Topic: Making Canada Relevant Again- The Economic Super-Thread

[Redeye]

Why that route?

Is it because there are larger populations of tree huggers they would have to contend with on a more southerly route?

What about further north?

I'd suspect it's an economic decision primarily.

[E.R. Campbell]

I believe the intent of the exercise has been achieved.

The Government has put the "Foreign Money" issue on the radar.  St. David Suzuki is on notice. 

As to the merits of the pipeline - It needs to be done.  I'm agnostic with respect to the route.  I expect those whose lands and waters are put at risk to be appropriately compensated and their interests safeguarded.

Anything's possible, if cash.

 

I'm with the oatmeal savage; the pipeline is needed - notwithstanding proposals to use an Atlantic route. The route needs to be technically and economically sensible and the environment does matter - it is valuable, too.

The project is not risk free - there will be breaks and spills; good engineering can ensure that the impacts are minimal or, at least, acceptable.

I don't mind seeing the foreign money issue raised and St David Suzuki et al put on notice, but see my signature line - everyone has a right to express their opinion. But, having a right to express an opinion does not mean that one has a right to bury opposing opinions - and that applies to governments, corporations, first nations and the greenies, alike.

[Redeye]

Interesting POV. Are the benefits being exaggerated? It does talk about how eastern Canada gets all its needs from imported oil, but I've always understood that as a function of a lack of adequate infrastructure to transport Alberta oil east, when going south is cheaper as we can hook into existing infrastructure, and the fact that it isn't efficient for production of gasoline anyhow. I don't think plowing money into building some new pipeline east within Canada is going to win much support from anywhere.

http://thetyee.ca/Opinion/2012/01/12/HughesReport/

Shared with the usual provisions:

The Northern Gateway Pipeline will explosively increase the scale of oil sands production at a level not in the national interest, says David Hughes, one of Canada's foremost energy analysts.

By tripling oil sands production rates above 2010 levels, the project will "compromise the long term energy security interests of Canadians, as well as their environmental interests," charges Hughes.

The proposed pipeline, designed to ferry bitumen to Asian markets, will also liquidate a non-renewable resource at prices that will likely seem like a bargain down the road says Hughes in a 30-page report titled "The Northern Gateway Pipeline."

The top-notch analyst also points out that Enbridge, Gateway's proponent, has made up its own oil sands growth forecasts, which it has provided to the National Energy Board to justify the project.

"Enbridge has generated its own projection of a further increased oil supply, with no methodological backup, to justify the need for its Northern Gateway project to the National Energy Board."

Hughes' damning report also posits a simple question that Canada's media routinely neglects: why does the Canadian government support a proposal to export oil to China when nearly half the country (Quebec and Atlantic Canada) is nearly 100 per cent dependent on declining or volatile reserves from the North Sea and the Middle East? (The study was funded by the author and by Forest Ethics with intervenor money for the Gateway hearing provided by the Canadian Environmental Assessment Agency.)*

He also singles out a glaring public policy omission: Canada does not have a credible energy plan. "The absence of a National Energy Strategy, given the non-renewable nature of the majority of the energy inputs to Canadian society, represents an extreme vulnerability to the long-term security interests of Canadians."

Author's 32 years with Natural Resources Canada

Hughes is neither a radical nor a foreigner. Nor he is an environmentalist. In fact the no-nonsense geologist regards the oil sands as a strategic resource that should be developed measurably and carefully in the national interest.

His energy expertise is genuine and hard won. The rock hound worked for the Natural Resources Canada for 32 years where the senior researcher focused on analyzing coal reserves, shale gas and unconventional natural gas supplies.

The retired 61-year-old energy specialist now gives detailed and sobering talks about declining global energy supplies across the continent.

The report, which has been submitted as evidence to the National Energy Board (the author will testify at the public hearings), squarely questions the "Canadian energy superpower" rhetoric of the Harper government. Hughes says it's based entirely on the oil sands -- a low quality and environmentally high-cost source of oil.

But Canada does, however, burn super volumes of fossil fuels. Canadians now consume five times more oil than the global per capita average, says Hughes. In addition half the country depends on oil imports (780,000 barrels a day) from foreign countries. In fact, the majority of oil consumed in Quebec and Atlantic Canada comes from volatile regimes in the Middle East.

How can Canada be an energy superpower, asks Hughes, when it will become "increasingly dependent on OPEC and the vagaries of the world oil markets for what is likely to be much higher cost imported oil?"

Furthermore, Canada's highest quality energy resources are declining. "Our natural gas production peaked in 2001 and conventional oil peaked in 1973. The superpower claim is totally a statement about the tar sands," Hughes told The Tyee.

But bitumen is not light oil, cheap oil or even easy oil. It's taken 40 years of dedicated brute force and landscape destruction as well as nearly $200 billion worth of mostly foreign capital to reach marginal production levels of 1.5 million barrels a day. (See satellite images)

In the global scheme of things, that's a drop in the bucket. It's also a modest figure given that Canada now consumes 1.8 million barrels a day. (Domestic demand could grow to 2.25 million barrels by 2030).

Moreover Canada has or will soon pick the best fruit first in the oil sands, says Hughes. The mineable portions are the richest and cheapest to extract. These are the focus of nearly 90 per cent of the 26 billion barrels currently under "active development" according to the Alberta Energy Resources Conservation Board.

Of the remaining 143 billion barrels, 90 per cent can only be exploited by in situ methods, which are so energy wasteful and water intensive that many experts think this technology should be banned or severely limited.

According to the "growth" forecasts by the Canadian Association of Petroleum Producers (CAPP), Canada could extract 3.7 million barrels a day by 2025 (the maximum recovery rate) but such haste would exhaust the 26 billion barrels "under active development" within 19 years. The Gateway Enbridge pipeline, which proposes to suck out half a million barrels a day to Asian supertankers, would accomplish that job quickly.

Three strikes against

Hughes thinks that the rapid liquidation of Canada's highest quality bitumen reserves, as proposed by Enbridge, is bad national policy for three reasons.

For starters, peak oil means the end of cheap oil. What stays in the ground will only get more valuable over time, says Hughes. Speedy liquidation means not only a revenue giveaway but exponential growth of pollution and water contamination. (Current mining waste liabilities already total more than $20-billion.)

Second, energy returns on bitumen are dropping fast, which means that industry will increasingly spend more energy to get less energy back. Right now industry secures but 5.7 barrels for every barrel of oil or its energy equivalent invested in tar sands mining operations. In contrast, the Middle East still garners superior returns of 20 to one. (According to energy expert Charles Hall, our currently oil-driven civilization requires returns of 10 to one or must face economic stagnation.)

But the steam plants, models of inefficiency and waste, win returns of 3.8 to one for in situ recovery (80 per cent of the resource). Given that the best bitumen resources with the highest energy returns are now being used up, a rapid extraction policy leaves Canadians with the dregs of the barrel as well as less energy and even bigger environmental messes, says Hughes.

Third, the Enbridge pipeline is based on a projection that accelerates liquidation of a non-renewable resource in the absence of any national policy. Hughes points out that Northern Gateway is not needed unless oil sands production is ramped up by more than three-fold over 2010 levels. Enbridge bases its Northern Gateway proposal on the assumption that oil sands production can be tripled in less than 25 years. (Remember it took 40 years to reach 1.5 million barrels.)

The Enbridge forecast, which was an extension of CAPP's most optimistic forecast of tar sands development filed in its application to NEB, has no documented methodological basis. This was confirmed in an email to Hughes from CAPP.

It stated: "The extension is not from CAPP. Looks like someone has done the extension without our cooperation. In other words, we can't comment on the methodology."

CAPP, the nation's powerful oil lobby, has two growth scenarios for the tar sands. Given existing approvals and projects under construction, CAPP's more conservative forecast says oil sand production will grow from 1.8 million barrels a day to 2.8 million barrels by 2019 (tar sands production including diluents). That's a 50 per cent increase over 2010 production levels.

But a super "growth" CAPP scenario based on speculative numbers suggests production could reach nearly 4.6 million barrels per day by 2025, a growth rate of 154 per cent.

Enbridge, however, took these figures and jacked them up to 5.8 million barrels a day by 2035 or a growth rate of 217 per cent over 2010 levels. "Enbridge's rationale for the Northern Gateway Pipeline is based on its own unsubstantiated and highly optimistic projections for growth in oil sands production beyond 2025," reports Hughes. "This may serve Enbridge's corporate needs and those of its shareholders but does not consider the longer term environmental and energy security needs of Canadians."

In summary Hughes concludes that 50 per cent growth in oil sands production can be handled by existing pipelines and U.S. demand. In other words Gateway is not needed. (A Natural Resources Canada briefing note reached the same conclusion last year saying "Even without Northern Gateway, Canada will have enough crude oil export capacity for some considerable time.")

Slow and steady

Like many oil patch veterans, Hughes favors a slow and prudent course and doesn't recommend much further growth in bitumen production. "I agree with [former Alberta premier] Peter Lougheed. I think we should have a planned growth strategy that puts Canada first."

But Enbridge's radical growth projections would expand the scale of the mammoth tar sands project and triple current levels of production by 2035. Hughes calls such irrational growth a threat to the nation "in the light of the long term energy security and environmental interests of Canadians."

Furthermore, "the absence of National energy strategy which safeguards the long term energy security and environmental interests of Canadians means there are no constraints on the uncontrolled liquidation of Canada's intrinsic energy resources."

Asked why Natural Resources Canada hasn't raised these critical energy issues, Hughes paused for a moment on the phone at his home on Cortes Island in British Columbia.

"That's a good question," he replied.

*Story updated at 3:26 p.m. on Jan. 12, 2012.

[recceguy]

All I can see is Chicken Little runnng around saying "The sky is falling!!!"

If we stopped progress because of every doomsday or 'what if' scenario, we'd still be wearing clothes made from woven reeds and be living in holes in the ground.

The human race has excelled and advanced because we took chances, in spite of our mistakes.

Has every opportunity been a success? Of course not. However we didn't get where we are by saying "Boy, we really ****ed that up, better not learn from our mistakes or try improve on that idea."

Of course, the naysayers have a point. We should all live in natural rock shelters and read by the light of homemade beeswax candles, just like they do, right?

Oh wait, they don't, do they?

[E.R. Campbell]

David Hughes has a rather Malthusian view of things.

I well remember when Canada was only a modest energy producer. Bitumen was known but not counted as a technically or economically feasible source of energy; now technology and price mean it is at market. Many Canadian and US oilfields were, just 15 years ago, considered to be dry; now new technology and higher prices have given them new "life." Things change, Malthus was wrong, Hughes might be wrong, too, for similar reasons.

[Redeye]

The concern that I have is that price is the sole determinant, and those technologies seem to have problems. Sure, fracking makes gas wells more productive, but at what cost? It's not surprising to me that there's a vocal movement that wants the practice banned, though I can't/won't comment on how large it is. I think if most people read up on the whole story on hydraulic fracturing - its impact on groundwater for example, and its believed connection with seismic events (at least two I've read about, one in the eastern USA and one in the UK), they'd probably not want to live anywhere near where it's being used. When you also look at the fact that cronyism got it exempted from environmental regulations in the USA, and start asking who benefits, to me a clear problem emerges. Natural gas may burn clean in comparison to coal, but getting it is still an extremely nasty process most people know little about.

It goes back to a simple point - price isn't a good determinant when there are so many externalities we don't price in. Good energy policy is important, but that has to involve capturing those externalities.

David Hughes has a rather Malthusian view of things.

I well remember when Canada was only a modest energy producer. Bitumen was known but not counted as a technically or economically feasible source of energy; now technology and price mean it is at market. Many Canadian and US oilfields were, just 15 years ago, considered to be dry; now new technology and higher prices have given them new "life." Things change, Malthus was wrong, Hughes might be wrong, too, for similar reasons.

[E.R. Campbell]

Of course price cannot be the sole determinant ... consider human "good."

In the past 50 years hundreds of millions of people have been shifted from abject poverty to the lower middle class (by our standards) and tens of millions more have moved to the middle and even upper classes. That is mor people living better lives than their parents than has ever happened in all of human history. That, as Martha Stewart might say, is a "good thing."

Energy - coal and gasoline, mainly - has been the most important single factor in that shift from "bad" to "good," followed closely by fertilizers.

But there are hundreds of millions to go.

One of key "shifts" is to get from this:


to this:
.

The hundreds of millions of people in Asia (and Africa) need oil to go from abject, human powered poverty to a decent, more productive, motorized lifestyle. We have the oil. Those who oppose increasing our oil supplies want to condemn those hundreds of millions to a life of poverty and misery. It is a morally indefensible position, equivalent to hoarding wheat during a famine rather than selling it.

[RangerRay]

I still don't like that BC is taking all the ecological risk, in an area unsuited for pipelines and oil tankers, while Alberta gets the financial benefit.

Speaking of foreign influence, Terry Glavin points out that the petro companies involved in this pipeline are either owned, or partly owned by Chinese state-owned companies, which is concerning.

http://fullcomment.nationalpost.com/2012/01/13/terry-glavin-canada-sells-the-oilsands-to-china-then-complains-about-foreign-interference/

Terry Glavin: Canada sells the oilsands to China. Then complains about ‘foreign interference’

Jan 13, 2012 – 9:45 AM ET | Last Updated: Jan 13, 2012 9:49 AM ET

If there were a global competition for the most brazen and preposterously transparent attempt by a ruling political party to change a necessary subject of national debate with alarmist distractions and hubbub, the Conservative escapade engineered in Ottawa these past few days really deserves some kind of grand prize.

First it was Prime Minister Stephen Harper himself, carrying on about some sort of conspiracy involving jet-setting American radical billionaire eco-saboteurs who are intent upon blocking Canada’s vital bitumen semi-fluids by ambuscading the Enbridge pipeline hearings that began this week in the Haisla village of Kitimat on British Columbia’s north coast.

Then Natural Resources Minister Joe Oliver got in on the act. “These groups threaten to hijack our regulatory system to achieve their radical ideological agenda. … They use funding from foreign special interest groups to undermine Canada’s national economic interest.” A problem: when he went dredging around for evidence, Oliver came up with a two-month delay in approving some skating pond in Banff National Park. Then he tried backtracking. He’d suddenly found himself keeping company with conspiracy theorists who like making dirty insinuations about Ducks Unlimited. You had to feel sorry for the guy.

But if we’re seriously supposed to be going all villagers-with-torches about foreign outfits with weird ideologies undermining Canada’s national economic interests, let’s review what’s really going on, shall we?

The $5.5-billion Enbridge pipeline project is all about sending Alberta bitumen in huge oil tankers to China. Beijing’s own state enterprises are among the project’s major backers, and Beijing has been buying up Alberta’s oilpatch at such a dizzying pace lately it’s hard to keep up. In the spring of 2010, China’s state-owned Sinopec Corp. took a $4.65-billion piece of Syncrude. Then the China Investment Corporation, which is run by the Chinese Communist Party, took possession of a $1.25-billon share of Penn West Petroleum. Last summer, the Chinese National Offshore Oil Corporation gobbled up Opti Canada for $2.34 billion. And so on.

Then, last month, Sinopec spent $2.2-billion to take over Daylight Energy Ltd., and last week, Petro-China, with the final push of $1.9 billion, became the owner and manager of the MacKay River oilsands project. This is what Ottawa doesn’t want you noticing.

Until now, Beijing’s strategy has been to fly under the radar by taking only pieces of oilsands ventures and to murmur occasionally about bringing in Chinese workers or pulling up stakes altogether should they hear too much backchat. Now, everything’s changed. Sinopec’s Daylight deal was a first: it was a complete takeover of a Canadian oilsands company by a Chinese state corporation. The MacKay River deal was a first, too, but in a bigger way: when the McKay project is up and running in 2014 it will be a full Chinese show, with a boss that answers directly to Beijing. The thing is, nobody in Ottawa wants to have a serious conversation about any of this.

During the 2008 election campaign, the vow to block the export of Canadian bitumen for processing offshore didn’t come from Leonardo DiCaprio in some underground command bunker of Hollywood eco-freaks. It was what the federal Conservative Party said. Back then, Ottawa’s very own Competition Policy Review made a series of recommendations about how to deal with takeovers of Canadian resources by foreign state-owned companies. Ottawa promptly ignored those recommendations. In last May’s federal election, the subject simply didn’t come up. And now it’s serious. Really serious.

It’s not just old-school Canadian nationalists who think so. Last April, a poll conducted for Canadian environmental groups found that 72.8 per cent of British Columbians were worried about China’s increasing command of Canada’s resources sector. Fewer than five per cent of British Columbians agreed with Ottawa’s new line, which is that it’s not a big deal.

Also last April, the federally funded, China-friendly Asia Pacific Foundation of Canada released its own poll findings, showing that 75 per cent of Canadians opposed Chinese state-owned companies gaining controlling stakes in Canadian companies, and 57 per cent of us saw the rise of Chinese economic power as a threat to Canada’s interests.

This isn’t just old Vancouver hippies worrying about the implications of 200-plus tankers taking oil out of Kitimat every year. In each of four public opinion polls sponsored by B.C. environmentalists in 2006, 2008, 2010 and 2011, at least two-thirds of British Columbia’s Conservative voters said they wanted oil tankers banned from the wild waters of the West Coast’s notoriously ragged and wind-shredded coastline.

When the Asia Pacific Foundation released its poll results last spring, foundation president Yuen Pau Woo warned Ottawa that there is “an urgent need for political leadership” on China’s deepening influence in the Canadian economy. And now, just as Beijing makes its move and entrenches itself deeper than anyone anticipated, Ottawa wants us to play connect-a-dot for the evidence that will link sinister Hollywood gazillionaires to delays in getting that ice rink set up in Banff.

It turns out that two can play this sort of game. B.C.’s environmentalists are now making great sport of it, pointing out that Ottawa’s “ethical oil” branding exercise was begun by Conservative party gadfly Ezra Levant, who was succeeded at the Ethical Oil institute by none other than the otherwise intelligent Alykhan Velshi, who parked himself there between his term with Immigration Minister Jason Kenney and his new job in Stephen Harper’s office. Bonus points: Ethical Oil diala-quote Kathryn Marshall is married to Hamish Marshall, Harper’s former strategic planning manager.

While it’s all good fun to play Spot the Freemason, something very serious is going on here. Last summer, John Bruk, the Asia Pacific Foundation’s founding president, warned that Ottawa was ignoring the rapid emergence of Chinese government interests “in sheep’s clothing” taking over Canada’s natural resource industries. Bruk told B.C. Business magazine: “Are we jeopardizing prosperity for our children and grandchildren while putting at risk our economic independence? In my view, this is exactly what is happening.”

As things have turned out, Bruk was more right than he knew.

The Ottawa Citizen

Terry Glavin is the Harvey Stevenson Southam lecturer in journalism at the University of Victoria. His most recent book is Come From the Shadows: The Long and Lonely Struggle For Peace in Afghanistan.

Although I am far from being an enviro-whacko, the more I read on this, the less I like.

[Kirkhill]

And with a hop, skip and a jump Redeye moves from the pipeline to Frakking. 

I live in southern Alberta.  Frakking was developed here (Medicine Hat) and has been used for over two decades.

As to ground water quality - Oil was found in the Turner Valley in 1913 because of natural flares from seeps in the ground.

William Stewart Herron, an Okotoks farmer, made the first gas discovery in Alberta when he noticed gas bubbling along the banks of Sheep Creek in the Turner Valley. In 1913, Herron, in partnership with Archibald W. Dingman, formed the Calgary Petroleum Products Company. One year later, the two men struck gas when they discovered the Dingman No. 1 well. This discovery inaugurated the Turner Valley oil era.

UofC Link

31 years out here, on and off, and No' Deid Yet.

And Ray.... what's your price for putting a pipeline through your backyard?  You say you're bothered that BC takes the Eco risk while Alberta reaps the financial reward,  what would be a fair share of the reward to offset your risk?

Open for business......

[Redeye]

And with a hop, skip and a jump Redeye moves from the pipeline to Frakking. 

I live in southern Alberta.  Frakking was developed here (Medicine Hat) and has been used for over two decades.

As to ground water quality - Oil was found in the Turner Valley in 1913 because of natural flares from seeps in the ground.

UofC Link

31 years out here, on and off, and No' Deid Yet.

And Ray.... what's your price for putting a pipeline through your backyard?  You say you're bothered that BC takes the Eco risk while Alberta reaps the financial reward,  what would be a fair share of the reward to offset your risk?

Open for business......

Fracking is another excellent example of the problem of externalities, which I why I mentioned it. Great, it's worked in one place. In others, it's caused gas to seep into water supplies, among other problems. A completely illogical exemption to US environmental laws means that proprietary fracking fluids contain a myriad of substances we don't even know about and the process requires massive amounts of water which as best I understand it isn't treated. Again, who bears the cost of this? Kirkhill, you're actually making the argument for me. What's a fair share of the reward? Well, in order to assess that we have assess the actual costs involved. Right now, we're not actually paying anywhere near those. Without actually assessing the costs, how can we determine what adequate compensation is?

It sounds just awesome, fracking. Like this summation of several news reports combined with a pretty decent lesson in the "free market": http://www.truth-out.org/fracking-anatomy-free-market-failure/1326489492 - it's no wonder a lot of communities don't want this sort of thing going on in their backyards. The effects get borne by all, not just those who sign leases, which the NYT article cites a study on, suggesting that landowners signed deals that were very much not in their favour, and likely without adequate disclosures for them to make informed decisions.

I'm fine with more research into the tech, but I sure as hell don't want it anywhere near anywhere I'm living any time soon.

[Kirkhill]

....

I'm fine with more research into the tech, but I sure as hell don't want it anywhere near anywhere I'm living any time soon.

Yep.... the answer to everything: more research, more data, more input.  Every decision can be delayed indefinitely until we have perfect situational awareness. 

On the plus side I'm reckoning you won't be moving to Alberta anytime soon.

Cheers.

[Thucydides]

While it’s all good fun to play Spot the Freemason, something very serious is going on here. Last summer, John Bruk, the Asia Pacific Foundation’s founding president, warned that Ottawa was ignoring the rapid emergence of Chinese government interests “in sheep’s clothing” taking over Canada’s natural resource industries. Bruk told B.C. Business magazine: “Are we jeopardizing prosperity for our children and grandchildren while putting at risk our economic independence? In my view, this is exactly what is happening.”

While it is true the Chinese are buying up natural resources and control of companies at a rapid rate, the decision to extend the pipeline west rather than south was made in Washington DC, not Beijing. The companies involved and the Canadian government have all been pretty keen on the Keystone XL option to Texas (and most of the States the pipeline would have passed through were pretty supportive as well), going for the Pacific coast only became an option when it was clear the Administration would continue to use stalling tactics to block the pipeline.

That said, if Japan or India were to outbid the Chinese for oil, then the tankers would be sailing to Japan and India. This would not necessarily be a bad thing for the Chinese companies that invest in Canadaian resource companies, they would still receive payment for these purchases and have profits to invest, and Canadian workers would still be employed.

[E.R. Campbell]

According to the this report (Alberta Gov't, 2008) only eight (of 21) major heavy oil projects are "Canadian," two more are Canadian plus a foreign partner - thus: half of the projects are already foreign owned, mostly by American firms, a few by British, Dutch and French firms, too.

[Redeye]

Yep.... the answer to everything: more research, more data, more input.  Every decision can be delayed indefinitely until we have perfect situational awareness. 

Indefinitely? No. But they can be delayed until we actually understand the consequences of the actions. The more comes to light about fracking the worse it looks, though, which does suggest to me that the risks aren't worth the returns. Particularly when the risks seem to be born by the public while the returns go primarily to the industry. Yes, the public benefits from theoretically cheaper and abundant natural gas, but you still can't make an assessment of cost/benefit when costs aren't known.

On the plus side I'm reckoning you won't be moving to Alberta anytime soon.

Not near a gasfield, nope. Alberta's a beautiful place, I quite enjoyed the (limited) time I've spent there. But I happen to like my corner of the world as well, and I don't have plans to leave any time soon.

[Brad Sallows]

Canada's long-term energy security interest is to ensure that it shares (develops and exports, for sale) its energy with the rest of the world over the long term.  The alternative, if things get bad enough, is war.  You want peace?  Exploit resources.

[Kirkhill]

Indefinitely? No. But they can be delayed until we actually understand the consequences of the actions. The more comes to light about fracking the worse it looks, though, which does suggest to me that the risks aren't worth the returns. Particularly when the risks seem to be born by the public while the returns go primarily to the industry. Yes, the public benefits from theoretically cheaper and abundant natural gas, but you still can't make an assessment of cost/benefit when costs aren't known.

Not near a gasfield, nope. Alberta's a beautiful place, I quite enjoyed the (limited) time I've spent there. But I happen to like my corner of the world as well, and I don't have plans to leave any time soon.

But Redeye you will never ever know everything about everything.  That capability isn't given to anybody down here.  You will always work with the best available hypothesis at the time the decision is required of you..... And you will always, eventually, be proven wrong.  Circumstances will change with time and someone somewhere will argue that a "better" decision could have been made....and they will be right.  But, at the time of the decision the circumstances, the knowledge base and the understanding were different than they are and than they will be. 

When I design a plant or a solution it is based on the best available information and my best guesses.  I will deliver it and make it work.  In three months time the operators will know that plant a whole lot better than I do.  The next step is to start fixing the plant to make it work in the real world.  Making cheese, bread, beer or wurst - GPMGs, M1 Abrams or F35s - or oil and gas facilities the process is always the same.   Prior Planning Prevents P*ss Poor Performance.  Prior Planning does not Procure Perfection.  It may only get you to Poor Performance.

Side bar:  A personal bug bear of mine is accountants with their predilection for counting pennies - even on projects of millions of dollars.  A penny on a $10,000,000 system represents a 99.9999999% of surety.  Using the best available texts and data and conducting confirmatory studies it is the rare project where I can get you greater than a 70% level of surety.  90% is a real stretch.  This is because most analyses are only accurate to two to three digits.  Rounding results in one to two digits.  1 digit represents a 10% uncertainty level. 2 digits represents a 1% uncertainty level.  If you want greater certainty than that you won't find it in this world.   Those levels of uncertainty are the reason why every project in the world incorporates at least one safety factor (often in the 20% sometimes 100% range) and at least one contingency factor (in the 5 to 25% range).  A 25% contingency factor means that the $10,000,000 project incorporates a $2,000,000 allowance for screw ups.  Of the remaining $8,000,000 a 50% safety factor could result in an over engineered plant with $4,000,000 of unused, unprofitable material.  Thus your $10,000,000 plant may actually only deliver $4,000,000 of capability -  and we haven't touched on the profit I want to make on this thing yet.  The only mitigating factor in all of this is that I am competing for the job against other folks, some of whom may have better knowledge and experience - and willing to reduce the contingency from 25% to 50%, some of whom may be willing to take a greater risk and reduce the safety factor to code minimum, and some of whom are willing to reduce their profit margin (they are in the minority).

As to the Alberta Gas Field......arguably the "Alberta" Gas Field extends from the MacKenzie Delta to Prince George and Brandon and down past the border across the US between the Mississippi and the Rockies and on into Mexico and its Gulf.

Cheers.

And, just having seen Brad's post, it IS better to sell your resources to someone that is desperate for them than deny them those resources.  If you won't give them, they will take them.  Better that you should make a profit than pay for a war.

Having said that, with foreign investment in domestic resources, we always maintain the upper hand because we possess those resources.  In extremis we can always abrogate any contracts in force, even nationalize the assets in place, and dare the owners of the assets to come and get them.  This is not an unknown risk for energy companies.

[Kalatzi]

"Rant on"

IMHO We are NEVER going to get back on track so long as the Harper Government has the obbsession that the main problem facing Canada is "Islamiscism".

Our economic competitors are laughing their heads off over their woks at that one.  To Paraphrase Lenin, "When we hang the last Western, it wil be with a rope, that WE sold Them, on credit.

Finally thinking back to the last incursion into Lebanon, and  the murder of one of our UN peacekeepers, with allies like Isreal, who needs enemies.

As Slick Willie once famously said to Dubya's pappy, "Its the economy, Stupid".

"/Rant off"

[RangerRay]

Wha...?

[GAP]

someone's off their meds....

[Kalatzi]

True - but it was good to get that out of my system

[Redeye]

But Redeye you will never ever know everything about everything.  That capability isn't given to anybody down here.  You will always work with the best available hypothesis at the time the decision is required of you..... And you will always, eventually, be proven wrong.  Circumstances will change with time and someone somewhere will argue that a "better" decision could have been made....and they will be right.  But, at the time of the decision the circumstances, the knowledge base and the understanding were different than they are and than they will be. 

I accept that that we'll never know everything - but the reason I (and I'm by no means the only person) am not a fan of it is based on what we do know so far. We know that fracking contaminates water.  US states have ordered gas companies to supply drinking water to people whose wells have been rendered non-potable as a result of fracking activities. That doesn't necessarily help, the NYT article told the story of a family who are now getting water delivered but have to pay a lot of money for electricity to keep the water buffalo heated in the winter. There are also now studies into seismic impacts.

I have problems when I read about landmen basically using high pressure techniques to get people to sign leases for gas production without those people realizing the full extent of what they're getting into. It is to an extent their fault that they didn't get independent legal advice, but a good salesman can get people do forget about that sort of thing. I see it happen all the time in my day job.

Can we produce gas without fracking? As I understand it, yes. The wells aren't as productive, but perhaps that's a trade we have to accept should it become clear that the cost of fracking is indeed too high.

When I design a plant or a solution it is based on the best available information and my best guesses.  I will deliver it and make it work.  In three months time the operators will know that plant a whole lot better than I do.  The next step is to start fixing the plant to make it work in the real world.  Making cheese, bread, beer or wurst - GPMGs, M1 Abrams or F35s - or oil and gas facilities the process is always the same.   Prior Planning Prevents P*ss Poor Performance.  Prior Planning does not Procure Perfection.  It may only get you to Poor Performance.

Perfection is impossible, agreed. But remember that when you do those things, you're looking after the interests of your employer. The cost to other stakeholders isn't yours to worry about. Those costs in the case of fracking are looking significant. In the case of the USA, they're not even getting reported because of exemptions to environmental laws the Bush Administration gifted to the gas industry (who were, undeniably, heavily connected friends of that administration). The fact is, just what's visible on the surface leaves a lot of questions.

Side bar:  A personal bug bear of mine is accountants with their predilection for counting pennies - even on projects of millions of dollars.  A penny on a $10,000,000 system represents a 99.9999999% of surety.  Using the best available texts and data and conducting confirmatory studies it is the rare project where I can get you greater than a 70% level of surety.  90% is a real stretch.  This is because most analyses are only accurate to two to three digits.  Rounding results in one to two digits.  1 digit represents a 10% uncertainty level. 2 digits represents a 1% uncertainty level.  If you want greater certainty than that you won't find it in this world.   Those levels of uncertainty are the reason why every project in the world incorporates at least one safety factor (often in the 20% sometimes 100% range) and at least one contingency factor (in the 5 to 25% range).  A 25% contingency factor means that the $10,000,000 project incorporates a $2,000,000 allowance for screw ups.  Of the remaining $8,000,000 a 50% safety factor could result in an over engineered plant with $4,000,000 of unused, unprofitable material.  Thus your $10,000,000 plant may actually only deliver $4,000,000 of capability -  and we haven't touched on the profit I want to make on this thing yet.  The only mitigating factor in all of this is that I am competing for the job against other folks, some of whom may have better knowledge and experience - and willing to reduce the contingency from 25% to 50%, some of whom may be willing to take a greater risk and reduce the safety factor to code minimum, and some of whom are willing to reduce their profit margin (they are in the minority).

I agree on the counting pennies thing - it gets ridiculous. (Why do you think so many of us were annoyed when the US Federal Government cut funding to a vital service provider, Planned Parenthood, saving $75M out of a budget of how many billions?)

As to the Alberta Gas Field......arguably the "Alberta" Gas Field extends from the MacKenzie Delta to Prince George and Brandon and down past the border across the US between the Mississippi and the Rockies and on into Mexico and its Gulf.

True. To be clear - I meant a developed, in production gas field - or one reasonably expected to be so in the near term!

And, just having seen Brad's post, it IS better to sell your resources to someone that is desperate for them than deny them those resources.  If you won't give them, they will take them.  Better that you should make a profit than pay for a war.

Having said that, with foreign investment in domestic resources, we always maintain the upper hand because we possess those resources.  In extremis we can always abrogate any contracts in force, even nationalize the assets in place, and dare the owners of the assets to come and get them.  This is not an unknown risk for energy companies.

Interesting last statement though. Things like NAFTA have interesting implications for that - essentially, once you start selling something, you can't really stop without legal headaches. And that's what can start wars over resources.

[E.R. Campbell]

...
I agree on the counting pennies thing - it gets ridiculous. (Why do you think so many of us were annoyed when the US Federal Government cut funding to a vital service provider, Planned Parenthood, saving $75M out of a budget of how many billions?)
...

To paraphrase CD Howe, "$75 Million here, $75 Million there, pretty soon you're talking real money."

Cuts have to start somewhere ... it was your favourite ox being gored, but might you have been less outraged had the cuts come from, say, Farm Credit Canada?

[E.R. Campbell]

...

Interesting last statement though. Things like NAFTA have interesting implications for that - essentially, once you start selling something, you can't really stop without legal headaches. And that's what can start wars over resources.

Just a reminder, see here, especially the Conclusion which says: "NAFTA does not commit Canada to exporting a certain share of it energy supply to the United States."

[SeaKingTacco]

Let me just say that, having lived in Alberta half my life, I have lived around Fracking a long time. I know people who frack for a living. I have lived on a farm with a producing gas well that was fracked (fwiw, our tap contained natural gas both before and after the gas well went in).

However, Redeye, you have gained your knowledge of Fracking from the New York Times and a bunch of websites (most of which is complete crap and devoid of any independent scientific verification), so I will defer to you from here forward. Clearly, nothing anyone says here will change your mind.

[Thucydides]

Back on the topic of economics, here is an interesting primer on the Austrian School (mostly by pointing out how it is being distorted) and what it really means:

http://reason.com/archives/2012/01/13/how-liberals-distort-austrian-economics/singlepage

How Liberals Distort Austrian Economics
The lame campaign to discredit the Austrian school

Sheldon Richman | January 13, 2012

When a presidential candidate declares, as Ron Paul has, “We’re all Austrians now,”  it’s inevitable that his critics would try to discredit him—whether they understand what he’s talking about or not. That’s what Matthew Yglesias does in his Slate piece “What Is ‘Austrian Economics’?”

I recommend the piece because it’s highly informative—about what Austrian economics is not.

We’re off to a rocky start with this: “The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire.”

The earliest Austrian economists did not make their mark by advocating free markets and other classical-liberal ideas. They did so by proffering a revolutionary positive (not normative) theoretical approach to understanding how markets work, focusing on value, price, and capital, theory. What Wikipedia says is consistent with my understanding of the matter: “When Carl Menger, Eugen von Böhm-Bawerk, and [Friedrich von] Wieser began their careers in science, they were not focused on economic policy issues, much less in the rejection of intervention promoted by classical liberalism. Their common vocation was to develop an economic theory on a firm basis.”

Economics vs. Politics

Yglesias thus conflates Austrian economic theory with libertarian political theory. In fairness, he is not alone in committing this error. Many libertarians do the same, which is unfortunate. Austrian economic theory describes how purposive action by fallible human beings unintentionally generates a grand, complex, and orderly market process. An additional ethical step is required to pronounce the market process good. Economic theory per se cannot recommend but only explain markets. This is what Ludwig von Mises meant when he insisted that Austrian economics is value-free. Anyone of any persuasion ought to be able to acknowledge that economic logic indicates that imposing a price ceiling on milk will, other things equal, create a shortage of milk. But that in itself is not an argument against the policy. Mises assumed the policymaker would have thought that result bad, but the economist qua economist cannot declare it such. As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

Yglesias writes: “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” It’s odd to say this without also pointing out that Austrians believe that government causes the instability of inflationary booms, recessions, and depressions. In light of that point, the suggestion that government is capable of stabilizing the economy may be seen in its proper light.

That said, Yglesias’s statement is not quite right. Some prominent Austrian macroeconomists think that in a second-best world, the central bank (which of course wouldn’t exist in a first-best world) should counteract a sudden and substantial monetary contraction. In other words, deflation is not necessarily a cure for inflation. Mises made the point metaphorically in 1938: “If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the [opposite] direction.” (See Steven Horwitz’s “Deflation: The Good, the Bad, and the Ugly.” )

Distorts Markets

“In the view of the Austrians,” Yglesias goes on, “practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles.” Well, yeah, and it’s amply demonstrated by George Selgin, William D. Lastrapes, and Lawrence H. White in “Has the Fed Been a Failure?” (See my summary, “‘F’ as in Fed.” ) As they put it:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

Yglesias understands that the Austrian theory of the business cycle has something to do with artificially low interest rates breeding malinvestment, but he thinks it can’t be right because “it’s hard to understand why business people would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

Gerald P. O’Driscoll and Mario Rizzo addressed this long ago in The Economics of Time and Ignorance:

[T]here are profits to be made from exploiting temporary situations. . . . Though entrepreneurs understand [the macro-aspects of a cycle] they cannot predict the exact features of the next cyclical expansion and contraction. . . . They lack the ability to make micro-predictions, even though they can predict the general sequence of events that will occur. These entrepreneurs have no reason to foreswear the temporary profits to be garnered in an inflationary episode. . . . From an individual perspective, then, an entrepreneur fully informed of the Austrian theory of economic cycles will face essentially the same uncertain world he always faced. Not theoretical or abstract knowledge, but knowledge of the circumstances of time and place is the source of profits.

Spending Shifts

Puzzlingly, Yglesias also thinks he can refute the Austrian theory by noting that “spending patterns shift all the time without sparking a recession.” To which, Peter Klein replies, “Of course, Yglesias’s breezy summary of the theory skips over the time structure of production, the difference between consumption and investment, the role of interest rates in securing intertemporal coordination, the problem of expectations, and the other basic elements of the theory, which ten minutes of Wikipedia browsing could have explained.”

Yglesias reveals his unfamiliarity with the Austrian literature when he writes, “Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting.” Considering that Herbert Hoover's and Franklin Roosevelt’s New Deal impeded the market’s correction process, one wonders how the 1930s could possibly have discredited the Austrian theory of the origin of recessions.

Finally, Yglesias contends that “the Austrian school . . . preaches despair and demands no action at all.”

Balderdash. Since it explains that busts are central-bank-caused and hence avoidable through market-based money and banking, its implicit message is one of hope and optimism. And as for demanding no action, on the contrary, it puts forth a long list of actions for those who want stable economic growth—all of them designed to dismantle the interventionist state.

Sheldon Richman is editor of The Freeman, where this article originally appeared.