Sunday, June 26, 2011

Questions About Shale Gas Viability

The New York Times has run a disturbing article about the potential for the shale gas explosion being a bit of a fizzle. If you want to get an idea of how important this question is bear in mind that shale gas is presently projected to provide 38% of North America's natural gas needs 2035, up from 13% now. This number is even more impressive when one considers that this is in the context of much larger demand than exists now. This is all outlined in a report prepared for KM LNG and filed with the National Energy Board as a part of the application for the approval of the export of natural gas through the Kitimat LNG facility (see pages 14 and 15 of the report for a tidy summary of the supply situation with a great graphic on page 15).

I suspect the science is out on this one for a bit but I have to say that I am a bit suspicious of anything that requires a lot more work and a lot more investment being able to produce gas at the same or lower costs than traditional gas production. This concern is somewhat offset by the fact that as gas reserves have declined the technology used has evolved toward what is now fracking (part of the technique now used to get shale gas out of the ground) but still if shale gas really were as cheaper or cheaper than conventional gas why have we been pumping gas 5000kn across North America and building LNG terminals on the Eastern Seaboard?

What is important to observe about this issue is that there are a lot of decisions being made on the assumption that shale gas production in eastern North America could or is going to completely displace or significantly reduce the demand for western gas in the east. The most obvious decision that presses for is to open up the large fields in Quebec and New England for production. Promoters will say that the decades of low priced local natural gas that will be produced and can be burned cleanly will more than outweigh the environmental damage caused by the surface infrastructure and underground fracking. If this argument carries the day it will be a bit of shock if the plays peter out after five to ten years after the rural countryside of Quebec, New York and Pennsylvania is turned into Alberta and Texas with bushes (no, not that kind, the leafy kind).

There are also decisions that will be made concerning alternative energy supplies that are being determined on the basis of shale gas providing a stable natural gas base for Canada and North America out for the next 25 years. For example, the viability, timing and pricing of the Muskrat Falls development will be very much affected by the question of whether or not New England can satisfy its electrical needs by putting a straw into the ground behind a gas generation station or two or has to bring hydro-electric power in from Canada. Newfoundland may want to be careful about committing to any further pricing arrangements based on current market projections as ultimate prices will be much higher if shale gas turns out to be a bust.

The Kitimat LNG terminal is another example of a decision that is being made on the basis of positive projections about shale gas production in North America. The export of natural gas to Asia makes perfectly good sense (from a public policy perspective) if there is an effective glut of gas in North America. From an economic point of view companies have substantial investments in western gas plays (particularly shale gas plays) and it makes little sense (it is said) to wait until the North American supply declines to develop this. Shareholders are not investing for the distant future; they are investing for returns in a time frame extending from the next quarter to the next five years. However, if it turns out that the Great Eastern Shale Gas Glut is a bust investing large amounts of money in export infrastructure and committing significant chunks of our natural gas supply to Asia in long term contracts may turn out to be not such a great idea.

Maybe before we plan the next 25 years on the basis that we are all going to be afloat in shale gas and that the environmental wreckage is worth the price, we should take a good hard look at those production numbers and really assess if there is a prize to be won here at all?

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Saturday, June 25, 2011

That Was A Riot

Now now everybody, step away from the panic button.

To read the papers and listen to the news over the last week and half one would get the impression that it is either a sign of the Apocalypse or at least the end of western civilization that a group of young people rioted in Vancouver after the Canucks completed their choke in game seven of the Stanley Cup playoffs. To listen to various handwringers it was instigated by rootless anarchists sent straight up from East Hastings Street; bored suburban men and women looking for a bit of excitement and lacking parental guidance; CBC and its evil big screen at Georgia Street or perhaps the police for sending too few (or to many)riot police.

Here's a newsflash for everyone. The price of living in a reasonably open urban environment is that occasionally -- particularly when fed by sports, politics, hunger, alcohol and/or testosterone -- things will get out of hand. In modern times this usually means a few windows are smashed, some consumer goods are stolen, a few comfortable people get a fright and, if everyone is really lucky, a police car is burned. These riots are picnics compared to riots of the not that distant past.

For example, in 1849, a mob of angry Protestant anglophones in Montreal rioted for several days and burned the parliament buildings and government offices to the ground. They were unhappy that Parliament had voted reparations for francophones who had suffered losses in the 1830's rebellions (a measure that had been extended to anglophones years before) and the suggestion that this might lead to true democracy in Canada. Can you imagine a group of twenty and thirty year old Canadians being motivated enough to even burn down a village hall (much less Parliament) these days?

On April 5, 1932, Townies rioted in St. John's and smashed out the windows of the legislature and caused the Prime Minister to flee in fear of his life. These people rioted out of concern about the economic management of the then-Dominion. The resulting Royal Commission resulted in Newfoundland deciding to give up its status as self-governing Dominion and revert to being a colony of the United Kingdom.

Montrealers rose up again when Rocket Richard was suspended on March 17, 1955. There was a race riot in Toronto in 1993 at Christie Pitts and riot that started serious movement the gay rights movement in the same city in 1981 after the bathhouse raids. Almost every real city in Canada has examples of their own riots.

Ancient Rome was long resigned to riots over any number of matters, including food shortages, poverty and bad outcomes at sports events. Julius Caesar's funeral was famously followed by a riot that resulted in a civil war and the final downfall of the Roman Republic (see a clip of Mark Anthony's speech inciting this event) ("friends, Romans, countrymen .." and "cry havoc and let slip the dogs of war" both come Shakespeare's rendition of this event). Some of these riots resulted in change -- some in broken glass.

Indeed in our Criminal Code there is a special provision dealing with riots that essentially requires the police to make an announcement and give people a chance to go home before treating them as rioters (see s. 67 of the Criminal Code):

Her Majesty the Queen charges and commands all persons being assembled immediately to disperse and peaceably to depart to their habitations or to their lawful business on the pain of being guilty of an offence for which, on conviction, they may be sentenced to imprisonment for life. GOD SAVE THE QUEEN.

This formulation of the riot proclamation goes back to the 1741 Riot Act in Great Britain.

Don't get me wrong here: rioting has its price. During the riot rioters stand a real chance of getting beaten, trampled, shot, cut or burned. A friend of mine in Toronto who was a regular protester outside the American Consulate used to say that he did not feel it was a real protest if he did not get hit with a billy stick. Similarly, on the theory of "don't do the crime if you can't do the time", if you get caught, arrested or turned in (particularly if you are stupid enough to post pictures of yourself rioting with a confession attached on a public electronic bulletin board) you should take the usual penalties for doing what you did. These may be quite severe and may extend beyond criminal sanctions to civil sanctions and things like social stigmatization.

Likewise, we should probably think hard about creating situations where rioting is easy -- say a hot button political meeting in downtown Toronto or assembling a bunch of drunken louts in the middle of downtown Vancouver. We should probably study what happened to see how policing can be improved without destroying civil liberties. More importantly we should think about the social conditions which make riots either frequent events or more severe events. It does not take a lot of poking around to see that often entails a mass of people with time on their hands and a well fed sense of grievance arising out of poor social and economic circumstances.

What we should not do is delude ourselves into thinking that rioting can be avoided all times in all situations -- or that this would even be a good thing. Setting that as a target creates a hopeless task and one with a high price tag for even attempting. Rioting could be controlled by banning crowds at sports events; banning protests around controversial political events; and banning gatherings for concerts, fireworks or whatnot. However, would it really be worth living in a country like that? There would also be the real potential that such preventative measures might, in and of themselves, create riots (read about the Winnipeg General Strike for an example of this).

In the meantime, buy property insurance; stay home if it looks like it might be too hot for you; board up your store front when 25,000 drunken louts are gathering around the corner; put your merchandise away and recognize that with all those consumers, workers, students and families comes a few riots now and then.

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Monday, June 13, 2011

The Aesthetics of Power Generation

Neil Reynolds, one of the Globe's stable of conservative columnists recently commented on the aesthetics of wind power generation in Ontario. He is on to something here.

Wind generation differs from most other forms of power generation (other than 1960's nuclear) in that that infrastructure is not situated in distant locations out of sight of the consumers of the power. Even nuclear plants in Ontario are hidden carefully behind berms to make sure that they are not easily seen from the highways or nearby communities. Because of this proximity to major urban or suburban communities wind power has met with howls of outrage which largely relate to the whoosh of the blades and the unsightliness of the towers.

Oddly the same objections are not made to massive oil sands projects, shale oil development, coal bed methane production or hydro-electric reservoir creation. Could it perhaps be that these projects largely only affect aboriginal communities whose concerns about aesthetics maybe don't have the same political weight? Try picturing an oil sands project being built just outside of Toronto and you have your answer.

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