Natural Capital & National Betrayal (Jeff Berg)

Long time oil and gas analyst and U.S. government adviser Henry Grope is quoted in the Sunday Globe & Mail as saying that the North American natural gas situation is going to see a steep surge in price as early as the end of this summer.  His reason for this projection is that his analysis of the data shows that the quote-end-quote miracle of shale gas is anything but.

David Hughes has been saying this very same thing about shale gas, and the overall natural gas picture in N.A., to anyone who will listen for many years.  For those of you who do not know him Mr. Hughes was a scientist at NRCan for some 30 years.  He is also a member of 33 years standing with the Geological Survey of Canada. I.e. Canada’s premiere geoscientific organization for research and information.  He was chosen by them to deliver a prestigious GSC Logan Club seminar in 2008. He was also the senior scientist with the Canadian Gas Potential Committee in charge of the report on Canada’s Coal Bed Methane future. For NRCan he was the scientist in charge of the National Coal Inventory.

In short he is the man that we paid with our tax dollars to tell our government what’s what with coal and CBM. In addition to this he has made it his mission in life since the mid-1990′s to study the global energy situation for all non-renewables. Using the same scientific skill sets that guided his professional life for three decades.  He has made presentations to the powerful U.S. Council on Foreign Relations, to the U.S. DoE, to the American Petroleum Institute, and to multiple government agencies around the world.  The last time I checked he had spoken to over 150 public and private organizations – alerting them to the inconvenient data on fossil fuels and uranium.

I have had the good fortune on several occasions to sit down for a chat with Mr. Hughes about energy.  And the fact of the matter is that he was putting the relevant reports about depletion on the relevant ministers desks for the last ten years or so of his career with NRCan.  A career which ended with his retirement in 2009.  What these reports said was that we could expect a peak and decline in Canada’s natural gas supply in the near to mid-term. (5 to 15 years)

Projections are of course by their very nature open to debate.  That being said if you are paying a team of scientists to investigate something for you this will be by definition the most educated guess out there.  Not to mention the one that should inform the heart and head of policy.  So what happened?  Well the fact of the matter is that Canada peaked in terms of natural gas supply in 2001, and the declines began last year and have been sharp indeed.  In fact over the last two years Canada’s natural gas supply has declined on average by 8.2% per year. If this were to continue we would be at 1/2 of peak production by 2017.

Given that the spot price for LNG is generally around $20, and that “the dash for gas” – the globalization of natural gas sales – is showing every sign of ending before it really starts. This means that we can expect a return to much higher natural gas prices in the near to mid-term. Given that we turn over our building stock at somewhere around 2% per annum, and how long it will take to make our building stock fossil fuel independent, in the longer term outright shortages are now pretty much guaranteed.

The tragic fact of the matter is that those we have elected to represent our interests have chosen policies that reward corporate profit at the expense of the national interest.  Over the last 10 years the writing has been on the wall.  The scientists that we pay to inform our government have done their job.  They have urged caution and strategies to mitigate the possibility of declining production.  Our politicians have decided instead to do next to nothing with this information. They have consciously decided not to address the unpalatable facts decreed by natural limits as adults.  I.e. By planning for them.  By properly husbanding and budgeting our limited resources. By hedging our bets.

They have decided instead to meet these limits as children.  I.e. To ignore them.  And instead of budgeting, husbanding, and hedging risk, they continue to allow investors to maximize profits by the most aggressively hasty liquidation possible of our limited natural capital. They have consciously decided instead of using the information that we have paid our scientists to provide, to allow the unalloyed logic of the market to prevail unimpeded.

As it was with cod, as it is with water, so too is it with natural gas. Our tax dollars paid our scientists to tell us what was what and what to do about the cod stock.  And instead we kept the pedal to the metal.  The costs of this wanton profit taking in every sector of natural capital are so heavy as to be pretty much incalculable.  Fortunes will be made by the tiniest sliver of our national population, and the pain will be felt by the rest of us.

If our national government had even a scintilla of interest in the general welfare of our citizens then the recent housing renovation grants would have been 100% contingent on their being wholly directed at energy retrofits. Instead in the words of GPC leader Elizabeth May, “Prime Minister Harper and the Conservatives are making the world safe for patios and deck chairs.”  What it has also done instead is cut the EcoEnergy home retrofit program.  A program that has so far saved Canadians 3 billion Kw/h of energy for the bargain basement sum of $91 million. These savings will only grow for the lucky few homeowners that got in before the program was axed.

This does not end this government’s casual disregard for its citizenry’s well being.  To quote Star columnist Tyler Hamilton’s excellent blog ‘Clean Break’: “Let’s keep in mind it has also killed future funding for its EcoEnergy for Renewables program, taking away federal incentives for developers of wind, solar, geothermal and other renewable projects. It has also failed to promote, let alone acknowledge the potential of geothermal power projects in Canada. It helped undermine climate talks in Copenhagen. It cut funding for climate research. It is one of the only major developed countries to refuse membership in the newly created International Agency for Renewable Energy.”

We are being in a word betrayed.  The consequences of this betrayal are not small.  Gas prices will soar.  Why?  To “balance” supply with demand of course.  I.e. To make it too expensive for poorer people to buy. Demand destruction is a cruel mistress when it comes to essentials like natural gas in northern climes.  This phenomena has already taken place in other countries around the world so we know the consequences.  The consequences are for some – to use the most politically incorrect term of them all – death.

“Meanwhile, domestic gas bills, which rose by more than a third last year, are expected to rise even higher in the next few months. For many people, such fluctuations have lethal implications. Last winter, there were some 35,000 “excess winter deaths” in the UK, most of them attributable to old people not being able to keep warm enough; and last winter was a relatively mild one.” ~Jeremy Leggett, The Independent, January 21, 2006.

After seven years of relatively intense study of the facts about the importance of energy and depletion it is impossible not to be emotional. Saddened because of the consequences – human immiseration.  Angry because of our politicians slavish devotion to the maximization of shareholder value at the expense of the common good.  Bewildered because the information is not only widely available it is being gathered by the very scientists we keep on the national payroll.  And perhaps most of all teeth gnashingly frustrated because of the very many alternative and superior policies and paths that were and remain available to us.

I never tire of this quote by Dr. Hubbert.  The scientist who put the very first writing on this particular wall.  I.e. The wall of depletion and energy security. “Our ignorance is not so vast as our inability to use what we know.”  An inability that is created by the purposeful choices of those elected to govern in the national interest who are failing the only thing that gives them legitimacy: We the people.

I hasten to add that my disapprobation is not reserved solely for the oil and gas and military spending interests that define the Harper government.  Though by Canadian standards they are an extreme bunch indeed. No I save a good part of my ire for the three successive Liberal majorities that did nothing to address resource depletion or climate change; and for the Mulroney government that yoked our energy and economic future to the profligate debtors to our south.  As with any people there is much to admire about America’s people. And as with most nations the same cannot be said about their government. More to the point, the very same is true for we Canadians and getting more true by the minute.

Another thing that Henry Grope, a U.S. government adviser for close to 40 years now, has been heard to say in private about Alberta: “The Canadians and the Chinese have something in common. Neither of them know that oil is ours.”

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