The Oil Drum: Canada

The Alberta royalty review continues to generate a predictable response from an industry which has seen costs rise more rapidly than prices in recent years. Even though Alberta’s take is comparatively low, Encana has announced it will withdraw $1 billion in investment if the new royalty recommendations are accepted by the province.

Elsewhere on the energy scene, Alberta looks to expand both wind and nuclear power, while Ontario reactors’ inability to deal with an unexpected spell of warm weather during maintenance outage season made electricity imports necessary.

Globally, questions are increasingly raised over the global warming effects of both ethanol production and hydro-power dams.

In environmental news the drought in Australia and the Ukraine has led to record wheat prices and concerns over feeding the world's poor. The Arctic warms ever more rapidly, for some an opportunity to exploit new resources, rather than a problem. If warming continues to accelerate, it just might become an 'insurmountable opportunity'.

'All bets are off'

In the 10 days since a provincially appointed panel dropped its bombshell report recommending that Alberta play hardball with the oilpatch, work inside Calgary's office towers has turned from planning growth to assessing damage and even eyeing an exodus....

...."Everybody is holding their breath right now," said Hal Walker, a long-time provincial Tory and real-estate developer who is critical of the review process. "All bets are off."....

....Deutsche Bank highlighted the escalating risk of investing in the province: "Risk, risk and risk, and there's risk. Above all, be warned about risk," it said.

As out of character as the panel recommendations seem in business friendly Alberta, observers say it has big support in rural Alberta and in Edmonton, areas that believe they have suffered the downside of the oilsands driven boom, while not reaping enough of the benefits.

_source

The week after we saw bank runs in the UK, a measure of calm has returned to the markets thanks to a combination of central bank bailouts, government deposit guarantees and interest rate cuts. For all that heavy intervention, one derivatives market expert warns that we are still at the beginning of the beginning of the credit crunch.

On the Canadian energy scene, the debate over the Alberta oil and gas royalties review continues. Alberta, which has lower royalties than comparable jurisdictions, wants its fair share, but that could affect Ottawa's tax take. Investors concerned about the royalty issue seem keen to extract themselves from tar sands investments. With the Canadian dollar at parity with the US dollar for the first time since 1976, there are concerns about the ability of the Canadian economy to adapt and compete.

Concerns on the climate front center on the potential for methane-powered runaway warming thanks to new research on the Paleocene-Eocene Thermal Maximum. The direct relationship between carbon offsets and increasing child labour in the third world is also worth highlighting.

Are we headed for an epic bear market?

One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"

Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy....

....When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.

Sands are shifting for oil supply

The world continues to run rapidly out of oil and natural gas, which points to dramatically higher prices in a handful of years.

That was the message from Henry Groppe, a lanky Texan who advises oil companies and investors around the world about the world of prices. His firm, Groppe, Long & Littell, is based in Houston and was founded after he did stints as a chemical engineer for Saudi Arabia's Aramco, Dow Chemical, Monsanto and Texaco.

"The fundamentals always prevail, which is that the minute you start producing, you are depleting your resource," he told an audience of investors last week at a conference sponsored by Calgary's Pengrowth Energy Trust.

He showed production curves in the North Sea and Mexico that are catastrophically sudden in terms of their declines.

"This has a huge impact on the economies of Britain and Mexico," he said. "Britain became an oil importer this year for the first time in decades."

Oil production worldwide peaked months ago, but figures and prices don't reflect that yet because the production of liquids stripped from natural gas has been filling the gap, he said.

Green election talk heats up

The Conservative government has drawn an election battle line after opposition parties massively overhauled its Clean Air Act.

A special Commons committee that finished studying the act yesterday included a provision to punish industrial polluters with heavy fines, and Tory MP Mark Warawa said that could lead to "billions of dollars of new taxes."

The House of Commons adjourns today for a two-week Easter break, and when it returns a vote on the bill amended by the committee dominated by opposition party MPs could spark an election. There is speculation that an election could be called in mid-April for either May 28 or June 4.

Mixing oil and water

Pat Marcel, an elder of the Athabasca Chipewyan First Nation, has lived along the shores of the mighty Athabasca River longer than any of the industrial goliaths straddling its banks have been there digging for oil.

Until three decades ago, the community on the tail end of Alberta's longest waterway, which runs 1,231 kilometres from the Columbia icefields in the Rockies to pour into Lake Athabasca in the province's northeast corner, drank its water and fished its bounty of whitefish, burbot and pickerel.

Today, even as many of its 800 members work in the oilsands and cash in from the region's rush, Mr. Marcel said the river's value to the First Nations community is being reduced to summer boat travel.

"The river is sick," the bookish-looking activist said last week in Fort Mc- Murray, bemoaning the impact of huge water withdrawals by oilsands companies to help produce their barrels....

....In dry Alberta, conflict over water has been going on for years, fuelled by an industry that, it's estimated, requires between two and 4.5 barrels of H2O to produce a single barrel of crude. Moreover, while Canada boasts 20% of the world's freshwater, Alberta gets by with only 2.2%.

Barb Isman, president of the Canola Council of Canada, expects the government to put forward regulations requiring five per cent renewable content in Canadian gasoline and diesel fuel by 2010, as promised in the Conservative election platform.

She said the package will include a $200-million program under which farmers can obtain part ownership in biodiesel plants expected to sprout in coming years.

Isman expects the regulations to state that two per cent of fuels be biodiesel, for which canola can be a prime ingredient.

She said the measures are welcome but will not be sufficient to kickstart the renewables industry unless there are tax changes in the next federal budget to make Canadian farmers competitive with those in the United States and Europe.

"Amid the recent rallies in equity and bond markets, the yield curve's inversion has received scant media attention," New York-based DBRS analysts David Roberts and Tobias Moerschen commented.

"Most observers seem to have moved on, as the potentially worrying yield curve signal seems at odds with the ongoing economic expansion."

However, the DBRS study warns that the yield curve is a forward-looking indicator, pointing a year or so into the future.

"Moreover, the persistence of the U.S. yield curve's inversion strengthens its predictive power."

Canada invested more than $1 billion in wind energy production in 2006, bringing the country's total capacity for the renewable power to 1,341 megawatts, enough to power 406,000 homes.

A record 657 megawatts of wind energy capacity has been installed in the past year, nearly triple the last high of 240 megawatts in 2005, according to the Canadian Wind Energy Association (CanWEA).

Wind energy capacity has nearly doubled since the beginning of the year, when there were 684 megawatts in place.

The Olduvai Gorge Theory was laid out by Richard Duncan in 1989, after seeing that world energy per capita (WEPC) has been declining since 1979. Although others had seen this, Duncan felt that they missed the point that if it kept falling, modern civilization would collapse.

Duncan defined the Electrical Civilization as the way-of-life enabled by widespread and abundant electricity, and set its limits as the period where WEPC is above 30% of its peak, i.e. the period beyond 1930.

The Olduvai Theory assumes that after peaking, WEPC will decline at a rate that mirrors its growth. This brings the Electrical Civilization to an end after 100 years. Duncan defined the idea without using a model, but his concept has been built into other models. Of these, the Meadows team's World3 is probably the most famous, giving the Electrical Civilization a lifetime between 100 and 105 years in all three reference simulations, 1969, 1989, and 1999.

And thus the Olduvai Theory evolved to:

Electrical Civilization can be described by a single pulse waveform of duration X, as measured by average energy-use per person per year. It has a life-expectancy of less than one-hundred (100) years.