When Irish eyes are smiling!

Brian Mulroney’s legacy lives on. Our present day energy policy dates to his government. The bad new is that we are running out of natural gas and conventional oil. The good news is that it isn’t going to happen right away. If we set aside the serious pricing issues from a decline in world oil production in the coming decade, and concentrate only on the role of the federal government and the National Energy Board (NEB) in protecting reserves, the future looks quite difficult.

The NEB defines its role as “an active, effective and knowledgeable partner in the responsible development of Canada’s energy sector for the benefit of Canadians. The NEB’s purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade.”

Normal wisdom would be to retain sufficient natural gas and oil for the benefit of future generations of Canadians. But the Auditor-general of Canada indicated in a report to Parliament that –
“Up to 1985, long-term gas exports were approved under section 118 of the NEB Act only after the NEB was satisfied that Canada would still have a strategic reserve. Since price deregulation in 1985, procedures for assessing long-term gas export licences have changed three times. In particular, the NEB Act was amended in 1988 to reflect the Canada-U.S. Free Trade Agreement (FTA). The FTA made it more difficult for the Board to intervene in the free flow of energy commodities across the Canada-U.S. border. Now the NEB approves export licences provided that Canadians have access to the oil and gas at competitive prices. In 1997, sales under export licences, typically lasting for 10 years, represented about 35 percent of total export gas sales compared with 78 percent in 1987. The balance of 65 percent represents exports under short-term orders, which apply for a period of up to two years and are renewed automatically upon request.”

It appears that the federal government has set the National Energy Board (NEB) into a straight jacket based on a trade treaty (NAFTA). I actually had the perception that the National Energy Board was looking after the energy security of Canadians. How foolish was that?

The NEB indicates that conventional oil production in Canada is declining but is more than offset by oil sands production increases. Conventional established oil reserves are 1600 million barrels with an ultimate recoverable figure at 4500 million, giving between 7 and 20 “years to depletion” at present day production levels of 219 million barrels per year. Unconventional oil (Oil sands) production is being ramped up to meet the shortfall but mostly for export. What is the cost in term of environmental and social damage of this gold rush mentality? The development of oil sands also uses up large quantities of natural gas to detach the oil from the sand.

The NEB prediction for conventional natural gas production shows a decline but suggests that coal bed methane production will make up the difference for the short term. From Alberta government figures, there are between 8 and 20 years of conventional natural gas left, given annual production at 5 trillion cubic feet (Tcf) per year, proven reserves at 40 Tcf, and ultimate reserves at 100 Tcf. The wild card is recovering natural gas by drilling into coal seams, called coal bed methane (CBM). This method is more costly and the ultimate production level is unknown at this time.
So, if roughly 53% of Canadian natural gas production and 65% of oil production is exported and we are faced with rapidly increasing costs of the replacement supply, wouldn’t it make sense to reduce our exports and defer that date with higher costs?

Oh, but wait a minute. That won’t work because our domestic price is the same as the world price since the 1980’s. Secondly, NAFTA trade rules don’t allow the reduction of export levels to the US unless we share in the reduction of supply.

So, we are locked into an integrated North American energy policy where we depend on roughly $70 billion of hydrocarbon exports a year to maintain our boiling economy in the west. This takes no account of its effect on climate change, the Albert environment or our children’s future in this cold land.

The NEB website contains some good information but they don’t talk a lot about the reserves of hydrocarbons and what levels are reasonable to ensure energy security in Canada. The NEB is just following policy direction and they do that well. The government of Canada develops our energy policy and they have made up their mind – full speed ahead. Why do I get the impression that Steven Harper’s eyes glaze over when people talk about conservation, energy policy and the associated environmental issues in Canada? Does his interpretation of Canada as an energy superpower bear any resemblance to the facts? Why will an energy superpower have to start importing LNG from other countries to meet natural gas demand beyond 2015?

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