Month: February 2007

Will “Home sweet Home” become “Cold sweet home”

Posted on by roymacmullin

Traditionally real estate has been a good investment for most people. The value of homes appreciates with inflation such that homeowners often end up with an asset that is worth a considerable sum of money. During the era of cheap energy, the largest cost of home ownership has been the mortgage payment. It is starting to become clear that “cheap energy” is a thing of the past and may eventually challenge the mortgage payment as the biggest expense for large houses and homes that are poorly insulated.

Energy prices are rising in the coming year and your finances are going to be affected. Heating oil is 84 cents / liter and could rise at any time based on the world price. The price of electricity is likely to increase by double digits in 2007 (15%?), according to the trial balloon floated recently. Total increases may be 40% in the next four years. There are several reasons for this. Payments for the refit of Coleson Cove, upcoming Point Lepreau refit, higher oil prices and the rate schedule. NB Power subsidizes large industrial power users by $75 million per year by charging less than the average cost of production. Don’t get mad at NB Power; when large industries threaten to close their doors, the government listens. Watch closely whether industrials get a deal in the coming rate increase. If they pay less, you pay more.

After the oil embargo of 1973, government policy was to get people off oil. There was significant conversion from oil to electric heat in New Brunswick such that roughly 60% of all homes are heated with electricity today. Recently, the Liberal government through Efficiency NB made a decision to promote the conversion of homes and business from electric back to oil and to natural gas. This decision was made for two valid reasons.

First, oil or natural gas burned at the home for heat is more efficient than using oil or natural gas to centrally generate electricity to heat homes and results in less greenhouse gases emitted. Secondly, the use of electric heat causes a peak during cold weather and therefore requires earlier construction of power plants and hence power rate increases.

However attractive this logic may be, perhaps we should be thinking about the future of oil and natural gas in 5 years. Many analysts consider a decline in worldwide oil production to be likely within five years with oil prices escalating to shocking levels. Natural gas prices will be linked to some extent. Will we then be suggesting that people convert again to some other form of energy? Are there any other options existing for us?

Just this past week Newfoundland proposed installing a power cable to New Brunswick to sell power from the Lower Churchill hydro project. Hydro electricity is renewable and can heat our homes without greenhouse gases. History has shown us that the cost of power from hydro developments remains quite stable over the years. Power from this source could be available in roughly 5 years. It is also possible to charge thermal storage units in the home during the night with off peak electricity for use during the day. This flattens the load curve. Let’s talk to Danny Williams, the Premier of Newfoundland. Is there a possibility of a partnership with Newfoundland that is good for both parties?

Over the years the size of new homes have increased from an average of 1000 to 1600 square feet. Anyone contemplating new house construction should seriously consider R2000 or Energuide 80 rating as well as reducing the size of the house to minimum requirement. In general, a mega-home means large heating bills.

Efficiency NB has just announced a series of programs to help those with existing or new homes increase efficiency and adjust to the new energy reality. One positive thing I noted was the recognition of wood furnaces as being eligible for grants. Hopefully, this means pellet stoves. Wood is an abundant resource in the province according to Peter Salonius and George Jenkins, forest research scientists in the province. Efficiency NB will be featured in an upcoming article.

The average New Brunswicker’s salary is used up by essentials like food, gas, home payments and heating bills. There is little or no money saved at the end of the year. When rising energy costs disrupt our comfortable existence, something will have to give. How low can we go with our home-heating thermostat? Will your home be a good investment for the long term? Just keep in mind that energy prices will soon change all the rules and it could make your energy guzzling home a millstone around your neck.

Your car or your life

Posted on by roymacmullin

                                                                      

Jack Benny, the comedian, told the story about being accosted by an armed robber who growled ” Your money or your life” several times. Jack, who played well the role of a notorious cheapskate apparently responded slowly: “I’m thinking! I’m thinking!”.

Cars play an important role in our society today such that many people would have to think long and hard before letting go of their chosen car that is almost a member of the family. But it wasn’t that way in the beginning. A model T Ford sold for $265 in1925, which is like $3000 today – quite a bargain! A 20hp engine provided a top speed of 72 kilometers per hour and fuel efficiency of roughly 8 liters per 100 km. A trip to town by horse and carriage from the family farm could take all day traveling at a stately pace of 6 kilometers per hour so the Model T was a big hit with everyone.

The Model T provided very basic transportation. In contrast, today’s vehicles offer reliability, comfort, and features that are light-years better but the average car costs over $25,000. To sell us on this enormous expense, advertising is omnipresent with beautiful women draped over the hood of the vehicles, convincing us that we need 300 hp, the biggest payload or toughest truck on the planet. Only recently after $75 / barrel oil does mileage ratings start to seep into ads. Does Detroit know that world oil production is expected to decline as early as five years or perhaps in 15 years? The effect of not getting quite enough oil out of the ground to feed growing world demand is certain to push gas prices to uncomfortable levels.

Looking towards Europe may show us a glimpse of our future with high gas prices. Gas prices there are presently $1.75 a liter (artificially high as the result of taxes). That is $80 for a small 45-liter tank. Their government’s decision has created a demand for fuel-efficient cars. 50% of new car sales have diesel motors, which provide 40% better mileage ratings. These fuel-efficient cars produce roughly half of the CO2 of North American cars. I have driven a Ford Focus diesel in France and it performs well. But neither the Ford Focus nor Ranger truck diesel is available in Canada. I wonder why not?

The New Brunswick government has talked about energy efficiency and reduction of greenhouse gases so what will be the real story in the budget on March 13? Citizens have been requested to provide suggestions on priorities for the budget process by March 2nd.

Naturally, I have several suggestions that may be of interest:

Remove the HST on new cars that have excellent mileage, say less than 8 liters per 100 km (City rating). To pay for this we would have to reinstall the 3.8 cents per liter gas tax that was recently removed. This tax put $55 million per year into provincial coffers annually. There are roughly 33,000 vehicles sold in New Brunswick each year at an average $25,000. If 45% decide to buy a fuel-efficient vehicle, then the cost would be $52 million. Change the system of vehicle registration.  An alternative way to encourage good choices for the environment is the setting of registration fees for new vehicles based on their mileage rating. High fuel rating would mean a high annual registration cost. Low fuel rating cars would get an annual rebate at registration. No car or truck is prohibited, just encouraged or discouraged by the use of incentives. To be fair, this system would only affect new vehicles. Some would like to see the manufacturers slowly increase their fuel ratings on vehicles. Frankly, we don’t have the time to wait.

Reducing the highway speed limit.  This measure would reduce fuel consumption by 10% for highway driving. If highway mileage is assumed to be 50% of all miles driven, then the actual saving is 5% of transportation fuel. A secondary benefit is reduced accidents and accident severity.

Stop spending major capital dollars on highways such as twinning route 1 or 7. The era of the private automobile is coming to an end within twenty years and perhaps less. It makes no sense to spend hundreds of millions of dollars each year on roads that will be of little use in 20 years. We will need efficient means of public transport between the centers of the province. Rail can serve that purpose.If you ask 10 people whether gas and diesel fuel prices will become unaffordable within 10 years, most will refuse to believe it. Fuel-efficient cars are a short-term fix to ease the pain. Increased public transport is required but will not help everyone. By the time that everyone sees the problem it will be too late.As world oil production declines, prices will rise. Cars will become more efficient. Less fuel will be refined. Renewable energy will replace oil and natural gas electricity generation. Electric cars will be developed. Will we succeed in making the change from an oil-based economy? It seems unlikely at the pace of change now being proposed. 

There is a large disconnect between the “business as usual”  crowd who constantly need more development to keep the economy revving and those who see an end to our resources and want to adjust for a changing world. There are industrialists who talk about sustainable development and the environment but refuse to discuss CO2 emission reduction and think there is no end to world oil resources. How long shall we continue to travel on the economic yellow brick road? Perhaps the political breaking point will be when the majority of us can’t afford to drive our cars and we really ask ourselves how we got into this mess.

Canada: An Energy Superpower?

Posted on by roymacmullin

What wonderful political spin! You’ve all heard of spin, a modern word for questionable public relations. One generous definition of spin is telling only the facts that suit the corporation or government in question. In the hands of PR flacks with “flexible” principles, spin can lapse into the realm of storytelling that bears little resemblance to the truth.

I have to admit to a little surprise recently when Steven Harper started re-branding Canada as an energy “super power”. Obviously, the Prime Minister has access to information that the public doesn’t have. The decline of conventional light and heavy oil in Western Canada started in 1973 and 1997 respectively according to the National Energy Board (NEB), the agency given the task of advising the government on energy matters. As to conventional natural gas production from the West: “Initial productivity of new wells continues to decline and will require an increasing number of new wells each year just to hold deliverability constant” – source NEB report.

But Canada does have the oil sands, that dubious energy source of last resort, those gold mines of bitumen which nature has unfortunately mixed into the sand. Some of the more environmentally conscious of our citizens have noted that oil sands extraction consumes large quantities of natural gas, fresh water and despoils huge tracts of land, and generates huge quantities of CO2. In fact using natural gas to produce oil has been compared to making lead from gold. But I digress…

Could this be where our energy superpower status comes from? Perhaps the real message being spun is convincing the masses of Canadians that we are an energy superpower, and a super power can do anything. An energy superpower must have lots of energy to export. Is that why the PM has been trumpeting this message in New York, London and other locales looking for investment? The plan is for oil sands production to rise from 1 to 4 million barrels a day by 2015. The cost of this development plan is between $100 to 150 billion dollars and it’s a bonanza for the west and the rest of Canada by the way of jobs, jobs, jobs. Corporate America and Canada are making huge dollars on these projects so there probably won’t be any real discussion about strategic planning.

What would be in the strategic energy interests of Canada and Canadians, assuming that we eventually do talk about it in a rational way?

In the same way that we have a national highway and railway; ensure that energy sources can move east – west or west – east before additional exports are allowed. For example, crude oil would be made available to Central and Eastern Canada before China or the United States receive additional tar sands output. In another example, Manitoba has 5000 MW of hydro potential sites available for development that could be transmitted east or west instead of south if the necessary transmission lines were in place? With a capacity factor of 60%, this is close to $2.5 billion in annual revenue, which is equivalent to a $30 billion construction budget. Can we build the dams and transmission for that amount? Quite likely. A bonus from this plan would be a roughly 20-megatonne reduction in CO2 gases, which is a significant amount. (if this displaces 100% carbon sources).

What about BC, Quebec and Newfoundland hydro expansion plans? Can we think big here?

The federal government could also recognize world peak oil depletion as a national security issue and retain adequate reserves of energy in Canada to last for many generations to come. Around the world, stated owned companies control 75% of the world’s oil resources. It is interesting that China’s state owned companies are buying Canada’s resource industries lately. Other countries recognize that energy is a strategic resource too important to be left to the private sector.

Canada could make significant investments in renewable energy of all types to help the transition from carbon sources. Could the Lower Churchill project in Labrador be financed in part by a federal government carbon reduction loan? Provinces would guarantee the repayment of eligible projects with interest. In other words, the federal government could make itself useful and significant to Canadians.

How about government programs to reduce the energy footprint of Canadian homes and businesses. The recent announcement of a four year $220 million energy efficiency program is the equivalent of $1.80 per Canadian per year. This is a little better than nothing but probably could be called window dressing for an upcoming election.

Could Steven Harper become a statesman and a remarkable Prime Minister? Nothing is impossible if the PM reflects on his energy and environmental orientation. His steadfast friendship with George Bush is admirable. George has been losing friends lately and needs all he can get. However, we should not believe that selling huge amounts of oil to the United States provides long-term value for Canada. It’s like selling the family inheritance for a bottle of rum. An American once noted very clearly – “The US has no friends, only interests” and that best summarizes their feelings towards Canada. The relationship between Canada and the United States is based solely on business interests. How many times have our “good friends” south of the border sacrificed our interests? The truth of the matter is that Canadians don’t vote in American elections and really don’t count. Let’s get over it and move on towards solid investments for Canada.

Steven Harper was elected to look after the long-term interests of Canada. If his policies are created though that prism and solid plans are advanced with courage, he could yet build a respected place in Canadian history.