Monday, July 9, 2012

Update-1: Alberta, Canada's 'Energy Capital', implements rolling blackouts

Yep, another Alberta post. Welcome to the reality of the two-tiered Alberta energy system. What do I mean by two tiered? Well let me explain.

Over a year ago I wrote this piece on the "requirement" for the new high capacity transmission lines. Quoted in that piece is this little blurb:
Alberta is Canada’s biggest per capita consumer of energy. In 2003, Alberta’s per capita consumption was two-and-a-half times higher than the national average. Between 1990 and 2003, per capita energy consumption increased by 11%. That surge was not entirely due to a sizeable increase in population. A big part of the increase in total energy consumption resulted from industrial activity in the province.
Now what don't you see listed in that article about who has been affected by these rolling blackouts? Industry, of course. They are of course targeting the paying population. Cities, mostly, residents are being told to cut down on their power usage. The Albertan government (obviously working in your favor) proactively decided to enforce these reductions for you, with rolling blackouts.

Source: weathernetwork.com
It was hot today, no doubt about that. Edmonton was the hottest, but as you can see from the Weather Network image, many places were near 30C and an alert was out for British Columbia. However, only one province has had to instruct the need for rolling blackouts: Alberta. Why is this important? Well Alberta is supposedly the energy capital of Canada, isn't it? Out of any province you'd think Alberta should have the spare capacity and yet turn on the ACs and we need rolling blackouts? It was well known it was going to be scorching hot today which should tell you that simply, the spare capacity is not there. Alberta to this day continues to consume the largest percentage of Canada's energy production. Yes, I know that the oilsands do themselves produce some excess energy to return to the grid but this of course does not come close to matching consumption especially when you consider all of the warehouses and other supporting industry required to operate projects of such large scale.

This is not oilsands bashing by the way, this is a warning bell to all of those working in the industry shunning the environmentalists or anyone else who criticise these projects of last resort. I personally do not want to see my fellow Albertans out of a job, so please please please take what I have to say here to heart. We, the "energy capital" of Canada should be able to handle a hot day, shouldn't we?

Alberta has multiple separate problems colliding into what is looking to be a serious catastrophe.

Income

Alberta, in it's efforts to "slash the deficit" created an infrastructure deficit. Items like the twinning of highway 63 should have been done at least 10 years ago. Shortly after this time, during another oil boom we said Alberta was "open for business". People flocked here from all over the country, but we didn't have the foresight to actually build and prepare for them. After they arrived and residential vacancy dropped to 0.01%, sure we started building but we had/have 30 years of practically no development + cuts and a huge influx of population. The Alberta advantage quickly became the Alberta disadvantage. Spending went up, which lets face it, it had to go up, that's "growth" isn't it? Population growth causes spending growth, and since we had a whole number of infrastructure debts to pay off as well spending has been even higher.

Today Alberta likes to talk a big game about decreasing spending to something within our means, but the reality is Alberta - to support their infrastructure and the numbers of people they want working here - needs to increase spending significantly. This is of course our first trap, with an energy ratio of 3:1 the "profit" from the oilsands is not nearly as much as Albertans credit it as being. With the added and as yet unknown environmental, energy, and infrastructure expenses - not to mention industry subsidies - it is not unreasonable to say the oilsands actually don't provide any profit at all. If it did, Alberta's budget would be in surplus and we wouldn't always be wishing for a higher oil price (read: wishing for a war in Iran). This isn't about cutting spending, even now Alberta is just barely meeting the needs of it's population.

Add to this the elevated energy demand within Alberta, the inflated cost of goods (inflation which increases the closer you get to the oilsands). I remember seeing during the height of the vacancy problems of 2006/2007 that a bachelor was going for around $2000 / month. High cost, no house - the Alberta disadvantage. I often focus on Alberta's income and monetary issues related to oilsands development so you can continue this topic on this blog post.

Water, Environment, and Resources

As the costs of these projects and their supporting industries add up, so does resource usage. Alberta loves to talk about how by 2030 there will be a production count of 5mbd. However, if there are already warnings of there not being enough water to pump the operations and energy shortages on hot days, is it a good bet to make that this can be sustained for [at least] 10 more years? Keep in mind we currently only produce around 1.5mbd from the oilsands, 5mbd by 2030 is a 333% increase. Of course add to this water contaminated by oil spills and the like and this number goes up, and that's all water that will no longer be enjoyed by Albertans.

It should be no surprise to you that we are seeing the worst forest fires ever in the last few years (Slave Lake) all of which are in areas that would be directly affected by the oilsands water consumption. The oilsands of course divert water from many of the freshwater lakes in the area as well as the Athabasca River and that entire area continues to be at ever higher risk of forest fire.

Energy

Resource use, and income, brings us back to energy. Energy, currently, is the key to life. The reality behind Alberta's economic and industrial decisions is that we consume the most power in Canada to support our so-called "energy production". This arrangement is simply unsustainable and is the achilles heel of Alberta's one-trick economy.

Alberta, during the earlier years of oilsands production benefited from a cheap cost of oil, combined with a slow (and steadily speeding up) oil price. This meant that the oilsands could use the cheaper standard price of oil for the initial infrastructure and by the time oil was producing it would be worth more. This gradual increase in oil price would also account for the extra cost in operating an "extreme energy" extraction project. (For more on "extreme energy" and the global economy, see here.)

This pattern in oil has changed, with a hard ceiling near $100 reached, which when oil goes over this price becomes contentious and a burden on consumer economic spending. Once this occurs, oil (and many other economic indicators) get knocked back down, to around $80 or so, the floor on our "extreme energy" production price. Anything below $80 now is a huge warning, and if it drops below $70 then many extreme energy projects can not continue operating and many future projects are put on hold.

It should be clear to most analysts now that the bull run in oil is over. The price will surely osculate wildy, no doubt, but the uni-directional price inflation is over, it's now bi-directional.

Similarly with the water issue, one also has to wonder how if Alberta can't handle a really hot day, how exactly do we intend to handle a 333% increase in oilsands production and can we actually afford it?

Jobs? Jobs you say? Alright, lets talk about those j-o-b s

I'm seriously tired of this cliche, abused excuse for continuing to do outdated and stupid things. Anyone who criticises the oilsands (usually this is the environmental crowd) automatically hate jobs apparently. However, most of these same people when confronted with a similar (yet seemingly different) pure capitalist circumstance would probably agree with the destruction of jobs.

Allow me to try and illustrate this better. Currently in the U.S., Mit Romney's time with Bain Capital has been receiving a lot of attention. Those who support him insist that Bain's methods which are essentially to slash jobs, work. To support this it is often said that the companies "are not adapting to the market", RIM is a good current example of this phenomenon. In this light, you could say oilsands critics are simply stating the obvious: that the market is changing and we are not adapting.

Jobs are, of themselves, not the be-all-end-all in life. everytime we deflect serious issues about our own behaviour by saying "well we need those jobs", we are being dishonorable to ourselves and our children. If "jobs" are really your primary concern, you should fully support prostitution. That's a job, isn't it? Just think of how many full-time positions would be created over-night if we simply legalized prostitution. Where is it that we draw the line? If it's just about jobs, why do we foresee the future labour pool primarily comprising of foreign temporary workers? Jobs, is like the 'world peace' response of the conservative heartland. To get support in Alberta, you need to promise jobs. It is not important who those jobs are for, what impact they will have and how many other jobs will not be able to exist due to the inflated costs they cause.

Isn't it interesting that industry foresee's a skilled labour shortage, and Canada is catering to this labour shortage instead of investing in the sorts of industries Canadians are skilled for? Why is our economic "action plan" on "jobs and growth" focusing on jobs for industries that apparently Canadians are not (and apparently won't be) skilled for? Questions, questions.

What's all of this mean though?

It means you have to question the Alberta government's true capability and willingness for the long term prosperity we are constantly reminded they are planning for Alberta. The reality, to me at least, is that - if this province still can't even have the foresight to have proper traffic controls on the main highway leading in to these mega-projects then how can I have any confidence they have the economic or environmental foresight either? It means if this province, the "energy capital" of Canada, doesn't have the foresight to plan to have enough spare capacity on hand for the inevitable demand the population's air conditioner's would bring, then how can we have faith they have our long-term energy demands met?

Albertan's of all political colors should be asking the Albertan government: What is the true state of our infrastructure and how much should we really be spending to actually repair it? What are the true costs of growing the oilsands (support industries included) and do we honestly have enough resources to accomplish that without impacting ourselves and future generations and the resources that will be available for them?

The Big Disaster

Today the world is still reeling from multiple massive environmental disasters while the government's worldwide who are supposed to be responsible for oversight struggle with economic chaos in their own budgets and ever increasing demands. More mega-disasters await us in the future as cutbacks in maintenance and oversight begin to translate into inspections not being made and lower standards being used.

Example: The U.S. has extended the life of many of it's nuclear plants from 40 to 60 years as it, too, has neglected proper infrastructure investment and simply can not afford to rebuild it's power supply. The U.S. is a ticking time bomb in this sense, where one cascade failure could easily cause enough economic damage to be the final failure, as the lights after this perhaps might not turn back on. Depends if you can pay someone to get out there, right? Depends if you can pump gas in to the vehicles to get out there, etc.
Massive disasters cause massive chain reactions, and the effects can be felt everywhere.

Here is an interesting graphic on U.S. nuclear power.
Another example: recently following several oil spills it was announced that 'Pipeline Regulators Cite Two Dozen Safety Violations by Enbridge in Kalamazoo Tar Sands Spill'. Safety violations are often the result of cutbacks, and cutbacks often result in situations which mean you, the Albertan, can't go fishing.

If jobs and your own standard of living are your primary concern, then you should be questioning the Albertan and Federal government's oilsands promises because they simply just don't add up and their track record with respect to demonstrating foresight and proper planning is horrible at best.

Anyway, some food for thought. In the meantime - enjoy the heat and remember to prepare, prepare, prepare!

Update-1

Someone re-tweeted this post with a comment, "shades of Enron" so I feel I need to update to be clear what it is I am saying in this post. This is nothing like an Enron type scam, what's occuring here isn't a scam. At least in a direct sense.

Conclusion

Alberta's infrastructure has been under-funded and the cost to bring us up to date exceeds our income if there is not enough economic growth to push oil beyond $100. The 'scam' if you can call it that is the continued use of an outdated business model. The cost of producing oilsands is expensive, and if oil levels off then there is no time-delayed profit as there has been in the past.

There is an increased danger of outages the more numerous generating stations become. Today 6 of our 35 stations were down for a few hours, but what's important to note here is the only reason we need 35 generators is because we have the largest energy consumption in Canada. The more generators required, the higher your odds numbers of them will be shutdown. Further, generators have lifespans and need to be replaced, the cost of replacing generators must be considered as well when determining the cost of long term growth. As I point out in my example, the U.S. has failed to do this. again, infrastructure.

What I'm getting at here is that for what it takes, 1.5 mbd hardly seems worth it. There are an increasing number of points of failure, all subject to possible budget cuts etc.

Is this just some attempt to link the rolling blackouts and the oilsands?

I have a feeling many are thinking this, and no, it isn't. It's not about the oilsands themselves, it's about the requirements, and the decisions (or lack there of) made to properly prepare our province. This isn't really about the rolling blackouts, its about numerous examples of a lack of foresight.

I view this lack of foresight as extremely dangerous when such life-changing decisions are at play. I don't care what industry, what business. GlaxoSmithKline? Yea, fuck them too - it's not important who. What really bugs me about these decisions, by these people, are the lasting consequences.

The Albertan government isn't being honest about the true prospects of long-term prosperity. This really bugs me, it bugs me that there have had to be protests for the twinning of highway 63. That to me (along with many other things I continue to mention here on this blog) says that Alberta's oilsands margins are just not as good as you would hope they are now (if all proper spending was actually done) and that they simply have not been prepared for the amount and the types of traffic on that highway. How could they not know that would happen? Why have they ignored the repeated requests over the last - what - 7 years? To twin that highway? Why have they not completed it since they started?

The answers to these questions are not important, what is important is that I have to ask them, about the ability to plan a highway. I have zero faith in their ability to plan a long-term sustainable economy. An economy that my children will enjoy, not dread.

So in closing, no, this isn't Enron. Absolutely the grid failed today and this isn't a money making scheme. Alberta's grid is definitely stretched and becoming riskier and that is the problem you should be concerned about. Not that they are lying in some sort of conspiracy, but that rather the conspiracy - if you can call it that - is not explaining why we have such a huge power consumption demand to begin with to Albertans.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

1 comment:

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