Pipelines Are a Lousy Bet

From National Public Radio, NPR:

A new report by an energy watchdog group says companies are betting over a trillion dollars in risky gas pipeline projects. 

Global Energy Monitor says these projects are hugely expensive - so the payback is over decades. Climate scientists say we need to stop burning fossil fuels completely by 2050. 

That means the pipelines could become stranded assets for the companies. 

Enbridge Energy is engaging in a particularly risky expansion, according to Ted Nace, co-author of the report. He says Enbridge, the world's third largest pipeline company, has a heavy debt load. 

That could leave the company at risk of needing government bailouts if global demand for natural gas stays stagnant, or falls. 

Nace says investors are already turning away from fossil fuel projects over concerns about climate change.

Mark Carney Again Warns of Climate Change Induced Financial Collapse. Is Anyone Listening?

The former governor of the Bank of England said it. The current governor of the Bank of England is saying the same thing - to anyone who'll listen.  Mark Carney who recently left the top perch at the Bank of Canada to sit on the top perch of the Bank of England says, unless we get climate change under control, soon (as in now), we'll enter an era of financial crises and collapsing living standards.

In a speech to the insurance market Lloyd’s of London on Tuesday, Carney said insurers were heavily exposed to climate change risks and that time was running out to deal with global warming.

The governor said that proposals would probably be put to the G20 meeting in Turkey in November urging the world’s leading developed and developing countries to bring in tougher corporate disclosure standards so that investors could better judge climate change risks.

...“The challenges currently posed by climate change pale in significance compared with what might come,” Carney said. “The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security. So why isn’t more being done to address it?”

...“Climate change is the tragedy of the horizon. We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix.

“The horizon for monetary policy extends out to two to three years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade. In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”

Carney addressed the subject that Canada's political leadership relentlessly avoids mentioning, the looming Carbon Bubble, and the inevitability that high-cost, high-carbon fossil fuels - yes, including bitumen - will become "stranded assets."

“Take, for example, the International Panel on Climate Change’s estimate of a carbon budget that would likely limit global temperature rises to 2 degrees [centigrade] above pre-industrial levels.

“That budget amounts to between a fifth and a third of the world’s proven reserves of oil, gas and coal.  If that estimate is even approximately correct it would render the vast majority of reserves “stranded” – oil, gas and coal that will be literally unusable without expensive carbon-capture technology, which itself alters fossil fuel economics.

So far the best we're getting out of our political leadership are promises of carbon pricing or cap and trade schemes with the revenues handed off to the provinces in one form or another. Nobody is willing to say they'll take that money and keep it in Ottawa's treasury and use it to replace and reinforce our national infrastructure that is already decaying and definitely not Anthropocene-ready.

Our supposed leaders are waiting for market conditions to kill off Athabasca but there's no discussion of who cleans up the mess afterwards, after the foreign oil companies have bugged out.  We're not discussing the enormous environmental hazard that is Athabasca, how we're going to clean it up and at what cost and who'll get stuck with the tab or what awaits Alberta and the rest of Canada if we don't clean it up. These are conversations that come with price tags of hundreds of billions of dollars, definitely not suited for delicate ears wanting to hear only lies about balanced budgets and sunny tomorrows.

Stephen Harper's Oily Comeuppance

A Saudi prince once said that the Stone Age didn't end because man ran out of stones.  The Age of Oil may be headed for the same fate.  A Goldman Sachs outlook suggests the price of crude oil will hover around $45 a barrel for the next year or so and could even hit $20.

That's not good news for self-styled 'energy superpowers,' i.e. Canada.  Richard Fantin of Canadian Trends has an insightful report of what's in store for his province, Alberta, and it makes for grim reading.

Remember when then Liberal leader, Michael Ignatieff, proclaimed Athabasca the "beating heart of the Canadian economy for the 21st century"? Remember, "Iggy"? Oh, you would rather forget? I see.

That's the problem with betting the farm on the idea of flogging the world's highest-carbon and costliest oil.  It's like eating too many of those Pringles with Olestra. Something bad is bound to happen in your pants.

Poor Stephen Harper. He's devoted his entire premiership to Canada's Alberta's bituminous bounty. He rode roughshod over every possible obstacle, sweeping aside fisheries, navigation and marine habitat regulations; transforming Canada's National Energy Board into a blatantly kangaroo tribunal; even harnessing the state police and security agencies into service of Big Oil, all on the taxpayer's dime.

They knew it was a race and that time might not be on their side. Harper even brought in a repeat offender jailbird to be his envoy to the Oil Patch, brought the guy right into the PMO (which, judging by recent revelations, must have felt like a second home to Bruce Carson).

At one point Harper's then natural resources minister, Joe "Leatherback" Oliver, let slip the urgency of getting bitumen to "tidewater" and into the holds of supertankers. Oliver, perhaps imprudently, noted that if these pipelines weren't brought online and soon, Canada was at risk of bitumen becoming a "stranded asset."

The world is moving toward carbon pricing (no, it's not the idea of the opposition leaders) and even Harper is going to be hard pressed not to follow suit.  It could be a "perfect storm" - low oil prices, high-cost/high-carbon oil, carbon taxes.  As Richard Fantin noted, the squeeze is already causing Big Oil to 'cut corners' on its operations and that usually translates into shoddy maintenance, monitoring and, eventually, more oil spills.

If we're to have any hope of avoiding the worst climate change outcome, runaway global warming, the world is going to have to decarbonize very soon. The first fossil fuels to be abandoned will be the high-cost and the high-carbon. Coal, while relatively cheap, is very high-carbon and there's no shortage of US coal companies going bankrupt these days.  Bitumen, while not as high-carbon as coal, is the highest carbon fossil oil and, unlike coal, it's also costly to produce.

Harper gambled everything on bitumen, including Canada's reputation abroad. He and his government have brainwashed Canadians into believing the Tar Sands are indispensable to our economy whereas bitumen revenues really only represent 2% of Canada's GDP.  Two per cent doesn't sound like much but it's Heaven and Earth to the province of Alberta where royalties are treated as general revenue to fund essential services.

Albertans have a term for it. During boom times they "piss it all away" and when boom turns to bust in the oil patch the province dives headlong into recession. They've institutionalized a bubble economy. If you organized your household finances that way people, especially your creditors, would heap scorn and derision on you. In no time you would find yourself in a very ugly place.

There's more than schadenfreude to this. I don't live in Alberta. I live in British Columbia, coastal British Columbia.  Out here the collapse in world oil prices may be enough to halt Stephen Harper's pipeline/supertanker obsession. Let us pray.

While the Getting's Good

The Bank of England's warning is pretty clear - beware the Carbon Bubble.  The bank is urging major insurance companies, top tier investors, to divest from fossil fuels, get out while the getting's good.


Insurance companies could suffer a “huge hit” if their investments in fossil fuel companies are rendered worthless by action on climate change, the Bank of England warned.

“One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” said Paul Fisher, deputy head of the bank’s prudential regulation authority (PRA) that supervises banks and insurers and is tasked with avoiding systemic risks to the economy.

“As the world increasingly limits carbon emissions, and moves to alternative energy sources, investments in fossil fuels – a growing financial market in recent decades – may take a huge hit,” Fisher told an insurance conference. He said there “are already a few specific examples of this having happened”, but did not name them, and added that it was clear his concerns had yet to “permeate” the sector.

The new warning from one of the world’s key central banks follows a caution from its head Mark Carney that the “vast majority of [fossil fuel] reserves are unburnable” if climate change is to be limited to 2C, as pledged by the world’s governments. The bank will deliver a report to government on the financial risk posed by a “carbon bubble” later in 2015.

Newsweek's Obituary for the Athabasca Tar Sands

Is it time for the Barons of Bitumen to wave the white flag?  That seems to be the case according to an article from the latest NewsWeek, "Keystone and the Riddle of the Tar Sands."

...some of Alberta’s crude has made its way to market, but so much slower than it could have, or was projected to, that producers, refiners, shippers, banks and other investors in tar sands development are beginning to wonder whether they have backed a good play by investing over $160 billion to turn tar into oil.

So the economic stranding process has already begun. Five global energy giants—Shell, Total, Suncor, Statoil and Occidental—have cut bait on major bitumen deposits in Alberta, in which they had already invested billions. Suncor has just slashed another billion dollars from its capital spending program and $800 million more from operating expenses. And as oil prices slide lower, commercial and investment banks are reconsidering future underwritings. An industry that recently envisioned doubling production over the next 20 years is now looking at something closer to the opposite: a halving of production or worse in far fewer than 20 years.

American media coverage of the tar sands has focused primarily on the approval of the Keystone XL Pipeline, which, if completed, would carry 830,000 barrels of Athabasca crude, every day, to the world’s largest refining center near Houston next to a booming export hub.

Because American and Canadian politicians and oil executives have lobbied so hard for its approval, Americans tend to believe that construction of Keystone will secure the future of the tar sands. Not true. To even approach a break-even point, at least four other pipeline routes will be needed to carry bituminous crude to the world’s market: two to the Canadian west, one to the East and one to the North.

If two or three of those lines are somehow stopped, and that’s quite likely to occur, the stranding of the tar sands will escalate, Canada will cease being a petro-state, and its business leaders will begin their search for yet another staple to drive its national economy.

The article singles out Stephen Harper for scrutiny, labeling him Canada's Ted Cruz.

...Canada’s tar sands booster-in-chief is Prime Minister Stephen Harper, an Alberta-based petrolero who rose to prominence in politics as chief policy officer of the Reform Party, Canada’s version of the American Tea Party. Founded in 1987, Reform merged in 2000 with the floundering Progressive Conservative Party to form a new and almost unbeatable national coalition calling itself the Canadian Conservative Reform Alliance. (After adding Partyto its name, it became CCRAP and was nicknamed “see-crap.”) Harper became party leader of CCRAP, which has since won two national elections. It’s as if Ted Cruz became the Republican front-runner and won the White House twice.

...In Calgary, he became an outspoken and eloquent opponent of Pierre  Trudeau’s National Energy Plan, which seemed set upon nationalizing Canada’s last staple resource. While there is still talk of nationalizing oil and tar sands oil in Canada, and in some polls a majority of Canadians support the idea, that couldn’t possibly happen with Harper in power.

At the 2012 World Economic Forum in Davos, Switzerland, Harper announced that the expanded production and export of tar sands bitumen was a national priority. Canada, he predicted, was set to become an energy superpower. In Ottawa, he took immediate and aggressive steps to weaken environmental protections like the Navigable Waters Protection Act, which was hindering pipeline construction, and to fast-track tar sands production.

...If Canada’s tar sands do one day become stranded, the equivalent annual emissions of over 65 coal-fired plants and 50 million passenger vehicles will remain underground. And a lot of the credit (or blame) will go to environmental activists, aboriginal communities, litigious farmers and groups like Greenpeace, NRDC and 350.org, which have added to their anti-pipeline advocacy a campaign to pressure institutional investors to divest their “Big Fossil” holdings. Even before divestment began, nine out of 10 tar sands producers’ stocks had underperformed the market. So they are vulnerable. 

...While assets like the tar sands should be stranded, because mining and burning them will raise the temperature of an already overheated planet a degree or more, they are more likely to become stranded because they are either unable to reach market or have lost market value.

The sad irony is that before Canada selected tar sands crude to be its staple export, the country was poised to become a major global contributor to clean energy. It had signed climate treaties, promoted solar energy, developed hydroelectric power and had a prosperous renewable-energy industry under sail, for which the country possessed all the necessary natural and financial resources.

Then one powerful neoliberal free-market zealot decided to double down on high-carbon fuels and announce to the world that tar sands would become the next nation-building staple for his country.

It appears he was wrong about that, which would not be a bad outcome for the planet.