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Published By: NEWS COMMUNICATIONS since 1977
Wednesday January 28th, 2015
Should Canada
stockpile oil while
prices are low?
While oil is cheap, China is cannily
buying up to 700,000 barrels of oil a day
to boost its emergency oil reserves.
Ensuring energy security can make
governments money. The U.S.
Treasury has netted $22 billion by
selling oil from its giant strategic
petroleum reserves (SPRs) when
oil prices were high and filling
them when prices were low.
China is joining most rich countries
in stocking SPRs because it knows
Saudi Arabia is driving down oil prices
to stall output of high-cost, nonOPEC oil, including U.S. shale oil.
Oil demand will recover and
with output flat, another massive
international oil supply shock will
come. China is boosting reserves from
30 to 100 days of oil imports to protect
its people’s economic and physical
wellbeing when the shortage hits.
Should we follow China’s lead?
Quebec needs emergency oil
reserves much more than its
maple syrup reserve. Oil powers
almost all Quebec’s transportation.
Alberta’s tar sands’ two centuries
of recoverable oil cannot protect
us from international oil shortages.
Canada exports much oil in the
West, but imports 40 per cent of
Canadians’ oil use in the east.
Quebec imports 90 per cent of its oil.
Imports will drop somewhat
when Enbridge’s pipeline 9B
is reversed and ships some
Western Canadian oil to Montreal.
But the proximity of Enbridge’s
pipelines
to
North
Dakota
shale oil means line 9B will
also bring U.S. oil to Montreal.
As recently as 2012, Algeria and
other OPEC countries supplied half
of Canada’s oil imports. Now half
of Canada’s crude oil imports and
much refined oil, including gasoline,
come from the United States.
U.S.
oil
imports
seem
reassuring,
but
aren’t.
Would U.S. oil shipments to Quebec
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and Ontario stop during international
supply crises? Probably. When CBC
radio host Anna Maria Tremonti asked
the late Matt Simmons this question
in a 2008 interview, he replied: “It’s
pretty simple. We’d shut you off.”
Simmons headed Houston’s largest
energy investment bank and
advised George W. Bush on energy.
Despite the surge in fracked shale
oil, the U.S. Energy Information
Administration forecasts the U.S.
will import a quarter to a third
of its oil through 2035. National
security always trumps anything
else in the U.S. In a supply
crunch, Washington will probably
keep domestic oil for Americans.
Will Enbridge line 9B and
TransCanada’s
Energy
East
pipeline give eastern Canadians
oil security? Not necessarily.
If it makes commercial sense, both
pipeline companies will sell domestic
oil to eastern Canadians. But there
is no guarantee the incidental
security would last because oil for
Quebecers and Atlantic Canadians
would be a sideline to delivering
oilsands oil to world markets.
Canada promises the U.S. oil security.
The U.S. has a national energy
security and independence plan. If
Canada looks after U.S. oil security,
and the U.S. looks after its own oil
security, who looks after Canadians?
Canada belongs to the International
Energy Agency. Unlike the other
members, including oil-exporting
Norway and Denmark, Canada
has no SPRs. We need them.
Should Canada follow France’s 1925
lead and require that oil corporations
keep emergency stocks for national
purposes or follow China and the U.S.
and have government oil reserves?
To access low oil prices now,
Canada should start with requiring
oil companies maintain stocks, but
plan now to build government stocks.
Canadians can reach long-term
energy security, though, only by
also combating climate change.
Phase out Canadian carbon
energy exports, direct Canadian
conventional, non-fracked oil to
eastern Canadians and use it to
transition to a low carbon future.
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National Energy
Board kicks off
promotional tour in
Nova Scotia
Selling pipeline safety in election year
Canada’s
National
Energy
Board is embarking on a crosscountry engagement tour to sell
pipeline safety in an election year.
“Canadians can have confidence
in the work we do,” Peter
Watson, the chairman and CEO
of the National Energy Board,
told engineering students at
Dalhousie University on Monday.
The federal government has limited
public participation at National
Energy Board hearings and has
reduced the time given to the
regulator to review applications.
Halifax was the first stop in the first
leg of a cross-Canada tour by the
board. Watson and other board
staff will spend 10 days in Atlantic
Canada before moving to Quebec.
“We could probably do a better
job of reaching out to Canadians
outside our hearing processes
and just talk to them about their on
going fundamental concerns about
the safety of the infrastructure
in their communities,” Watson
told CBC News on Monday.
The National Energy Board declined
to say how much the national road
show will cost, saying it has been rolled
into the overall operating budget.
At
Dalhousie
University’s
engineering
school,
Watson
and temporary National Energy
Board member Alison Scott
were speaking to a friendly
audience. Fourth-year chemical
engineering student Khalid Hamdan
welcomes energy development.
“When I think pipelines, I think career
opportunities, economic benefits
for Canada,” he told CBC News.
Watson also met with the
environmentalists at the Ecology
Action Centre in Halifax. The
environmental
group
recently
survived a two-year political
activities audit by the Canada
Revenue Agency. The agency
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targeted environmental groups
after Stephen Harper’s government
set aside millions of dollars to fund
a special unit to audit charities.
The National Energy Board tour was
met with a protest over the proposed
Energy East Pipeline Project. The
TransCanada Corporation wants
to carry Alberta oil to Saint John
Part of the plan involves converting
an existing natural gas pipeline.
Alex Guest, a protester, questioned
the credibility of the National
Energy Board given the limits
imposed by the Conservatives.
“They’ve
stripped
away
environmental
protections
for
lakes and rivers. They’ve changed
how the process works so the
scope is more limited,” said Guest.
“The NEB can’t meet with as
many people. They aren’t allowed
to consider climate change.”
A contrary voice emerged at the
protest in favour of the Energy
East pipeline. It came from Andrew
Dawson, the Atlantic representative
for Canada’s Building Trades Unions.
“I think of bringing that resource
East and having those people at
home in our communities doing
the same safe healthy work
they do in western Canada here
in Eastern Canada,” he said.
As for Watson, he declined to
comment directly on Energy
East. He told students there
was general agreement that
“not having access to tidewater
is a challenge for our country.”
“We don’t have the diversity of
markets that we need,” he said.
On
Tuesday,
Watson
was
scheduled to meet with the
Maritimes Energy Association.
Ottawa faces
deficit with low
oil prices, budget
watchdog says
A new analysis by Canada’s
parliamentary budget watchdog
says low oil prices would mean
a deficit of $1.2 billion this year,
but the government has enough
wiggle room to show a surplus.
Plunging oil prices will cost Ottawa
billions of dollars in lost revenue
but the Conservative government
has enough wiggle room in its
budget to weather the turmoil
and still balance the books, the
parliamentary budget officer says.
A new analysis released Tuesday
confirms that low oil prices mark
an unwelcome development for
Conservatives and their pledge
to balance the books this year.
In a report, the budget watchdog
assessed the shock of dropping oil
prices on the federal fiscal picture
and said it would mean, worst
case, a deficit of $1.2 billion this
year and a deficit of $400 million
in 2015-16, even after exhausting
a $3 billion contingency fund.
Still, officials with the parliamentary
budget office said the government
can tinker with its fiscal plans to
show a surplus despite the oil price
hit, allowing the Conservatives to
keep their vow of a balanced budget
Mostafa Askari, assistant budget
officer, said a balanced budget is
“very feasible” in 2015-16 thanks
to the government’s ability find
savings by slowing spending
or delaying capital projects.
“There are many ways that the
government can actually find some
revenues or some savings on the
spending side to make sure the
balance is there,” Askari said.
In the Commons Tuesday, Prime
Minister Stephen Harper jumped on
the report as proof the government
will keep its promise — made long
before oil prices fell through the floor.
“Obviously, the drop in oil prices
affects the government’s fiscal
flexibility but I have said repeatedly
the government will balance the
budget this year,” Harper said.
“We are not in recession.
We
have
every
intention
of
balancing
the
budget.”
Finance Minister Joe Oliver has
delayed the release of the budget
until at least April because of oil
price uncertainty. He said Monday
the government is not planning any
major spending cuts but conceded
the contingency fund may be
used to cover revenue shortfalls.
“The contingency fund is there for
unexpected and unavoidable events
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of which a precipitous decline in
oil prices is. So we may or may
not need to use the contingency
fund,” Oliver told reporters.
Officials with the parliamentary
budget office downplayed the issue
of whether the government runs a
small surplus or deficit. “It’s not an
economic problem,” Jean-Denis
Fréchette, the parliamentary budget
oStill, the sudden change in the price
of oil is rippling through the Canadian
economy, hitting lower household
incomes and corporate profits, which
means less tax revenue for Ottawa.
The budget office examined two
scenarios. The first assumes that
oil prices remain at $48 (U.S.) a
barrel, about their current price,
until 2019. That would cost
Ottawa about $7.6 billion in lost
revenue, offset by reduced federal
expenses in areas tied to inflation,
so the true impact to the bottom
line is about $4.8 billion a year.
The second scenario assumed that
oil prices make a steady rebound
to $81 (U.S.) by 2019-20, which
was the price per barrel when the
government released its fall update.
In that case, the government
would run a deficit of $1.2 billion
in 2014-15 but bounce back in
2015-16 with a surplus of $700
million, growing quickly to a
$16.6 billion surplus in 2019-20.
Surplus
a
moving
target
$81 (U.S.): The U.S. benchmark
price for a barrel of oil when the
federal
government
released
its
fall
economic
update.
$48
(U.S.):
The
price
of
oil
in
recent
days.
$4.9 billion: 2015-16 surplus
forecast by the government’s fall
economic update, including a
$3 billion contingency reserve.
$400 million: The deficit the
budget
watchdog
expects
for 2015-16 if the price of oil
averages $48 (U.S.) per barrel.
$700 million: The surplus the
budget watchdog expects for 201516 if the price of oil averages $51
(U.S.) in 2015 and $60 in 2016.
Taking on the
pipeline; Residents
plot course of
action against
Kinder Morgan
a buffer between his property
and the power lines, comprised
of large, steel towers; wooden
poles and high-voltage cables.
“Right now, we can’t see the power
lines because of the trees,” he
said. “They will clear-cut the entire
stand of trees so my backyard
becomes the power lines.”
Others at the meeting were facing
similar scenarios, with some
saying they were approached by
the company earlier in the week.
Bill Davidson of 8 Pheasant Run
said that on Jan. 19, representatives
of the company hung a notice
on his front door asking to speak
with him and survey his property.
He
refused.
“I called and said, ‘You are not allowed
on my property,’” Davidson said.
His neighbor, George Ghiloni
of 6 Pheasant Run, was caught
off-guard, and in fact signed a
document allowing Kinder Morgan
surveyors access to his property.
“He came in and talked to me and
It might be a David and Goliath
battle, but residents of a couple
small, Andover neighborhoods
are
ready
for
the
fight.
Last Thursday night, about 30 people
sat in the family room addition of
David Yachnin’s house at 5 Ellsworth
Road, nibbling on baked goods and
sipping soda, looking for answers
on the natural gas pipeline Kinder
Morgan has proposed building
through the western part of town.
Yachnin pointed into the darkness
beyond the large windows that
overlook his backyard, noting that
the pipeline company wants to “clearcut” trees to make way for a 100-footwide construction easement and a
50-foot-wide permanent easement
that could run along the edge of
an existing power line corridor.
A stand of trees now serves as
Oilfield News | 5
told me where they were going
to put the pipeline,” Ghiloni said,
noting that it would be just a couple
hundred feet from his home. “Based
on what I heard tonight, I’m going
to send them a letter to rescind my
authority to survey the property.”
Yachnin
said
that’s
what he had hoped for.
“The invitation I sent out to
my neighbors said, ‘You’ll be
shaking your heads when you
hear the facts,’” he said after
the meeting. “I think I was right.”
New route, same concerns
A number of people at the meeting
have been through this before.
When Kinder Morgan first proposed
building a pipeline to bring fracked
gas from Pennsylvania to the
Northeast, the route was originally
going to run through Massachusetts,
ending in Dracut. A spur of the main
pipeline, known as a lateral, was then
set to go into a sliver of Methuen and
then through the heart of Andover’s
conservation and watershed land.
Residents and conservation groups
throughout Massachusetts put up
such a ruckus, however, that the
pipeline company diverted much
of the pipeline north — into New
Hampshire — before bringing it
south again to Dracut, site of a
natural gas redistribution hub.
The company also changed the
route through Andover, avoiding
most of the conservation land,
steering it away from schools and
other neighborhoods, and “colocating” the pipeline using existing
power line and utility corridors.
The new pipeline route through
Andover is also shorter than the
original proposal by about 3 miles.
While some people were happy
about the new route, others, like
Yachnin and his neighbors, were not.
Sara Hinchey of Fossen Way
said she opposed the original
route because it came close to
the High Plain and Wood Hill
schools, which her children attend.
She was also concerned that the line
went through the town’s water supply.
Even though it has been diverted,
however, she remains a staunch
opponent
of
the
pipeline.
“I still care,” she said. “It’s not in my
backyard, but it could have been.”
She said when she heard about
the new route, she looked at
the neighborhoods it affected
and realized it was going right
behind Yachnin’s house. She
said she knew other people on
Pheasant Run and another family
on Blanchard Street. All of them
were affected by the new route.
“I called them, and they didn’t
know anything about it,” she said.
“This meeting is the first they are
learning about what’s going on.
It’s a shorter length of pipeline,
but it’s still affecting people. We
don’t want it in Massachusetts.”
Yachnin said the goal of the meeting
was to get people to begin emailing
friends and family members and
to urge them to contact regulators
and members of Congress, asking
them to oppose the pipeline.
“We’ll get the ball rolling and hopefully
it will snowball,” he said, accusing
Kinder Morgan of doing the project
for “greed” and asserting it really
just wants to sell the natural gas to
Canadian customers and overseas.
Richard Wheatley, a spokesman for
Kinder Morgan, said the company
has not disguised the fact that
some of the gas may be sold to
Canada and to customers overseas.
“It’s on our website,” he said.
“The primary beneficiaries are
the Northeast and New England,
including
local
distribution
companies, which we already
have commitments from, industrial
users, municipalities, proposed
LNG export facilities, and it could
also be Canadian customers.
“We move the gas for customers
and shippers,” he added. “It’s
the purview of customers and
shippers where they want it to go.”
Canada is
trading away its
environmental
rights
In 1997, Canada restricted import
and transfer of the gasoline additive
Oilfield News | 6
MMT because it was a suspected
neurotoxin that had already been
banned in Europe. Ethyl Corp., the
U.S. multinational that supplied the
chemical, sued the government
for $350 million under the North
American Free Trade Agreement
and won! Canada was forced
to repeal the ban, apologize to
the company and pay an out-ofcourt settlement of US$13 million.
The free trade agreement between
Canada, the U.S. and Mexico was
never designed to raise labour and
environmental standards to the
highest level. In fact, NAFTA and
other trade agreements Canada
has signed -- including the recent
Foreign Investment Promotion and
Protection Agreement with China
-- often take labour standards
to the lowest denominator while
increasing environmental risk.
The agreements are more about
facilitating corporate flexibility and
profit than creating good working
conditions and protecting the air,
water, land and diverse ecosystems
that keep us alive and healthy.
Canada’s environment appears
to be taking the brunt of NAFTAenabled corporate attacks. And
when
NAFTA
environmentalprotection provisions do kick in,
the government often rejects them.
According to a study by the
Canadian Centre for Policy
Alternatives, more than 70 per
cent of NAFTA claims since 2005
have been against Canada, with
nine active cases totalling $6 billion
outstanding. These challenge
“a wide range of government
measures that allegedly interfere
with the expected profitability of
foreign investments,” including the
Quebec government’s moratorium
on hydraulic fracturing, or fracking.
Quebec imposed the moratorium
in 2011 pending an environmental
review of the controversial gas-andoil drilling practice. A U.S. company
headquartered in Calgary, Lone Pine
Resources Inc., is suing the federal
government under NAFTA for $250
million. A preliminary assessment
by Quebec’s Bureau d’audiences
publiques sur l’environnement
found fracking would have “major
impacts,” including air and water
pollution, acrid odours and
increased traffic and noise. Fracking
can also cause seismic activity.
According to the CCPA, Canada
has been sued more often than
any other developed nation through
investor-state dispute settlement
mechanisms in trade agreements.
Under NAFTA, “Canada has already
lost or settled six claims, paid out
damages totaling over $170 million
and incurred tens of millions more
in legal costs. Mexico has lost
five cases and paid damages of
US$204 million. The U.S. has never
lost a NAFTA investor-state case.”
NAFTA does, however, have a
watchdog arm that’s supposed to
address environmental disputes and
public concerns, the Commission
for Environmental Cooperation. But
Canada is blocking the commission
from investigating the impacts of
tailings ponds at the Alberta oilsands.
Environmental Defence, the Natural
Resources Defense Council and
three people downstream from
the oilsands asked the CEC to
investigate whether tailings leaking
into the Athabasca River and other
waterways represent a violation of
the federal Fisheries Act. According
to the complaint, the tailings ponds,
which are actually much larger
than what most people would think
of as ponds, are spilling millions
of litres of toxic liquid every day.
Environmental Defence says the
CEC found “plenty of evidence that
tar sands companies were breaking
Canadian law and lots of evidence
that the Canadian government
was failing to do anything about it.”
It’s the third time in the past year
that Canada has prevented the
commission
from
examining
environmental issues. Canada
earlier blocked an investigation into
the protection of polar bears from
threats including climate change and
one concerning the dangers posed
to wild salmon from B.C. fish farms.
Trade agreements are negotiated
in the best interests of corporations
instead of citizens. On top of that,
federal and provincial governments
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keep pinning our economic hopes
on volatile oil and gas markets,
with little thought about how those
resources could provide long-term
prosperity. Recent plummeting
oil prices show where that leads.
These priorities are screwed up.
We end up with a boom-and-bust
economy and the erosion of social
programs as budgets are slashed
when oil prices drop. Skewed
trade deals allow corporations
to
override
environmental
protections that haven’t already
been gutted, and create a labour
climate in which wages, benefits
and working standards fall.
It’s time for Canada to recognize that
a diversified economy and citizens’
right to live in a healthy environment
are more important than facilitating
short-term profits for foreign
and multinational corporations.
Sasol Shelves Plans
for Louisiana Gasto-Liquids Plant
$11 Billion Factory Project is Latest
Casualty of Falling Oil Prices
South African energy giant Sasol
Ltd. said Wednesday it was
shelving an $11 billion factory on
Louisiana’s Gulf Coast, turning one
of the largest prospective foreign
investments on U.S. soil into
another casualty of falling oil prices.
Sasol has spent years planning to
expand its chemical factory outside
Lake Charles, La into a sprawling
facility to turn natural gas into
industrial compounds and diesel. In
October, Sasol committed $8 billion
to equipment that will convert natural
gas into ingredients for everything
from formaldehyde to plastic bags.
But Sasol on Wednesday said its
plans have changed. Plummeting oil
prices have obliged it to push back
its own 2016 deadline for deciding
whether to build the more expensive
gas-to-diesel plant. Sasol’s shares
on the Johannesburg stock
exchange have shed more than a
third of their value since crude prices
started a precipitous decline in June.
“This will allow us to evaluate
the possibility of phasing in the
project in the most pragmatic
and effective manner,” Sasol’s
Chief Executive Officer David
Constable said in a statement.
Sasol’s change of heart shows how
crashing oil prices have buffeted a
range of energy companies. Projects
worth billions of dollars are being
put on hold, straining economies
that had planned to benefit from
new jobs and tax revenue. Among
these: Royal Dutch Shell PLC
this month dropped plans for a
multibillion-dollar
petrochemical
plant in natural-gas rich Qatar.
Sasol’s model for the fuelconversion plant is Secunda, a
four-square-mile maze of pipelines
and reactors on the South African
plains. The site boasts the world’s
longest conveyor belt, a game park
patrolled by jackals and zebras—
and 50 million tons of carbon dioxide
emissions each year, the highest
in the world from one source.
Sasol built the plant four decades
ago because it feared apartheidera sanctions might cut the country
off from reliable fuel supplies. South
Africa doesn’t pump its own oil,
but it sits on 95% of Africa’s coal
reserves. Sasol adopted a process
pioneered in Nazi Germany to
turn coal and gas into liquid fuel.
What Sasol designed for Louisiana
would take advantage of a glut
of natural gas. In addition to
selling for more money within
the U.S. than natural gas,
diesel can also be exported
for sale anywhere in the world.
But the economics of creating diesel
for the open market are proving more
fickle than generating fuel to sustain
the captive South African market that
Sasol’s first liquid fuel plants supplied.
“We have a surplus of gas and a
surplus of crude. Both are down in
the dumps,” said Sandy Fielden,
an analyst with energy consultancy
RBN Energy LLC. “Until that
situation improves, the economics
of such a plant aren’t good.”
In the past decade, U.S. natural
gas prices have fallen as “fracking,”
the process of extracting gas and
oil from rock, took off. When Sasol
said it was thinking of building a
gas-to-diesel plant in Louisiana
in 2012, oil was worth more
than 30 times as much as gas.
As gas began flowing from northern
shale fields to the Gulf Coast, the
U.S. prepared for an investment
boom that the American Chemistry
Council estimated could be worth
$125 billion, with many to be
located in Louisiana. The scale
of Sasol’s proposed plant made it
the mascot for dozens of foreignowned factories that Louisiana
officials hoped would create jobs
and draw investment to their state.
At the time, Sasol’s main concern
was that the price of natural gas
would rise. It joined with with
Canadian oil producer Talisman
Energy Inc. to lock in a secure
supply of cheap natural gas.
“Such a steep oil price drop wasn’t
contemplated,” said an executive
who is familiar with Sasol’s work
in the U.S. but isn’t involved in
deliberations over whether to see the
investments through. “If it were my call
I’d say let’s put that one on the shelf.”
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