The Oil Drum: Canada

The situation in the credit markets continues to worsen as a sudden attack of risk aversion rapidly dries up liquidity. And this is before the resetting of adjustable rate mortgages (ARMs) begins in earnest - to the tune of $50 billion - in October. Watch this space.

On the Canadian energy scene, Shell pumps $27 billion into the oil sands, even as oil patch profitability falls. Abu Dhabi wants to invest in Canadian power plants, and there are plans for BC to host an LNG terminal. Wind power grows rapidly in Ontario and Quebec, making a few enemies along the way. In BC they ask: should public transit be free?

On the climate front, water is the issue - too little and too much. Finally, in the tug-of-war between efficiency and resilience, efficiency has the upper hand, but what price will we pay for allowing our life support system to become brittle?

Going With The Flow?

You may remember that our definition of household cash is as broad as can be. We include all household "banking products", per se, but also include all household holdings of bonds, inclusive of Treasuries, Agencies, corporates, muni's and mortgage backed paper. Implicitly, we are assuming bond holdings could be converted to cash at a moments notice. So what follows is simply total household cash less total household liabilities over the last six decades.

In the fields of finance and energy, there have been some remarkable developments this week, particularly with institutions that reverse their stated views, and probably their tactics and policies.

The IEA earlier released a report that said, though not in so many words, that peak oil is near. Then its CEO Claude Mandil gave an interview to Le Monde, in which he said Russia has peaked, and OPEC is not telling the truth about world oil supplies.

S&P and Moody's, Wall Street's preferred rating agencies, changed their approach to the ongoing mortgage malaise by downgrading, or threatening to downgrade, many mortgage-based investment grade bonds. This shift will be felt throughout the credit markets, and there may be much more to come. And the UK is now joining the mortgage mayhem crowd.

No such shift for NAR: they predict US home prices will rebound in 2008, though foreclosures rose 87% and a record number of ARM's will reset this fall.

Meanwhile in Canada, the sovereignty that our government seeks to defend in the Arctic is being undermined at an SPP meeting in Montebello, Quebec.

Canada flexes its muscles in scramble for the Arctic

Mr Harper's message, and the belligerent style in which it was delivered, are a sign that the Arctic, the vast ice-covered ocean around the North Pole, is hotting up - both literally, through global warming, and metaphorically as a political issue. With Canada, Denmark, Russia and the United States all having claims on the region, together with those of Iceland, Norway, Sweden and Finland, international tension in the region is mounting.

There was no dissembling in Mr Harper's speech. "The ongoing discovery of the north's resource riches, coupled with the potential impact of climate change, has made the region a growing area of interest and concern," he said. As the statement implies, two areas of international competition lie behind the Canadian prime minister's actions. The first is that the Arctic region is rich in natural resources. It is thought to hold up to a quarter of the world's undiscovered reserves of oil and gas, which as the established fields in the Middle East and elsewhere run dry will become increasingly valuable and sought after. There are also known to be major deposits of diamonds, silver, copper, zinc and, potentially, uranium. It also has rich fish stocks.

Desire to exploit these resources has led to tensions with the US over the offshore border between Alaska and Canada, an area known as the "wedge", where one day oil and gas exploration could prove to be lucrative.