Thursday, May 07, 2020

The Writing On The Wall


Elizabeth May declared  this week that "Oil is dead." She makes a pretty convincing argument:

Years before the pandemic hit, major oil giants started leaving the oil sands. Many actually pointed to the fact that bitumen was the most carbon-intensive oil in their asset base. They talked about wanting to avoid being stuck with unburnable carbon; “stranded assets.” Royal Dutch Shell, Total SA, Statoil (now Equinor), Conoco Philips, Imperial Oil, Marathon Oil, Exxon Mobil and, even Koch Industries had pulled out.

With the advent of the pandemic, there is no market for Canadian bitumen:

The bitumen produced in the Alberta oil sands is both very expensive to produce and of inherently low value. To be profitable it takes two things — government subsidies and a price of $70 a barrel. Canada’s subsidies to get the oil sands in business started in earnest in the mid-1990s when oil was selling for less than $30 a barrel. Without billions of federal dollars (primarily delivered as generous Accelerated Capital Cost Allowances from the feds, and the world’s lowest royalty rates from the province) the oil sands would not have moved beyond half a million barrels a day (mbd). Today, they are approaching 3 mbd. And even at their height, oil sands contributed less than 3 percent to Canada’s GDP.
Eric Reguly wrote in the Globe and Mail on March 31: “By this week, West Texas Intermediate, the U.S. benchmark, was trading at about US$20 a barrel, down from its 12-month high of US$66. The price of some minor grades of U.S. crude, such as the thick oil used to pave roads, actually turned negative, meaning the producer was paying the buyer to cart the guck away,” adding that the strategy of the shale guys of ramping up production by record amounts until the United States surpassed Saudi Arabia and Russia to become the world’s top oil producer was bound to backfire (Canada’s rising output from the oil sands also helped to flood the market). “The triggers were the pandemic and the decision by Saudi Arabia and Russia to pump like mad to intensify the shale industry’s pain. If they hand a life jacket to the shale boys, it will be made of concrete.” As will be any life jacket for the oil sands.

This kind of thing has happened before:

More than a century ago, whale oil ceased to be the way people lit their homes, not because the industry killed all the whales but because – kerosene- wiped out demand for the product.

And, today, green energy is doing to bitumen what kerosine did to whale oil:

On Tuesday, a major study was released by the Oxford Review of Economic Policy, with lead authors, Nobel Prize winning economist Joseph Stiglitz and former Chancellor of the Exchequer Sir Nicholas Stern, advising that in re-starting the world economy after the pandemic, investments going to renewable energy and energy efficiency were the right moves for the economy. Trying to support fossil fuels would be far less effective.

The writing is on the wall.

Image: Pinterest

14 comments:

Anonymous said...

May has forgotten to account for one of the most important players in this game: the banks. Shell, Total, Statoil, etc. got out of the tar sands by selling their assets, often at a loss, to smaller Canadian players. Those players took out bank loans from Canadian banks to finance their purchases. And the banks will put the screws to the government to avoid any loss.

In 2007 & 2008, we saw how the Canadian government broke the basic tenets of capitalism to deliver a largely secret bailout to the banks. Under the rules of capitalism, businesses that make bad investments suffer losses and if the investments are bad enough they go bankrupt. This didn't happen to the banks who gambled on dodgy derivatives. Instead, the government decided that the rich will not be made to suffer the consequences of their incompetence. I expect the same principle will apply to the tar sands.

Cap

Owen Gray said...

The death of oil won't be pleasant, Cap. Lots of people are going to be stuck with the tab.

Toby said...

As much as I like green technologies I'm forced to admit that they are a long way from a solution to the carbon bubble. We need a lot of power and solar panels and wind turbines are not yet efficient enough to supply it. We either need another source of energy on a massive scale or we need to lower our demand, probably both.

The obvious large scale source of energy is nuclear. Let's get over the paranoia. When compared with coal nuclear is much safer. Modern nuclear designs are much safer than the older generation.

During the last 100 years we have collectively redesigned just about everything around cheap energy without concern for the side effects. Now we have to wake up and smell the dying roses.

The Disaffected Lib said...


How to explain the lengths our governments will go to keep the petro-state on life support. Trudeau proceeding with the Trans Mountain pipeline is a fine example. The existing pipeline can handle all the existing and future demand. The TMX expansion is for a market that never existed and, now, never will. Then Kenney, his treasury gutted, imposes austerity on ordinary Albertans while pumping another 7 billion or more into the Keystone XL.

Even with all manner of government guarantees, the private sector wouldn't touch these pipelines. Morneau wound up paying an exorbitant sum to Kinder Morgan to buy their line. Three questions - why would Kinder Morgan decide to abandon TMX, why would no one else from the private sector get involved, why did Morneau, the seasoned business titan, pay such a massively inflated price? Why did Kenney, admittedly less accomplished than Morneau, knowing that Trudeau was pushing TMX through, make an equally bad deal for Keystone, especially when his province was in a slump and his treasury nearly bare?

Obviously economics was low on these governments' priorities. There had to be other reasons they would double down on bad bets no one else would touch. Despite Elizabeth May's uplifting comments we need to unlock Trudeau and Kenney's agendas if we're to finally abandon Athabasca's stranded assets.

Owen Gray said...

The ghosts of Chernobyl and Three Mile Island still haunt us, Toby. Nuclear will not be an easy sell.

Owen Gray said...

Oil may be an economic has been, Mound. But it lives on as an economic zombie, eating the brains of the living.

the salamander said...

.. Owen gets after it.. but I believe its far more baked in..
So uh.. heavy on The Beverly Hillbillies..
blended with Gilligan's Island.. a dash of Mr Ed..
'Black Gold' .. sez Mr Kenney.. ...

Perhaps that's 'the vision'
when clinging to 'power' ..
stark naked ..

Toby said...

Owen, Three Mile Island was neither the threat nor disaster that lingers in the public mind. That event had the misfortune of happening at the same time as Jane Fonda's movie, The China Syndrome, hit theaters; viewers jumped to a fantasy conclusion.

Chernobyl and Fukushima were real disasters but compare them with coal and centuries of black lung, let alone the environmental disaster.

As to Trudeau's agenda, I think it is really a Morneau/Freeland agenda. Morneau was a banker and appears to be doing everything he can to support the banks regardless of their bad loans. Freeland is neo-liberal to the core and do whatever she can to promote trade, even when there are negative consequences to Canadians. All three of them genuflect to the White House and Pentagon.

Owen Gray said...

It's called Magical Thinking, sal. It's all about belief that is unmoored from facts.

Owen Gray said...

If there is one thing the world should learn from all of this, Toby, it's don't trust the White House or the Pentagon.

Anonymous said...

Toby said: "We need a lot of power and solar panels and wind turbines are not yet efficient enough to supply it."

"Efficient" surely isn't the correct word to use here. Not if you're an ex-utility engineer like me. It's meaningless even in everday sloppy usage. Capacity is the word you're searching for. The capacity to meet the demand for peak power each day from the users of electricity on the grid is not there, that is the only problem. Efficiency refers to how much percentage of an input is transformed to an output.

The wind is free, and so is the sun. If we don't use the energy they provide, we're at 0% efficiency in producing electrical power and energy from them. New solar panels are 15% efficient or more, up from 7 or 8% from a decade ago, but it matters not one whit if a roof covered in solar panels more than supplies the energy needs of a home. What more do you need? Windmills easily exceed 80% efficiency in the "correct" wind. WW2 aircraft had 90% or more efficient propellers; it isn't rocket science.

If there were enough windmills across this land interconnected to supply average electrical demand and to effectively use wind energy which is variable in intensity by region at any given time, then a simple set of (gasp, what is this man saying?) local peaking gas turbines running on natural gas that can come online in 30 seconds for peak demands would look after the rest. Cheap. Reliable. We already do it and they're more efficient than regular thermal power plants, but they are not designed to run continuously 24 hours a day. Not heavy duty enough, and unlikely to be redesigned to be so. Even so, aircraft using these gas turbines in even lighter duty form happily run for thousands of hours betwen overhaul. None of this stuff is a secret, but few people seem to know about it. And we're going to have an excess of natural gas, methane, from global warming leaking away whether we want it or not. Better to transform it to CO2 where its greenhouse heating effect is 15 times less.

Keep those damn nukes away, thanks all the same. The capital cost is ridiculously high, beyond any reason and you end up with tons of radioacative waste in use to dispose of. Where exactly? What in hell is the point? Having shut down their nukes after Fukushima, is Germany building more newer designs? Why not? Because people with brains educated in the engineering arts have considered the matter. And rejected it. They want natural gas for now. It has only one carbon atom per molecule and 4 of hydrogen, where the energy comes from. Oil is filthy by comparison, coal dreadful and tarsands dilbit beyond the pale. Let's work on completely pollution-free fusion power instead.

Of course we hear sneaky stories about new pint-sized nukes being the answer, but every industry issues forth propaganda in an attempt to snag research dollars, and to praise their ideas to the skies as the next big thing. I am a naturally sceptical person when I sense something too good to be true is being pushed. This is one of those times.

BM

PS. Gov Andrew Cuomo of NY is on Colbert as I type this. Impressive guy. That's the kind of American we used to have decades ago. Someone who made sense, not these corporate/military-loving/"Christian" fools looking after the elite and issuing lies and illogic.

e.a.f. said...

Given the virus and the cost of supporting Canadians while they're out of work and small businesses, the government ought not to be financing tar in Alberta. It would be cheaper to simply send the workers a monthly cheque to cover their living expenses and have them return to school or work rehabing the orphan wells. Oil is finished as we have known it. now will some one send our Deputy P.M. to see Jason and spell it out for him so he can understand.

As to the U.S.A. lets ensure the border stays closed as it currently is. It is fast becoming a failed state. the DOJ dropping the charges against Flynn today was the last straw. it is no longer a functioning democracy with the rule of law. Mexico may actually appreciate that wall soon. It will keep the americans out. As things are going now, the Americans may start trying to get into Mexico for a better life.

I expect the evicts to start in June, the loose of houses the month after. the hunger has already started, two mile long line ups for food at food banks just says failed state.

Owen Gray said...

I appreciate your comment, BM. You see the big picture.

Owen Gray said...

Making the Flynn case go away provides definitive proof that the United States is now a banana republic, e.a.f.