Invest in the right stimulus: Energy Independence

Stimulus is one of the buzzwords for 2009.  Every country that can afford it will be borrowing money to jump start the economy.  Canada is no exception.  You can be sure that when politicians try to spend money quickly, a considerable waste of your tax dollars will follow.  The ill-considered ideas will not be malicious; our esteemed leaders just don’t realize that the world has changed.

The economic problem facing us has its origins in financial weapons of mass destruction and the cost of oil.  Economists estimate the benefit of the recent drop in oil prices to the US at over $300 billion dollars.  That’s quite a stimulus package that Saudi Arabia has arranged for George Bush and his successor.  Our oil shock in 2008 is not the last one or even the worst that is coming.  We should expect another in 2010 or 2011 as soon as the economy revives.  Where will we find the funds for another multibillion stimulus program then?

Oil prices at $40 don’t support the kind of capital exploration budgets that are required to maintain supplies of oil and natural gas that are sapped by annual depletion.  A number of exploration companies are either selling for a loss or have shut down some production.  Most oil producers in Western Canada have cut their exploration budgets severely to survive.  The results of this under-investment will come back to haunt us.  The International Energy Agency warns that much larger investments are required to forestall disaster looming in the near future. Banks, being risk averse, remove credit where there is evidence of financial weakness caused by lower prices.

One of the things we seldom talk about is energy return on energy invested (EROEI) when contemplating investments for the future.  Looking back to the early days of oil production, it took one barrel of oil to bring 100 barrels of oil to market.  Today the ratio is much lower, so that the same barrel now only brings 10 from Saudi Arabia and probably only 3 barrels on average from the Alberta tar sands.  As we move into deep offshore wells like Brazil, we get costs in the $80 a barrel range.

So, our economy is increasingly being drawn into more investment for less energy output.  A blog entitled Calculated Risk http://www.calculatedriskblog.com/2008/07/us-energy-consumption-as-percent-of-gdp.html estimates that in 2008 energy costs jumped to 14% of US GDP as compared with a low of 6% in 1998.  A logical next step for Canada would be to actually invest in projects that would reduce our dependence on oil and other energy to the tune of 8% by conservation and substitution as a minimum starting point.  So far, one of the “replacements” for oil is corn-based ethanol.  Analysts unfortunately have concluded that with an EROEI of roughly 1.3, it takes almost a barrel of oil to produce a barrel of ethanol.  That’s hardly an investment strategy to get us off oil.

What about electric power generation from wind turbines?  They give roughly a 20x average return on energy.   For a coal-fired power plant, it’s 7.5 and a nuclear powered unit is just over five.  Hydro power plants are over 10, according to the Encyclopedia of Earth.  Photovoltaic is still expensive with a questionable return at the moment.

So, if you had $40 billion to spend, how would you create the most energy independence and oil immunity for Canada and as a side benefit create jobs?

As a longer-term strategy, how about re-building a railway freight and passenger service?  We could sure use a new national energy standard for new homes and a serious upgrading program for existing homes?

How about a national direct current electric power transmission line to efficiently move hydro power from BC, Manitoba, Quebec or Newfoundland to other areas.   What about a strategic oil reserve of perhaps 100 million barrels?  The purchase of oil with deferred delivery from hard-pressed Canadian producers would ease the pain in the Western oil patch from volatile prices.

Would we be better off with a national program of wind power development and support of hydro plans in Manitoba, Newfoundland, Quebec and BC?

I like to believe that our leaders will make choices that have an excellent energy return.  However, isn’t there a “Murphy’s law” about decision making time being inversely proportional to the cost of the project?  With $40B in play, we can expect some pretty dumb ideas in the near future.  When your local politician trots out the perennial choice of widening roads or building bridges to nowhere, one might ask them about the energy return on these $100 million a pop boondoggles.  Obviously, there is none.  In fact, the future of the personal automobile is in serious question if we don’t dramatically raise fuel efficiency.

But as a wise politician once said, “I’ll double cross that bridge when I get to it.”

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Time to rethink Afghan strategy

Are the Taliban now a force as strong as the US and Canadian military?   You may find this idea a little strange at first and is perhaps an unfair comparison.  Observed without emotion, we know that the conflict has lasted seven years – that’s longer than WW2 and almost as long as the Soviets persisted during their excellent Afghan adventure.  It has cost roughly $170 billion to the United States, probably $20 billion for Canada and who knows how much for the other NATO countries.  One might counter-argue that the leadership of the war effort has been utterly incompetent or perhaps that the concept of bringing change to a medieval land had little merit from day one.

The initial goal seemed to be quite simple.  Capture Osama Bin Laden and destroy al-Qaida, consisting of perhaps a few dozen leaders.   When that didn’t happen, we started down the nation-building road, while we waited for OBL and Mullah Omar to come back on the bus from Pakistan.

Viewed on most levels, the mission is failing and many thinkers admit that the solution is not the military option.  Security on roads and the countryside is poor, production of opium is higher than the global demand, and the Khyber Pass supply line is through Pakistan, an ally of questionable fidelity.   Recently, 145 trucks bringing military supplies through the Khyber Pass were destroyed.  Most imports follow this route.   The conflict has put Pakistan into a dangerous state nearing implosion.

According to a recent think-tank report, the Taliban has a permanent presence in 70% of the country.   Unfortunately, the Karzai government is perceived to be corrupt and ineffective. “The Taliban shake us down at night and the government during the day”, according to a story told to a former NPR reporter living in Kandahar, Sarah Chayes.

Meanwhile back in Iraq, the US invasion did not achieve its stated or hidden objectives and the military will be withdrawn in the next 16 months by a new administration.   Since no superpower likes losing two wars in a row, Barack will send a 30,000-troop surge into Afghanistan to counter the inroads that the Taliban have been making.  In addition, there are plans for a larger Afghan national army.  Based on experience to date, the Taliban won’t defeat NATO forces militarily.  NATO’s aerial detection and interdiction of massed guerilla attacks has often proved deadly for the Taliban.  However, small groups can attack weak points, and with IED’s and suicide bombers, will disrupt civil society to a great extent.  In the final analysis, the Taliban doesn’t have to win.  They just have to outlast the occupiers and make the effort very costly.

So what is likely to happen in coming years?  It appears that Obama has adopted the Afghan war of George Bush.  According to a former CIA analyst Ray McGovern: “If Obama gets this wrong, Afghanistan will be his Vietnam.”   He won’t see a great deal of enthusiasm for increasing the ante in this poker game from NATO countries.  With sufficient arm-twisting, some countries may fall in line.  Canada has said that it’s out of Afghanistan by 2011.   In the end, the US will leave without achieving its goals.

As futile and costly as this experience has been, the waste pales in comparison to that incurred by outdated military thinking that continues within the US military, and by extension, in Canada.   In a book entitled “America’s Defense Meltdown”, co-author Chet Richards, argues that the roughly $600 billion dollars that the US annually spends on it’s military provides less security each year.  He suggests that nuclear weapons preclude a conventional war with either Russia or China.   The problem is that the military-industrial complex is building increasingly expensive and complex weapon systems for a conventional war that will never be fought.

The book, http://www.cdi.org/pdfs/AmericasDefenseMeltdownFullText.pdf , a free download from the Internet, would be helpful reading for our political leaders and interested citizens in trying to understand the complexities of national security issues.  Prime Minister Harper appears poised to follow the US down the road to massive defense expenditures.  Perhaps a strategic review of our real national security requirements would be in order.

It is evident from the Iraq and Afghanistan conflicts that national security doesn’t have to cost a great deal of money.  I doubt if the budget for the Taliban is over $100 million a year.

To return to the question posed earlier… When the US and allies leave Afghanistan in a few years without a democratic leader in place and little else to show but thousands of civilians and soldiers dead, who will have been the stronger or most intelligence force?

Our young brave soldiers seem to be so often betrayed by the most idiotic of concepts sold to us by our odious political leaders.