Sunday, February 24, 2013
Riding the Petro-Tiger
One thing that's finally sinking in is that bitumen, like other high-carbon fossil fuels, is living on borrowed time. The business of business is making money and business is finally coming to realize there are a lot of "stranded assets" in the fossil fuel market, on the books of the major energy producers.
It comes down to one simple fact. If we're not going to destroy our civilization there's a finite amount of CO2 that we can release into our atmosphere. Either we find a way to scrub greenhouse gases out of the atmosphere, and there's no sign of that, or we have to accept a cap on the amount of fossil fuels we can burn. The problem is the major energy producers already have many times more fossil fuels on their books than we can possibly safely consume. Most of what they already have booked as reserves will have to be left in the ground.
If you're in the situation where you're awash in a glut of anything you get picky. You go for the good stuff and leave the garbage behind. When you're having to pick among fossil fuels, you take the lowest-carbon fuels and leave the high-carbon garbage. Low-carbon fuels simply give you more energy, more bang for your emissions buck.
Some high-carbon fuels, like coal, have great attraction because they're really cheap. Some high-carbon fuels, like Athabasca bitumen, are quite expensive. To get sandy tar and transform it into something you can run in your Ford entails extraction through mining or boiling, upgrading, the addition of dilutents, transportation via pipelines to distant refineries in Texas or even,via supertankers, Asia, refining into some form of consumable petroleum that is then transported to market. That's a lot of processing, transporting, refining and that means a lot of energy and enormous amounts of renewable resources.
Put bitumen head to head with conventional crude oil and there's no contest. That's why bitumen is valuable only when world oil prices are very high. When they're not, bitumen is a terrible bet. And when markets come to realize we're in a Carbon Bubble and we have a glut of fossil fuels then the price is going to tumble, badly. That's how high-carbon assets will become "stranded."
Professor Trevor Harrison, director of the Alberta thinktank, the Parkland Institute, explains that Ottawa has allowed the spread of Alberta's economic instability:
Historically, Alberta’s economy has been the most unstable in all of Canada, but the volatility was largely confined to its own borders. Today, aided and abetted by the federal government, Alberta has exported its instability to the rest of the country.
Those familiar with the tenets of staples theory will recognize the pattern.
Pioneered by Canadian economist Harold Innis, staples theory emphasized the dilemmas associated with single-resource production. When the world price of a commodity is high, the allure of riches can be so great that people throw all of their effort and money into riding the resource boom. But the price of staples is unstable, subject to, among other things, over-production, replacement technologies, the vagaries of climate, transportation glitches and even fashion.
Just as the price of a staple commodity can rise quickly, it can drop, bringing economic, social and political ruin. Canada’s landscape is dotted with this story, from towns (Uranium City) to regions and provinces (Newfoundland and cod). Sometimes, of course, the good times return, but often they don’t. In any case, the result is growing economic and political dependency, what Innis referred to as the “staples trap” – easy to get into, hard to get out of. That’s where Alberta and Canada find themselves now.
Prime Minister Stephen Harper is on record as declaring Canada an emerging energy superpower. The efforts his government has made to promote this vision – the passing of omnibus legislation to eliminate perceived roadblocks to oil development, the politically motivated attacks on individuals and organizations who oppose further petroleum expansion – have been unprecedented.
Far from being a superpower, however, Canada increasingly looks like a hundred-pound weakling, a single-resource producer, buffeted by pricing over which we have no control, technological innovations that portend a reduction in the value of oil and environmental issues that threaten all of us.
Like Montreal’s fur trade magnates 200 years ago, who suddenly found that the market for beaver pelts had disappeared, we find ourselves today sending emissaries here, there and everywhere, pleading, begging and cajoling others to save us from the fate unfolding before our eyes. But, as Shakespeare said, the fault lies not in the stars, but in ourselves – and the governments we have elected, which too eagerly have opened the doors leading to the petroleum trap.
At some point we're going to have to act like grownups and accept we are on the back of a tiger. We're either going to have to step off and deal with that on our own terms or we can wait until we fall off and have no control over how our fate unfolds.
This would be a perfect moment for the Opposition in Ottawa to show they're possibly fit to govern Canada by demonstrating clear-headed leadership on the petroleum trap that's about to snare our economy and take it down. Don't hold your breath.