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Both Notley and Kenney Hiding from a $260-Billion Cleanup Problem

Both Notley and Kenney Hiding from a $260-Billion Cleanup Problem

The Alberta government may well leave taxpayers to clean up the oil and gas industry’s mess.

Oil well
‘I think this issue is too big and too scary for both government and industry to face.’

The main thing Jason Kenney and Rachel Notley have in common, other than their affinity for pipelines, is their joint fear of the possible $260-billion cleanup bill for the province’s aging oil and gas fields. 

Neither Kenney, the United Conservative Party leader, nor NDP Premier Notley have said much on the hustings about this astounding liability, which includes tens of thousands of inactive wells, abandoned gas plants, oil sands tailing ponds and 400,000 kilometres of pipelines. 

The mountainous size of the cleanup costs dwarfs the puny pile of security deposits the province has collected from industry to pay for the cleanup — $1.5 billion.

Regan Boychuk, a 41-year-old Calgary roofer, independent researcher and a driving member of the Alberta Liabilities Disclosure Project, understands why Kenney and Notley don’t want to talk about such embarrassing math.  

“I think this issue is too big and too scary for both government and industry to face. It is a can of worms,” said Boychuk in a Tyee interview. 

But if not corrected, the scale of the problem could affect the province’s credit rating, bankrupt hundreds of smaller oil and gas firms and leave Canadian taxpayers with the mother of all cleanup bills.

This has happened before.

Decades ago, Canada’s mining industry grossly underestimated what it needed for cleaning up acidic tailings and set aside paltry deposits for the job, just like the oil patch is doing today. 

As soon as the mines stopped producing money, corporate Canada walked away from an estimated 10,000 abandoned or orphaned mines throughout the country, arguing they had run out of cash.  

Taxpayers still need to spend billions on rehabilitating these mining sites.

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Canada’s Crude Oil Production Cuts Are Unsustainable

Canada’s Crude Oil Production Cuts Are Unsustainable

Canada oil

In an attempt to combat a ballooning oil glut and dramatically plummeting prices, the premier of Alberta Rachel Notley introduced an unprecedented measure at the beginning of December when she is mandating that oil companies in her province cut production. This directive was particularly surprising in the context of Canada’s free market economy, where oil production is rarely so directly regulated.

Canada’s recent oil glut woes are not due to a lack of demand, but rather a severe lack of pipeline infrastructure. There is plenty of demand, and more than enough supply, but no way to get the oil flowing where it needs to go. Canada’s pipelines are running at maximum capacity, storage facilities are filled to bursting, and the pipeline bottleneck has only continued to worsen. Now, in an effort to alleviate the struggling industry, Alberta’s oil production has been cut 8.7 percent according to the mandate set by the province’s government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market.

Even before the government stepped in, some private oil companies had already self-imposed production caps in order to combat the ever-expanding glut and bottomed-out oil prices. Cenovus Energy, Canadian Natural Resource, Devon Energy, Athabasca Oil, and others announced curtailments that totaled around 140,000 barrels a day and Cenovus Energy, one of Canada’s major producers, even went so far as to plead with the government to impose production caps late last year.

So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel.

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Alberta Intervenes To Halt Canada’s Oil Crisis

Alberta Intervenes To Halt Canada’s Oil Crisis

oil sands

Oil prices rose on Monday, buoyed by coordinated production cuts – cuts that did not come from Vienna (although that too could occur later this week).

Instead, the mandatory reductions were handed down by the provincial government of Alberta. “Perhaps OPEC should therefore consider inviting Canada to its meeting on Friday,” Commerzbank said in a note.

Alberta Premier Rachel Notley announced the production cuts “in response to the historically high oil price differential that is costing the national economy more than $80 million per day,” her office said in a statement. Western Canada Select (WCS) has plunged below $15 per barrel, representing a discount to WTI that has hovered at around $40 per barrel.

“The price gap is caused by the federal government’s decades-long inability to build pipelines. Ottawa’s failure in this area has left Alberta’s energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs,” the Alberta Premier’s office said.

Alberta’s oil industry is producing roughly 190,000 bpd in excess of available takeaway capacity. The surplus is filling storage up quickly. Oil producers will be required to make cuts on the order of 8.7 percent, or 325,000 bpd, beginning in January. Once the storage glut is reduced, the cuts will narrow to just 95,000 bpd, which will stay in place through the duration of 2019.

The first 10,000 bpd for each producer will be excluded from the mandatory cuts, intended to avoid negatively impacting small producers. The baseline used to calculate the cuts will be the highest level of production for each producer over the past six months.

Notley expects the production cuts to boost prices for WCS by roughly $4 per barrel, adding $1.1 billion to government revenue between 2019 and 2020.

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A carbon tax is bad for Alberta

A carbon tax is bad for Alberta

Rachel-Notley-Sworn-In-2015Yesterday, Alberta Premier Rachel Notley asserted that Canada was “absolutely” closer to a new pipeline due to her province’s new carbon tax. According to the premier, “Alberta is not the Alberta that they thought of a year ago, or two years ago, or three years ago. After years of inaction from the previous government, Alberta is now at the forefront in the fight against climate change.”

How does a carbon tax moderate climate change andlead to the construction of one or more proposed pipelines linking oil extraction activities in Fort McMurray to the Atlantic Ocean, the northern coast of British Columbia and an export terminal near Vancouver? An understanding of economics helps to answer that question.

The new carbon tax takes effect on January 1, 2017. The initial tax will be $20 per tonne, rising to $30 in 2018. According to the provincial government, the carbon tax is the key tool to help pay for a more diversified economy. Conspicuous by its absence is an explanation of how planned wealth redistribution improves the delivery of energy, the consumption of which the government is actively trying to discourage in view of mitigating global temperature changes.

Carbon is a chemical element common to all known life on our plant. It is non-sentient and does not experience gain or loss. Carbon does not and cannot pay taxes. Only individuals can be compelled to do so. The individuals to be dispossessed of their earnings with government’s new policy, and at what rate, can be clearly identified. With few exceptions, they include consumers in Alberta of diesel (5.35¢/litre), gasoline (4.49¢/litre), natural gas ($1.011/GJ) and propane (3.08¢/litre). Cutting through politician-speak: Taxing carbon means taxing people.

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Once Unstoppable, Tar Sands Now Battered from All Sides

Once Unstoppable, Tar Sands Now Battered from All Sides

Canada’s tar sands industry is in crisis as oil prices plummet, pipeline projects are killed, and new governments in Alberta and Ottawa vow less reliance on this highly polluting energy source. Is this the beginning of the end for the tar sands juggernaut? 

In the summer of 2014, when oil was selling for $114 per barrel, Alberta’s tar sands industry was still confidently standing by earlier predictions that it would nearly triple production by 2035. Companies such as Suncor, Statoil, Syncrude, Royal Dutch Shell, and Imperial Oil Ltd. were investing hundreds of billions of dollars in new projects to mine the thick, highly polluting bitumen.

Eyeing this oil boom, Canadian Prime Minister Stephen Harper said he was certain that the Keystone XL pipeline — “a no-brainer” in his words — would be built, with or without President Barack Obama’s approval. Keystone, which would carry tar sands crude from Alberta to refineries along the Gulf of Mexico, was critical if bitumen from new tar sands projects was going to find a way to market.

What a difference 18 months makes. The price of oil today has plummeted to around $30 a barrel, well below the break-even point for tar sands producers, and the value of the Canadian dollar has fallen sharply. President Obama killed the Keystone XL project in November, and staunch

The industry is suddenly weathering a perfect storm that analysts say has significantly altered its prospects.

opposition has so far halted efforts to build pipelines that would carry tar sands crude to Canada’s Pacific and Atlantic coasts.

Equally as ominous for the tar sands industry are political developments in Alberta and Canada. In May, Alberta voters ousted the conservative premier and elected a left-of-center government. The new premier, Rachel Notley, is committed to doing something meaningful about climate change and reviewing oil and gas royalty payments to the province, which are among the lowest in the world.

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Why Are People Cheering Alberta’s Climate Plan?

Why Are People Cheering Alberta’s Climate Plan?

Notley didn’t slay province’s CO2 dragon. She blinked, aiding pipelines and bitumen.


Albert Premier Rachel Notley: on close inspection, her NDP government’s plan is geared to warming public to new pipelines. Photo: Dave Cournoyer via Flickr. Creative Commons licensed.

I had to do a bit of a personal check in as I watched Alberta’s new climate plan being paraded before the public earlier this month. I found some aspects of the plan downright disturbing, but a lot of the quick-out-the-gate commentary talked up how great it was. Not sure if I was just nitpicking, I held my tongue.

But now, after seeing how the plan was debuted in Paris and framed in the media, I think there’s need for an honest talk about what just happened in Alberta. I’m afraid that once you strip off the accessories, Alberta’s plan is just a naked grasp at social license for new pipelines — and those pipelines remain as big a threat to our future as ever.

When the Orange Wave broke over Alberta, I felt a surge of optimism. However, just as President Obama failed to bring transformative change to the banking sector in the U.S. during a time of economic crisis and opportunity, NDP Premier Rachel Notley has failed to seize her opportunity for transformative change in the Alberta energy sector. In fact, her government seems to have dug in to support the status quo.

Below, my take on some of the highlights of the Alberta climate plan, and why it doesn’t justify a stand down in the fossil fuel export fight.

Ending coal fired power by 2030

Alberta’s climate plan calls for an end to coal fired power, a great move with widespread public support. Two thirds of the province’s coal plants would have shut down by 2030 under rules put in place by Stephen Harper, and by closing the rest Notley has hastened the end of the dirtiest form of electricity production in the province.

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Canada’s Oil Patch Goes Into Convulsions

Canada’s Oil Patch Goes Into Convulsions

Alberta, the province that has become the epicenter of Canada’s oil bust, does not yet have a budget for fiscal 2015-16. Premier Rachel Notley promised delivery by October. But it won’t be easy. Ideas are already floating around and are getting shot down. The problem: a budget crisis has set in after a sudden shortfall of C$7 billion in oil revenue.

There have been layoffs in the oil patch. Companies are retrenching. Home prices are tumbling in Calgary, the oil capital of Canada. In May, they plunged a record 3.3% and are now down 7% from their peak seven months ago.

In commercial real estate, it’s getting ugly. The number of transactions of C$1 million or more in the first quarter plummeted by 21%, and the dollar value of transactions dropped 11%, according to RealNet Canada, cited by the Calgary Herald.

Cushman & Wakefield reported that the premium office market in Calgary is “reeling from the sudden impact of downsizing companies.” Unless a miracle happens in the oil markets that sends prices back into the stratosphere, the premium office market will see vacancy rates climb to 12.4% by the end of this year, and to 15.4% by the end of 2016, the worst since the early 1990s. In the first quarter alone, a record 1.23 million square feet of office space were put back on the market as companies, mauled by the oil-price plunge and trying to stay alive, are slashing operating expenses where they can.

With impeccable timing, a flood of new space is being built and will soon come on the market. Bob McDougall, senior managing director of brokerage for Cushman & Wakefield in Calgary, explained:

“On top of low office demand and companies subletting record amounts of space, we’re in the midst of a major development cycle with about three million square feet under construction downtown. Right now, it’s a perfect storm.”

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Climate Change: Notley’s unexpected ally in growth

Climate Change: Notley’s unexpected ally in growth

If Alberta premier-designate Rachel Notley is looking to wean her province’s economy from its oil addiction, she may find that climate change, ironically enough, turns into an unexpected ally. The Prairies, once hailed as the breadbasket of the world, could find that description gain renewed currency in the years to come. With climate change set to bring about profound changes to global food production, Canada may come to find itself in something of an unforeseen sweet spot.

While the Prairies are a major grain producer, crop production is nevertheless limited by the short growing season that comes with Canada’s northern latitude. Turn the thermostat up, however, and the region’s agricultural potential begins to look different. And make no mistake—the temperature is going up. Scientists at NASA, for one, identify the Prairies as a climate change hot spot where temperatures will rise by more than the global average.

Indeed, the predicted warming has already started. Average temperatures are up 1.6 degrees since monitoring began on the Prairies in 1895. What’s more, the warming trend is accelerating. By mid-century, average temperatures in southern Alberta are expected to rise by 2 degrees compared to readings in the period between 1961 and 1990. On the northern margins of agriculture, in the Peace River region, the temperature increase is expected to increase even more dramatically.

In northern countries like Canada such temperature increases can be a game changer for the agricultural industry. Historically, crop-killing frost is the greatest constraint on production. Compared to southern latitudes, the growing season, defined by the number of frost-free days, can be cut in half. Change the dial on the thermostat, though, and farming in this country starts to look much different.


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Olduvai IV: Courage
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Olduvai II: Exodus
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