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By David Yager
Oilfield Services Executive Advisory – Energy Policy Analyst
This is a very confusing summer for anyone trying to understand the ongoing debate about the future of carbon resources – coal, oil and gas, the so-called “fossil fuels”.
Can’t live with them, can’t live without them.
Climate change alarmism continues. The title for the August 2, 2018 article in The Economist was, “The world is losing the war against climate change”. The respected British periodical wrote, “Earth is smoldering. From Seattle to Siberia this summer, flames have consumed swathes of the northern hemisphere. One of 18 wildfires sweeping through California, among the worst in the state’s history, is generating such heat that it created its own weather. Fires that raged through Athens last week killed 91. Elsewhere people are suffocating in the heat. Roughly 125 have died in Japan as a result of a heatwave that pushed temperatures in Tokyo above 40 degrees C for the first time”.
The reason? Fossil fuels. “Such calamities, once considered freakish, are now commonplace…An early analysis has found that this sweltering European summer would have been less than half as likely were it not for human-induced global warming”. The “early analysis” comes, as usual, from an unnamed climate expert. The Economist wrote, “Scientists have long cautioned that, as the planet warms – it is roughly 1 Co hotter today than before the industrial age’s first furnaces were lit – weather patterns will go berserk.”
Climate change. Carbon catastrophe. Deaths from a heat wave in Montreal. More fires in B.C. and Ontario. The National Post headline August 9 blared, “New research predicts heat waves in Canada could become more frequent – and five times more deadly”.
The same energy resources that got mankind out of the caves and propelled civilization to heights previously unimagined will kill you. It’s just a matter a time.
Every bad environmental event from forest fires to hurricanes to floods to record-setting temperatures (high or low) is immediately declared by somebody to be Mother Nature’s revenge for growing fossil fuel consumption since the start of the coal-powered Industrial Revolution 250 years ago. Granted, the world has experienced hot, dry weather before. But never this hot, never this dry, and, judging by the media coverage, never this lethal.
Skeptics still question whether the science is indeed settled; that the primary cause of climate change is indeed the rising concentration of carbon dioxide in the atmosphere from fossil fuel combustion. But if some in the oil industry remain skeptical, this too has scientific foundations.
Anyone who understands the geological history of fossil fuels knows the reason all these dead plants and animals are mostly buried, often under miles of rock, is because of climate change so massive it makes current events immeasurable by comparison. Former life is valuable because of its high carbon content. This is from the earth’s original form of carbon capture and storage, life. Science has proven carbon dioxide helps plants grow, not burn. CO2 is used to extinguish fires, not light them.
But whether or not the smoky summer of 2018 is worse because of fossil fuels doesn’t matter. In all media coverage the cause is man-induced climate change ensuring, after ignition by lightning, carelessness or arson, the fire will become uncontrollable. Nobody says, “Hot dry summers are a naturally occurring phenomenon. Too bad, but there’s nothing we can do about it”.
The subtitle of The Economist article reads, “Rising energy demand means use of fossil fuels is heading in the wrong direction”. Despite the warnings, conferences, commitments, policies, rhetoric, carbon taxes, public shaming, subsidies for renewable and electric vehicles, and years of increasingly dire predictions of catastrophe, demand for carbon energy is rising and will continue to do so for the foreseeable future.
That’s because fossil fuels are plentiful, powerful, reliable, versatile and cheap. No large-scale replacement exists. So people do what people do; ensure their lives are as effortless, comfortable, inexpensive and enjoyable as possible.
Energy forecasts by BP, ExxonMobil, and Washington’s Energy Information Administration (EIA) reach the same conclusion. Whatever fossil fuel reduction targets 179 countries agreed to at the Paris Climate Change conference in December 2015, consumption is going the other way.
Sometime soon world crude oil demand will exceed 100 million b/d, almost 37% higher than the 73 million b/d consumed when the Kyoto Protocol was signed in 1997. Kyoto committed developed nations to reduce CO2 emissions.
According to BP, demand for all forms of energy will continue to rise at historical rates and by 2040 will be one-third higher than 2010. The total hydrocarbon liquids market will increase by another 15% to 115 million b/d by 2035. The energy sources with the greatest growth will be natural gas and renewables. Hydroelectricity and nuclear will remain flat as a percentage of the total energy mix while coal used for electricity generation will continue to decline.
Electric vehicles will have an impact, but it won’t be material. The total number of passenger vehicles in use will almost double between now and 2040 to 2 billion. EVs will skyrocket. By 2040 about 350 million cars and light trucks will be either battery electric or hybrid. But 650 million will not. Plus the 1 billion already in service.
ExxonMobil sees the same steady growth in global energy demand through to 2040 driven by the transportation, industrial (plastics, chemicals etc.) and electricity generation sectors. The major energy mix changes will be a growth in renewables and natural gas and a decline for coal. The projection for liquid fuels approaches 120 million b/d by 2040 with declining conventional production offset by tight oil, oil sands, deepwater, natural gas liquids and biofuels.
As for emissions, ExxonMobil wrote, “As the world’s economy nearly doubles by 2040, energy efficiency gains and a shift to less carbon-intensive sources…will contribute to a nearly 45% decline in the carbon intensity of global GDP. Global energy related CO2 emissions will like peak by 2040, at about 10% above the 2016 level”. The Paris agreement called for emissions to rise until 2020 then decline by 2040, not rise.
The EIA forecast to 2050 sees continued energy production from all sources rising by as much as 50% from current levels. The supply components are similar as industry forecasters with crude oil, natural gas and renewable energy output increasing. Coal will decline to 2020 and remaining flat thereafter.
The growth in demand by country and region varies. OECD countries will continue to adopt policies, strategies and technologies to reduce energy demand, so the OECD’s share of consumption will decline. Growth will come from the developing world, proving those who want electricity or mechanized transportation for the first time don’t care what impact this may have on the earth’s average temperatures or the height of the oceans in 2100.
Fossil fuels will remain the dominant source of energy in the absence of an equivalent, or even near-equivalent, substitute. While advancements in wind and solar power are real, their electricity is interruptible. Countries with large investments in renewables like those in Europe also maintain backup power generation from coal or natural gas to be able to meet demand on a 24/7/365 basis. Which is what consumers demand.
In Canada, despite a summer of forest fires, hot weather and smoke-filled air, the political determination to keep the climate battle at the top of the public agenda is significantly less doctrinaire than even a year ago.
In Ontario, the Liberal government embraced a low-carbon energy future early this century by legislating the end of coal-fired electricity generation and replacing it with heavily subsidized solar and wind energy accompanied by the promise of a bright economic future in renewable energy technologies.
Ontario closed its last fossil fuel electricity generating station in 2014. But after the legislated “feed in tariffs” required to support renewables caused skyrocketing electricity bills – with few “clean tech” replacement jobs for those lost to higher power costs – the public backlash forced the government to change course. The Liberals performed massive financial engineering and buried the costs in the long-term public debt. In 2017 Ontario cut power rates by 25% but added $45 billion to the province’s future liabilities over the next 29 years.
Shortly after Doug Ford’s Progressive Conservatives won the Ontario election in June, the first item on his agenda was to cancel the province’s cap-and-trade carbon tax program. This was followed by a constitutional challenge of the federal government’s plan to introduce a carbon tax on the provinces that don’t have one January 1, 2019. Ford promised all contracts for renewable energy not yet started would be cancelled. He also pledged to cut electricity costs by a further 12%.
In Alberta, the new NDP government introduced its Climate Leadership Plan in November 2015 which included carbon taxes, coal power phase out, an oil sands emission cap and subsidies for renewables.
While the Notley government has stayed the course, the impact of the program and carbon taxes is not being measured by an improvement in air quality or slowing or the province’s contribution to arresting global climate change. Instead, success is being measured by progress on new pipelines for carbon-emitting oil sands.
Northern Gateway, Keystone XL and Energy East have died since 2015. The remaining project is the Trans Mountain expansion. It was so far behind schedule and its completion so uncertain the federal government bought the pipeline in April and is committed to its completion.
The Notley administration’s climate policies have shifted from save the world to save our seats. TV ads tout the genius of Trans Mountain. Pipeline media events attended by NDP and federal Liberal politicians feature testaments to their pipeline commitment, pictures of pipe, and shovels in the ground, at least while the cameras are running. There are no images of pipe being buried because the most conclusive evidence of construction – backfilling pipe-filled trenches – has yet to commence.
In the Edmonton Journal August 11, columnist Graham Thomson wrote how Premier Notley blasted federal NDP Jagmeet Singh leader for his continued opposition to Trans Mountain, a view he regularly reinforces after announcing his intention to run in a federal by-election in Burnaby South.
After publicly attacking her federal NDP counterpart, Thomson wrote of Notley, “She was so critical of Singh that at times I had to pinch myself to make sure I wasn’t interviewing United Conservative Party leader Janson Kenney”. She is saying this because, as Thomson suggested, “…the Trans Mountain project is not just important for Alberta’s economy but is crucial to the survival of her government as it heads towards a provincial election expected in May.”
Alberta’s carbon tax is very unpopular but the NDP keeps claiming it is a means to an end, a social license to build pipelines. The carbon tax and the government will be even more unpopular if Albertans get the worst of both; carbon taxes and no pipeline.
In Ottawa, Justin Trudeau has created his own problems with his climate change program. Saskatchewan is opposed and is joining Ontario in a legal challenge of a federally-enforced carbon tax. Newfoundland and Prince Edward Island are considering joining the cause. Manitoba, which earlier agreed to the federal plan, is wavering. If the UCP wins in Alberta it too promises to scrap the NDP’s carbon tax.
Meanwhile, business groups have been lobbying Ottawa to review its entire basket of economic policies that are damaging their competitiveness as U.S. President Donald Trump is pushing a pro-business agenda and introducing tariff barriers.
Canada’s economic landscape today includes a basket of challenges that didn’t exist when the Liberals were elected. They included higher corporate taxes, the pending carbon tax, the reconstruction of the NEB, cancelling Northern Gateway, a west coast tanker ban, the stalled NAFTA negotiations, and a tariff war with the U.S. that affects the cross-border flow an increasing number of goods and services.
Proving it is listening, Ottawa agreed to reduce the carbon tax exemption on large, carbon intensive export industries; steel, iron, lime, nitrogen fertilizers and cement. Environment Minister Catherine McKenna insisted this will not affect Canada’s 2030 Paris commitments. Nobody who studies the details believes Canada will actually achieve them, with or without the recent carbon tax adjustments.
Towards the end of the article The Economist writes, “Averting climate change will come at a short-term financial cost – although the shift from carbon may eventually enrich the economy, as the move to carbon-burning cars, lorries and electricity did in the 20th century. Politicians have an essential role to play in making the case for reform and ensuring that the most vulnerable to not bear the brunt of the change. Perhaps global warming will help fire up the collective will”.
Several Canadian governments have done what climate change activists claim is necessary. And they are frequently criticized for not doing more. But politicians are encountering evaporating voter support once their fellow Canadians start paying the “short-term financial cost” themselves. Politicians have also discovered most people paying more than used to consider themselves “vulnerable”.
In their zeal to enhance their political future and save mankind, Canada’s politicians have also overlooked or ignored what a small percentage of mankind they actually represent. Climate science notwithstanding, a country with only 1.6% of global emissions and an even smaller percentage of the population and GDP cannot, on its own, move the needle on the composition of the earth’s atmosphere.
Confused? You should be. The last line of The Economist article is the only one I agree with. If carbon-energy is the problem, and the only solutions are guilt and financial punishment, “Sadly, the world looks poised to get a lot hotter…”.
If somebody actually wants to change something, policy leaders must embrace technology, research and innovation to find more economically viable ways reduce carbon emissions, more carrots and fewer sticks.
David Yager is a consulting oil service executive advisor and has been an analyst and commentator on the oil industry and energy policy since 1979. He is currently working on a book planned for publication in 2019.
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