Sunday, January 29, 2012

What Could Bring the Tar Sands to Heel and Cost Canadians a Gazillion Dollars

A Saudi prince once quipped, "the Stone Age didn't end because they ran out of stones."   His point was that the Oil Age will end long before the world runs out of oil.  He is right.   There are a number of factors that will render oil energy unviable well before it's exhausted.

When I finally quit smoking several years back it was the result of several factors - cost, inconvenience, the way I was feeling, knowledge of what probably lay ahead if I didn't.   All of these factors came together to create the incentive powerful enough to overcome the power of my addiction.   Something similar lies in store for fossil fuels, including oil.

One of these factors being scrutinized now is climate change and the probable effect of an international agreement to limit warming to 2C.   Over the past year the numbers have been tossed around and it has become plain that, if we are to limit GHG emissions to meet that target, we'll be able to use not more than roughly 20% of known fossil fuel reserves.   That's it - 20 per cent.

A key factor in skyrocketing oil prices is the perceived shortage of supply.   But if we're coming into a world that recognizes we have to leave most of that stuff in the ground those prices become wildly unrealistic.   That's why, about ten days ago, a group of prominent Brits from the investment, science and political ranks, wrote to warn the governor of the Bank of England of the risks of a "carbon bubble" similar to the housing bubble that wreaked such destruction in the US economy.   The group went so far as to declare energy assets "sub prime."

If these assessments are right, what does that mean for Canada's Tar Sands, at once the world's filthiest and most costly oil assets?  The Tar Sands have always been world price-vulnerable.   They need today's hefty oil prices to be marginally profitable.   Their profitability is also dependent on substantial government subsidies and deferred obligations such as environmental remediation.

If world markets go cold on oil, come to see it as an investment with significant risks, perhaps even sub-prime, that's really, really bad news for the Athabasca Tar Sands.   Our governments' bargaining position with Big Oil, weak as it now is, would probably collapse.  Our chances of extracting a meaningful return on our subsidies and enforcing Big Oil's wobbly promises for site remediation could also be undermined.

But, of course, we have Steve Harper driving this so there's nothing to worry about, right?  Wrong.   If there's one thing Steve has shown himself incapable of it's seeing the train barreling down the tracks before it hits us.   Here are just two examples.

When the world fell into economic meltdown in 2008, Steve didn't  see it coming.  He even absolved himself of his failure by claiming no one saw it coming.   What nonsense.   Plenty of very knowledgeable people saw it coming and sounded the alarm.  Steve just didn't want to hear their warnings.

Then there's Steve's own Davos meltdown over old age pensions at home.   "Major transformations" are coming, he warned a gaggle of world leaders who won't be impacted by his plans.   This begs the question of why Steve was so horribly incompetent when it came to his 2008 mega-stimulus budget?  He squandered tens of billions of dollars of borrowed money on giveaways that will have paltry long-term impacts.  He had to borrow that money and leave working Canadians saddled with the debt because he had earlier defunded the federal treasury that was well stocked with 'rainy day' funds when he took over.   But, instead of investing that stimulus money on projects that will deliver returns to the taxpayers for decades to come, he just threw it away so we could put new decks on our cottages.

How do we expect a guy who so consistently gets it wrong, who can't look up long enough to see what's so obviously coming, who is incapable of devising effective solutions to great problems of any sort, how do we expect Steve to protect Canadian interests against a potential "carbon bubble"?

As though we needed another reason for a change of management in Canada.

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