a balance sheet-driven business, and you need to be in a position to upgrade your equipment base in an up-cycle, and be able to manage and maintain your people assets in a down-cycle,” Stephen Jumper, president and chief executive officer at Dawson, told the recent Johnson Rice 2015 Energy Conference in New Orleans, LA. “We are well positioned to respond to the market as it changes quickly.” 
According to Jumper, the Canada portion of the newly-combines company certainly is experiencing the impacts of the industry downturn. The Canadian market for the upcoming season, which already has a short window, will be challenging for the company he said, but the recent merger should help weather the proverbial storm. "We think over time, whether recovery will be in ... 2016-17 or 2017-18 ... we will be well positioned to respond to that."

Thursday, 26 November 2015

We won’t beat back climate change with more corporate welfare

By: Tasha Kheiriddin

Article originally published on Nov 23, 2015 by iPolitics and is available here:  

Liberal leader Justin Trudeau and Ontario Premier Kathleen Wynne take part in a joint news conference in Ottawa, Thursday January 29, 2015 ahead of a meeting of Canadian Premiers.

The climate, it is a changin’ — and this time I’m not talking about greenhouse gases. The federal policy climate is heating up, stumbling out of the Harper administration’s Ice Age cavern like a revived woolly mammoth. The premiers have poured into Ottawa to meet with Prime Minister Justin Trudeau for a long-overdue discussion of Canada’s climate change strategy.

But the effects of Harper’s climate policy deep-freeze linger on, and may hamper Trudeau’s pursuit of national goals. In the absence of any federal conversation, the provinces have acted alone, and decisively. B.C. imposed a carbon tax. Quebec and Ontario joined a carbon pricing market. Now, Alberta has announced its own carbon tax. Next door in Saskatchewan, Premier Brad Wall is resisting any carbon pricing as his province struggles with low oil prices and a stagnant economy, though he’s pledging that half of the province’s energy needs will be met by renewables.
Ontario Premier Kathleen Wynne is right when she says that there is no “one-size fits all” solution — though one would hope that’s the only advice Trudeau takes from her on energy issues. Ontario’s Green Energy Act has been a fiasco since it was introduced by her predecessor Dalton McGuinty in 2009. Modeled on the European concept of encouraging renewable power development through government-guaranteed prices (ie: public subsidies), it did boost production of solar and wind energy through guaranteed Feed-In Tariffs (FIT).
But to offset the subsidies to green power through the FIT, the Ontario government created the “Global Adjustment”, an accounting method that spreads the cost of these subsidies to all consumers. As a result, from 2003 to 2014, the cost of electricity for the average Ontario personal consumer spiked from $780 to over $1,800 a year. On the commercial side, the Ontario Chamber of Commerce estimates that one in twenty Ontario businesses will close in the next five years due to skyrocketing electricity costs, while two in five businesses cite electricity costs as a reason for delaying or canceling investment decisions.
Why are Ontario’s subsidies failing to produce cost-effective electricity? As was the case in Germany, “rather than allowing the cheapest forms of renewable energy to take hold and provide renewable power, the FIT ensures that investment will flow to those technologies receiving the largest government handout — not those that make the most economic sense.”
The Ontario government is now fading out some of the FIT, leaving many who hopped on the solar bandwagon hopping mad — particularly farmers who plowed thousands of dollars into so-called “micro-FIT” programs.
Over in Alberta, Premier Rachel Notley also has opened the door to subsidization, but has not out-and-out committed to a FIT. Instead, she stated that her government “will keep the costs of renewables as low as possible by using market mechanisms, such as auctioning.” While this is preferable to Ontario’s approach, the devil will be in the details. The reality is that as long as fossil fuels remain the most cost-efficient and reliable form of energy, they’ll be preferred to renewables. Any attempt to artificially create a “green energy economy” will require subsidization by government — taxpayers — and hike energy costs as a consequence.
Carbon taxes also will increase the price of energy. Alberta’s carbon tax will add an average of $900 to every household’s energy bill by 2030, which Notley claims will be “revenue neutral” thanks to government rebates (a misnomer if there ever was one). The cost of compensating coal plant workers for the loss of their jobs will also come out of provincial coffers, currently bare. And while Notley offered up a lovely visual of energy industry leaders (minus Exxon, one should note) standing together with First Nations and environmentalists, those executives are probably smiling because their companies aren’t the ones who will be paying the tab: it’ll be passed down to the consumer. This will dampen economic growth and do nothing to lower unemployment figures.
On a national scale, the different approaches and carbon pricing mechanisms adopted by B.C., Alberta, Ontario and Quebec distort the Canadian carbon market, just as different prices, pricing mechanisms and subsidy programs distort the global market. As described by Professor Jack Mintz of the University of Calgary, the result is a patchwork that may or may not reduce carbon output — but will certainly add to consumers’ energy bills.
We can’t approach climate change by doing nothing about carbon emissions — but we ought to at least concentrate on doing the things that make the most sense. Those things — even according to economists as market-friendly as Milton Friedman — involve putting a price on carbon that accounts for the “externalities” (costs) created by the use and production of carbon-intensive fuels which negatively affect human health and the environment. Those things do not include subsidizing alternative energy industries with green corporate welfare.
Will Trudeau be able to muster the goodwill necessary to create a uniform carbon pricing system in Canada, while resisting the siren call of subsidies? It would be a great achievement. Canadians shouldn’t hold their breath, though. We all share the same environment. But sharing a common national environmental vision? That’s something else entirely.

Tuesday, 24 November 2015

A long road ahead

By: Peter Boag, President and CEO of the Canadian Fuels Association

Article was originally published in the Canadian Fuels Association 2015 Annual Report - Perspectives - and can be found here:  

Canadian Fuels Association 2015 Annual Report - Perspectives

Driving towards a sustainable transportation system that balances Canadians’ environmental, economic and social aspirations

Governments at all levels are increasingly focused on the issue of climate change. The 21st Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21), scheduled for Paris in the first half of December 2015, may be a defining moment in charting the road forward.

An aggressive target

The Intergovernmental Panel on Climate Change has determined that keeping the global temperature increase to within two degrees Celsius will require GHG emission reductions of 80 percent below 1990 levels by 2050. A new Canadian report explores that challenge in detail. The Conference Board of Canada’s A Long, Hard Road: Drastically Reducing GHG Emissions in Canada’s Road Transportation Sector by 2050 takes into account the most promising initiatives and technologies. It finds that an 80 percent reduction target for Canada is unrealistic. Converting all passenger transportation to zero emission modes would still leave Canada well short of this goal. Even a 50 percent reduction target will be costly and require not only a significant reduction in transportation activity, but also a break in the traditional connections between economic growth, our standard of living and transportation demand.

The Conference Board report highlights the difficulty for policy-makers: transportation is a significant component of emissions in Canada and around the world. Transportation is also vital for a strong economy and decent quality of life. How can we achieve meaningful emissions reductions without compromising our ability to travel and constraining our economy?

Targets are essential. But they must be realistic and set in conjunction with clear, practical plans on how to achieve them. An aggressive aspirational target in the absence of such strategy is a formula for failure. Kyoto is a good example.

Progress is being made

Rather than dwell on unachievable targets, we feel it is helpful to focus on the environmental progress that’s being made (Breathing Easier, page 32) and the many ways we can make a difference now (eco-driving techniques, page 26). The carbon footprint of transportation will get smaller in coming years, but short of some new and as yet unknown technological breakthrough, incremental technology developments will deliver some of the most beneficial contributions (Fuelled by Innovation, page 22). While the fuel mix will diversify in the decades ahead, petroleum will remain the dominant transportation fuel for the foreseeable future.

Beyond this, demand-side management is the key challenge and opportunity. Canadians and governments must make smart decisions about where we live and work, how we get around, and how much we are prepared to pay for our transportation options (see Get Smart, page 12). The goal is to grow a sustainable transportation system that balances Canadians’ environmental, economic and social aspirations.

We believe combined efforts to achieve this sustainable outcome must be founded on three key actions:

  • Explore, define and evaluate emission reduction pathways in collaboration with stakeholders before targets are set.

  • Recognize Canada’s productivity and competitiveness as core considerations in the development and implementation of a national GHG reduction strategy.

  • Ensure that sound science and cost-benefit analyses drive decisionmaking and are transparently shared with citizens.

Our industry fuels mobility. We are committed to working constructively together with governments and other stakeholders to achieve a sustainable, lower-carbon transportation future for Canada.

Perspectives is an important part of our contribution. This annual publication gathers clear and balanced insights from academics, researchers, independent journalists and industry experts to provide Canadians with the knowledge they need to make informed decisions about our transportation fuels future. Perspectives carries on the Canadian Fuels Association’s active role in the public discourse on Canada’s transportation fuels. 

Our members are not responsible for setting targets. But, as Canadians, we are all responsible for helping governments set realistic ones and exploring the ways we can work successfully toward them.

Friday, 20 November 2015

Engaging Youth In Canada’s Energy Sector Requires ‘Perspective Realignment’

By: Carter Haydu

Article originally published by the Daily Oil Bulletin on Nov 17, 2015 and can be found here: 

Support of the energy sector is often seen as being akin to climate change denial on university campuses, which is why the co-chair of Future of Canada’s Oil Sands (FoCOS) believes there must be a realignment of how young people perceive the oil and gas industry, because it can actually be seen as a climate change solution.
Jamil Jivani told last week’s Economic Club of Canada energy conference that youth want to know how energy companies are working on green energy solutions. “The reality is on university campuses, that is not what people are hearing when we are talking about fossil fuel production.”
Young Canadians are hungry for economic opportunity, noted Jivani, and they are looking for their “first break and first job” in order to demonstrate their capabilities and make contributions to the economy. However, he added, youth are managing that desire for opportunity with various concerns about climate change, considering the social responsibility priorities of the various companies for which they might seek employment.
“A significant number of Canadians feel that in a short period of time — like 10 years — that we might transition away from fossil fuels. That perception has a really big impact on young people and what their careers will look like. If 50 per cent of young people think this is true, then how do you think they are planning their careers in terms of industries they are going to engage in, or where they are going to spend their time and creative energy?”
One of the most beneficial ways industry can engage youth is to convey a long-term, ultimate plan for the sector, Jivani said. Youth, for example, should know how increased production could make it easier to finance a different kind of energy future where young people foresee a more sustainable career. However, Jivani said, young people largely do not hear that perspective.
“Generationally, I think we are seeing it being played out where young people are only exposed to one side, and they feel that is the side they belong on, and that is also the side on which they get to be leaders…. I think [it is] really critical to ensure they don’t perceive a certain type of the environmental side of this debate as dominating where young people see themselves.”
According to Jivani, Alberta could have its own version of Austin, Kitchener-Waterloo, or Silicon Valley — a place where young people see themselves wanting to build a life and career, as well as a place that attracts resources where they can dedicate time, energy, creativity and intelligence to developing new ideas to try and solve problems with which society is wrestling. To this end, he said engagement with post-secondary institutions is imperative.
“I think universities have been designed really well in order to teach us about problems, and how to be critical thinkers and analyze all the things that are not going well, but there is not a lot of emphasis on the skills and practical abilities that are necessary to resolve these [problems].
“I think [it] is really important for the private sector and universities to have a stronger relationship to ensure those things are being taught…. I see the need for practical skill development among my students.”
A public education organization, FoCOS aims to create opportunities and events for young Toronto-area professionals to learn about and engage with innovations and challenges related to Alberta’s energy sector.
For young people, the goal is not just about squeezing more productivity or money out of the current energy sector, Jivani said. Youth are also interested in showing leadership towards completely new ways of making money, and new frontiers in the energy economy not yet embraced, or possibly even conceived.

Thursday, 19 November 2015

Countdown to Paris: Fight climate change efficiently

By: Youri Chassin

Youri Chassin, Research Director at the Montreal Economic Institute ( and co-author of Practical Guide to the Economics of Climate Change: The Paris Conference and Its Aftermath

Article originally published by the Financial Post on Nov 17, 2015 and can be found here:  

Subsidizing the purchase of electric vehicles, for instance, as Quebec has been doing to the tune of thousands of dollars per car, is a very expensive (and therefore inefficient) way of reducing GHG emissions.

CO2 emissions can often be avoided at low cost, avoiding economically ruinous measures

Two weeks before the opening of the UN’s Paris Conference, not a day goes by without some new study trumpeting the end of the world. Yet contrary to what many seem to believe, the mainstream of scientific opinion, as represented by the IPCC itself, is not an alarmist position. Climate change is important, according to this august body, but catastrophe is not lying in wait for us around the next corner.

We might therefore want to think twice before bankrupting ourselves in our efforts to reduce its impacts.

Richard Tol, professor at the University of Sussex and a lead contributor to the IPCC’s Fifth Assessment Report, works on measuring the costs and benefits of climate change over the long term. His conclusion, which is in agreement with the recent studies addressing this question, is that the net effects of 1°C to 2°C of warming would probably be positive.

This is due in part to the fact that a higher concentration of CO2 in the atmosphere reduces the water requirements of plants, thereby allowing for faster growth and increased crop yields. Another benefit is reduced heating costs in the winter. And even more important are reduced cold-related health problems, which entail 17 times more deaths than heat-related health problems.

Warming in excess of 2°C, though, will probably have negative net effects according to the IPCC, including a non-zero chance of climate-related catastrophe. This can justify some measures to reduce greenhouse gas (GHG) emissions, which is what the Paris Conference is all about. What it cannot do is justify any and all such measures, whatever the cost. Yet there are plenty of those around.

Subsidizing the purchase of electric vehicles, for instance, as Quebec has been doing to the tune of thousands of dollars per car, is a very expensive (and therefore inefficient) way of reducing GHG emissions. Norway is the country at the forefront of the electrification of transportation, with around 75,000 electric vehicles on the road. But each tonne of GHGs avoided in this way costs $6,925 in various subsidies — not including the GHGs emitted during the manufacture of the battery. This is compared to a cost of $10.39 for one tonne of GHGs on the European carbon market.

Renewable energy subsidies are also among the most expensive ways of reducing GHG emissions, with significant economic and social consequences, as Ontarians are discovering. By raising the costs of electricity for the consumers who finance them, these subsidies generate energy poverty among the most vulnerable households. They also hurt the competitiveness of companies that see their rates go up. The European experience is telling, as several countries have had to rethink the subsidies they give out to producers of renewable energy.

The addition of biofuels like ethanol to gasoline is mandated by federal regulation in Canada. Its production is very harmful, however, both economically and environmentally, and it does not provide any notable benefits in terms of reducing GHG emissions. And because a significant amount of it is made from cultivated grains, it leads to price increases for basic foodstuffs on global markets, entailing negative financial and human consequences for the poorest populations.

These policies survive because in the current climate change frenzy, it would be politically incorrect to abolish them. Yet if we are to have a sane discussion about what is worth doing, we need to consider the very different relative costs of different mitigation efforts.

We also need to be realistic about what benefits these efforts will bring. It should not be assumed, for starters, that fighting climate change will stop all undesirable weather phenomena. For example, according to the IPCC’s Fifth Assessment Report, studies on extreme hurricane winds in the United States and the Caribbean, on tornados in the United States, and on storm winds in Europe have failed to establish a link with anthropogenic climate change.

In any case, the frequency and intensity of extreme weather events are not the only factors that determine the severity of their impacts. In fact, that severity is inversely related to a society’s level of economic development. This is why, from 1970 to 2008, over 95 per cent of deaths related to natural disasters were in developing countries.

Thankfully, since the 1920s, the world has gotten a lot richer, and the global mortality rate from extreme weather events has fallen by 98 per cent. Clearly, human vulnerability is less due to climate than to economic conditions. The economic growth that raises living standards allows us to better adapt to climate change.

Life expectancy has also risen substantially over the past century. Indeed, the overall health of the human population has improved, many previously fatal diseases are now treated more effectively or have been eradicated, and infant mortality has fallen sharply. These notable changes reflect reductions in hunger, malnutrition and poverty, thanks to a widespread improvement in economic living conditions.

Renowned author Indur M. Goklany, who worked at the IPCC and contributed to its First Assessment Report among other things, shows that these tremendous developments are closely linked to the living standards made possible by the use of fossil fuels and by the impressive technological progress of the past century.

As they seek to avert future catastrophes related to excessive global warming, the nations of the world should avoid the kinds of policies that reduce living standards and lead to immediate catastrophes.

Tuesday, 17 November 2015

Trudeau faces tough task balancing economic and environmental priorities

By: John Ibbitson

Article originally published on November 9, 2015 by the Globe and Mail and can be found here:!-363189572/?ts=151117115628&ord=1 

When Justin Trudeau and the premiers travel to Paris at the end of the month – Environment Minister Catherine McKenna is already there, preparing the way – they will seek a new national consensus on combatting global warming. But they risk damaging the economy and getting little in return.
This is the new Prime Minister’s first big challenge. There may be none greater.
The inability of the Conservative government, over a full decade, either to expand oil exports through new pipelines or to meet Canada’s international obligations to reduce greenhouse gas emissions stands as Stephen Harper’s biggest policy failure. Now it’s Mr. Trudeau’s turn to try.
He has repeatedly declared that a Liberal government will take meaningful action on climate change. But with Keystone XL now officially vetoed by President Barack Obama, the need for a pipeline from the oil sands to tidewater grows more urgent. How to reconcile the two?
Dylan Jones is president of the Canada West Foundation, a Calgary-based think tank. Before that, he was Saskatchewan’s deputy minister of intergovernmental affairs.
For him, the Paris trip offers a welcome opportunity for Mr. Trudeau and the premiers to take each other’s measure and to forge the personal bonds that are essential for deal-making.
While they chat, the first ministers will also ponder an inconvenient truth: Seriously reducing greenhouse gas emissions in Canada requires penalizing energy consumption.
“Trudeau has to convince the first ministers to have some kind of hearts-and-minds campaign to get Canadians to the point where they are willing to accept more burdens themselves,” Mr. Jones said in an interview.
Mr. Harper wasn’t willing to impose carbon taxes or other measures to reduce consumption. Will Mr. Trudeau go there, and can he take the premiers with him?
“There are any number of ways of doing it if you can get past the political problem of yes, there are going to be burdens on citizens,” Mr. Jones maintains.
But the Canadian economy depends on exports, and fighting climate change also means getting export-oriented industries – including manufacturers in Ontario and Quebec – to generate less CO2.
And at the same time, economic growth in the West hinges on expanding oil sands production, and that means a pipeline to either the Atlantic or Pacific coast – preferably both.
One challenge for Canada at Paris will be to make sure whatever sacrifices this country is prepared to make are matched by other countries as well.
“There is no benefit to global climate-change reduction if we move all the manufacturing to China and all the oil production to the U.S.,” Mr. Jones observes. The danger for those who depend on the oil industry for a living is that Mr. Trudeau will agree with environmentalists, who maintain that the only way for Canada to meet its climate-reduction obligations is to leave the oil sands bitumen in the ground.
But that would be the equivalent of a new National Energy Policy, and Mr. Trudeau appears quite determined not to repeat his father’s mistakes. It has taken almost 50 years, but the Liberals finally have a presence in the West – they dominate in British Columbia and Manitoba, and have toeholds in Alberta and Saskatchewan. This prime minister is unlikely to risk any action that exiles the party west of Ontario for another half century.
A more likely outcome is that the Liberals will waste years rewriting the rules for environmental reviews and then more years subjecting pipeline proposals to those new rules, while also negotiating with First Nations, premiers, environmental groups and industry associations. Another decade will slip by in which nothing gets done.
It comes to this: To succeed where the Conservatives failed, this government must set and meet meaningful goals for combatting global warming, while working with the premiers to impose new costs for consumers – that means us – on energy consumption, while also building new pipelines and increasing oil exports.
It’s a circle not easily squared. But success or failure could define the Trudeau government.

Friday, 13 November 2015

Is The Oil Industry Really Subsidized?

By: David Yager, MNP, National Leader Oilfield Services

Originally published in MNP's Oilfield Service News on November 11, 2015.

sub·si·dy: (sŭb′sĭ-dē) n. pl. sub·si·dies 1. Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.2. Financial assistance given by one person or government to another

The oil and gas industry is suffering through a severe and prolonged slump due to collapsed oil prices resulting in the loss of hundreds of thousands of jobs worldwide and the destruction of billions, if not trillions, of dollars in shareholder value. Governments in oil-producing jurisdictions, including Alberta, find themselves in severe financial difficulty because cash flow generated by first natural gas and now oil production has plummeted. This includes royalties, corporate taxes, payroll taxes and the sale of future development rights. 

Alberta is expected to amass massive deficits until oil prices recover. The collapse in oil prices allegedly drove the entire Canadian economy into recession in the first half of the year. Every oil producing jurisdiction in the world depending upon this resource to fund government operations is struggling.  

So you are forgiven if you don’t understand how anyone can claim this industry is heavily subsidized by governments. That’s right, subsidized. Using the dictionary definition of the word subsidy at the top of the page, the oil industry allegedly benefits enormously from government generosity. Motor fuel taxes alone contributed $14 billion to federal and provincial treasuries last year, yet allegations persist this industry is on the dole. 

How can it be this great cash cow is, in fact, a welfare recipient? This is yet another battle – along with pipelines, oilsands and hydraulic fracturing – the petroleum industry is losing. It just has not received the attention it should. But as the world’s leaders head towards the Paris Climate Change Conference (PCCC) at the end of November, this subject will again be in the news. Keep an eye on it. It is important. 

There are three different definitions of subsidies to the oil industry. 

The first is direct government cash through reduced commodity pricing. Numerous oil and gas producing countries, all with state controlled production, sell fuel to their domestic economies below the market price. Some even import oil at the world price and sell it to their own citizens well below cost. In 2011 in Iran, for example, that country provided oil to its citizens for about $40 billion less than it would have received had the crude been sold on world markets or if the state oil company had charged consumers the world price. Other countries which sell domestically produced or imported oil to their citizens below global market price include Saudi Arabia, India, China, Egypt, Iraq, UAE, Indonesia Mexico, Algeria, and Kuwait. This is done at great expense to the treasury. The Organization for Economic Cooperation and Development reported last year 40 countries subsidized the cash cost of motor fuel by a whopping US$548 billion in 2014. Gasoline prices in Venezuela, Saudi Arabia, Iran, UAE, and Indonesia averaged only $0.31 a litre. 

And it’s tough to change. When these governments suggest domestic oil – and natural gas – prices should rise to approach market levels, the reaction of consumers is universally negative. Think riots. Usually governments back down and low prices persist. This should come as no surprise. Every time the price of fuel rises anywhere in the world, the people who buy it are unhappy. Canadians react the same way. This method of reducing the cost of fuel certainly meets the dictionary definition of subsidy.  

The second definition of subsidy is taxes not collected. This newer derivative includes depletion and capital cost allowances, accelerated or otherwise. Depreciation deductions against income taxes payable not restricted to oil and gas. Historically, corporations which invest capital in property, plant or equipment to create future revenue streams, employment, and corporate and personal taxes have been permitted under the tax act to deduct some portion of such investments from current income taxes. This tool to help businesses more quickly recover invested capital has been around forever because it usually results in employment, corporate and personal taxes that would not otherwise exist. Unlike the cash subsidies in case one, this is usually considered a tax deferral because what governments forfeit today is collected tomorrow, often several times over. 

Canada provides a good example with the generic oilsands fiscal regime negotiated by oil companies, Alberta and the federal government in the mid-1990s. At that time, oil prices were low and the development of this massive resource was regarded as an asset, not a liability. Included in the fiscal package was an accelerated capital cost allowance for developers which reflected the enormity of the upfront capital required to make these investments take place and ultimately economic. 

And it worked. Not right away, but early in the 21st century the oilsands took off due to several factors, one of which was the generic oilsands fiscal package. Meanwhile, critics of fossil fuel consumption began to classify taxes uncollected from oil and gas developers by governments as a subsidy. This was certainly a new twist in the application of the word.  

The government of Canada, co-creator of the generic oilsands regime, bought into this argument. In 2007 the federal government ended the accelerated capital cost allowance for oilsands development. The official announcement read,”...the Government is committed to improving the fairness and neutrality of the tax system across sectors of the economy and to supporting the commitment by G–20 Leaders to rationalize and phase-out over the medium term inefficient fossil fuel subsidies. With the oilsands sector vibrant and growing, Budget 2007 announced the phase-out of the accelerated capital cost allowance for tangible capital assets in the sector.” That the success in oilsands growth was due in part to the tax treatment the government terminated was not mentioned. 

The suggestion that depletion or depreciation deductions on income from investments that might not otherwise exist is a subsidy is a remarkable interpretation of the rules of accounting and the English language. 

Meanwhile, in February this year the federal government announced the introduction of an accelerated capital cost allowance deductible from income for the purchase and construction of LNG assets. This was introduced after developers made a convincing case it was essential for LNG projects to be economically viable. This was done without apology or reference to future carbon emissions. 

The third and furthest stretch of the definition of subsidy comes from climate change activists who claim health and environmental damages caused by the consumption of fossil fuels which may be borne by future governments are a subsidy to companies and industries which produce and market petroleum, coal and natural gas. This includes health costs to people harmed by air pollution as well as the effects of floods, droughts, and storms caused by carbon-induced climate change. The subsidy allegation includes events which have not occurred yet but surely will, so long as fossil fuels remain the primary energy source for the world’s economy. The world’s hapless consumers who buy and burn this stuff for survival, comfort, convenience and entertainment not required to bear any responsibility for their actions. 

The International Monetary Fund (IMF) estimated earlier this year global fossil fuel subsidies had reached $US5.3 trillion, a figure highlighted at $US10 million a minute to make the number more tangible. The driving force behind this concept of subsidy is Nicholas Stern, a climate economist at the London School of Economics. The IMF called the huge number ”extremely robust” and the conclusion “shocking.” Stern said, “This very important analysis shatters the myth that fossil fuels are cheap by showing just how huge their real costs are. There is no justification for these enormous subsidies for fossil fuels, which distorts markets and damages economies, particularly in poorer countries.” 

To illustrate exactly how egregious this problem is, the IMF said fossil fuel subsidies are greater than the total spending on healthcare by all the world’s governments. If fossil fuels were not so cheap then renewable energy alternatives would no longer require government subsidies (this appears to be a tacit acknowledgement the tax incentives and legislated higher costs of renewables are indeed a subsidy, except they resemble definitions one and two). 

The IMF also includes traffic congestion and vehicular accidents as a fossil fuel expense and therefore a subsidy. The only conclusion is cars must be parked. If Joe Public doesn’t want to willingly pay more for fuel, imagine how people will react when they are advised they can only travel by public transit, bicycle or on foot. It would appear this definition of success is massive reductions in or the ultimate termination of the use of fossil fuels as an energy source. 

But as governments which truly do subsidize the consumption of hydrocarbon energy have learned from their citizens, this radical change in how the world moves and operates is unlikely to survive a public opinion poll.  

What does this mean for Canada’s black and blue oilpatch? Not much, really. With Alberta’s corporate tax rate increased by 20% this year, large emitter carbon levies set to double, another four cents per litre added to fuel and Edmonton running record deficits until oil prices rise, the idea this province’s tax cow is in fact heavily subsidized is unlikely to register in the minds of managers trying to keep their companies afloat and oil workers hoping to stay employed. It certainly means nothing to those who have lost their jobs. 

However, the argument clearly demonstrates how much traction the anti-fossil fuel movement is gaining in the media and among governments regulating the fiscal regime under which the oil and gas industry operates. Keep an eye on this issue and the PCCC. 

Thursday, 12 November 2015

Blowing It On The Wind

By: Bjorn Lomborg

Bjorn Lomborg, a visiting professor at the Copenhagen Business School, is Director of the Copenhagen Consensus Center, which seeks to study environmental problems and solutions using the best available analytical methods. He is the author of The Skeptical EnvironmentalistCool ItHow to Spend $75 Billion to Make the World a Better Place and The Nobel Laureates' Guide to the Smartest Targets for the World, and was named one of Time magazine's 100 most influential people in 2004.

Article originally published by the Project Syndicate under "Sustainability & Environment" on October 21, 2015. It can be found here: 

BERLIN – When considering climate change, most people think wind turbines and solar panels are a big part of the solution. But, over the next 25 years, the contribution of solar and wind power to resolving the problem will be trivial – and the cost will be enormous.

The International Energy Agency estimates that about 0.4% of global energy now comes from solar and wind. Even in 2040, with all governments implementing all of their green promises, solar and wind will make up just 2.2% of global energy. This is partly because wind and solar help to reduce greenhouse-gas emissions only from electricity generation, which account for 42% of the total, but not from the energy used in industry, transport, buildings, and agriculture.

But the main reason why wind and solar power cannot be a major solution to climate change stems from an almost insurmountable obstacle: we need power when the sun is not shining and the wind is not blowing

This has major implications for claims about costs. For example, wind power, we are repeatedly told, is just about to be cheaper than fossil fuels – or even, as a recent global news story claimed, that it is now cheaper than fossil fuels in Germany and the United Kingdom.

This is mostly a mirage – large-scale wind power will not work anytime soon without subsidies. As Warren Buffet says: “[W]e get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” The IEA estimates that the annual bill for global wind subsidies will increase over the next 25 years, not decrease or fall to zero.

One reason is that cheaper wind in Germany and the UK is true only for new construction. Most existing coal and gas suppliers cost about half or less than wind and could run for decades; instead, we half-close them to accommodate wind. Whereas the new, cheap German wind-energy producers cost $80 per MWh ($0.08 per kWh), the average German spot price in 2014 was just $33 per MWh.

More important, wind is cheaper only when the wind blows. When the wind is not blowing, wind-generated electricity is the most expensive electricity of all, because it cannot be bought at any price.

Installing more wind generators makes the electricity they produce less valuable. The first wind turbine brings a slightly above-average price per kWh. But with 30% market share, since all wind producers sell electricity at the same time (when the wind blows), the electricity is worth only 70% of the average electricity price. Solar prices drop even faster at similar market shares. So wind and solar generators have to be much cheaper than the average price to be competitive.

Moreover, wind and solar make fossil-fuel-generated electricity more expensive. Some people may think that is a good thing; but, if our societies are to continue functioning in cloudy, windless weather, that means relying on some fossil fuels. The IEA estimates that 56% of electricity will come from fossil fuels in 2040, with nuclear and hydro accounting for another 28%.

Significant wind and solar usage reduces the number of hours gas and coal generation operates; with large fixed costs, this makes every kWh more expensive. In a real electricity market, this would result in much higher electricity costs on windless evenings. But this is politically problematic, which is why markets are often constructed to spike much less.

In Spain, gas plants were used 66% of the time in 2004, but only 19% of the time now, largely because of more wind use. Because the plants must be kept running 57% of the time to avoid losses, many are likely to close. Across Europe, possibly 60% of all gas-fired generation is at risk.

Keeping the lights on means either accepting much higher prices or emulating what many European governments are beginning to do – namely, subsidize fossil-fuel plants. For example, in 2018 alone, the UK will pay nearly £1 billion ($1.5 billion), mostly to fossil-fuel-based generators, to keep backup capacity available for peak power usage. Building more wind and solar generating capacity with subsidies means societies end up paying three times for power – once for the power, once for subsidies to inefficient renewables, and once more to subsidize our now-inefficient fossil fuels.

Many will say, “But at least we cut CO2.” That is true, although the reduction is perhaps only half of what is often touted, because the back-up power needed to smooth intermittent wind and solar is often more CO₂-heavy. Moreover, we pay dearly for these cuts. In 2013, the world produced 635 TWh of wind electricity and paid at least $28 billion in subsidies, or $76 per avoided ton of CO₂, and likely twice or more than that. When the estimated damage costs of COare about $5 per ton, and a ton of CO2 can be cut in the European Union for about $10, we are paying a dollar to do less than 7-13 cents of good for the climate.

And its positive impact on the climate is negligible. Consider two worlds: in the first, all governments implement all their green promises, as indicated by the IEA, and increase solar and wind energy more than seven-fold by 2040; in the second, not one new solar panel or wind turbine is purchased over the next 25 years.

The difference in subsidy spending between the two worlds is more than $2.5 trillion. Yet the difference in temperature increase by the end of the century, run on the United Nations climate panel’s own model, would be a mere 0.0175°C (0.03°F).

One day, when the wind price has fallen much further and solar is almost as cheap as wind, significant investments in wind and solar could be a great idea. But even after decades of capital reallocation, these sources might account for a bit less than a quarter of our electricity.

In short, a world powered by solar and wind – one that has resolved the climate challenge – is very unlikely anytime soon.