Tuesday, 4 December 2012

Cabot Martin: A ‘FRACKING’ Mess

Cabot Martin, the former policy advisor to three Premiers, Moores, Peckford and Wells, recently released a Report entitled, "An Analysis of a Study Entitled Natural Gas as an Island Power Generation Option".  Martin was reviewing a study by Ziff Energy commissioned by the Provincial Government; its purpose was to counter the view, held by many, that natural gas is a viable alternative to Muskrat Falls.

Earlier, this year, the Government ignored the views of Dr. Stephen Bruneau, a highly respected academic at Memorial University, who in a public Presentation, gave great merit to the concept.
The Ziff Study dismisses natural gas as a viable option.  It suggests that the capital cost of developing the infrastructure for such a small customer (Newfoundland) is too high, and that the oil companies are not interested in a venture which does not offer a sufficient return on their investment.  Husky Energy quickly confirmed Ziff’s conclusion. Cabot Martin dismissed the Ziff Study.  Ziff are economists, he stated; they do not possess the engineering expertise to assess the gas option.

This article is not about the merits of natural gas.   You can judge the validity of Martin’s comments yourself.
However, Cabot inspires two critical questions which individuals, interested in NL public policy, should ponder.


First, what should political leaders do when they have encountered a seismic shift in the foundations which gave rise to a major public policy initiative, making an expensive and risky concept, Muskrat Falls, less economically viable than first thought?
Secondly, what if these policy makers ignore the evidence that such a cataclysm has occurred?

Investment gurus and politicians, from T. Boone Pickens to the Premier of New Brunswick, have noted the paradigm shift caused by the shale gas era.  The U.S. is not dithering over its potential. The economic implications are staggering for industry, government and especially for individual consumers. Why?  Because ‘fracking’ technologies make the resource vastly prolific and mineable; many believe ‘shale gas’ presages an era of significantly lower oil prices.

Why should we worry about that? Because, lower oil prices will not only destroy the single underpinning of the Government’s argument for Muskrat Falls’ viability, it will severely constrain the most important revenue source on which the Provincial Budget relies.
Martin states: “One of the greatest challenges to any society is how successfully it adapts when faced with fundamental change….very large mistakes can be made to the detriment of future generations”.

Adds Martin, and this is a key point in his Presentation: “And yet, in the face of this maelstrom of change, Nalcor and the Dunderdale Government cling stubbornly to Muskrat Falls – the proud keystone project in an Energy plan drafted in 2006 and made public in 2007. 
Problem is, in today’s energy work, 2007 is prehistoric”.

Martin’s comments, echoed by others, should stagger the Premier’s blind confidence in the Muskrat Falls Project, but they do not.  
Let’s move on to the second point.

During Martin’s time as a Senior Policy Advisor to Premier Brian Peckford, he was the guy in the room who always looked out for what others could not see; in particular, he took notice of anyone who was inclined to the view that we are powerless to influence big decisions, whether by big companies or a big Federal Government.  Martin never shared those views; he was never intimidated by “big’. 
Now, more than twenty years later, Martin is again challenging the belief, clasped onto, evidently, by the current crop of senior bureaucrats and an insecure political leadership this time, that it is too late to change course on an already outdated energy strategy. 

Disconcerting too, is that Dunderdale and her Natural Resources Minister sent out to the Media Husky to complete any re-assurance Ziff could not give.

Dunderdale is no Brian Peckford confronting Trudeau and Chretien in the 1980s.  Imagine, as Peckford did, this Premier facing down the heads of a group of international oil companies and telling them, if they drill federally issued licenses, the Province is not bound to recognize their claims!  No! No one could possibly imagine Dunderdale doing that.
But, it is Newfoundland and Labrador’s loss. 

A capable Premier would call in the head of Husky Energy, not to ask him IF he might, but to instruct him HOW his company could assist this Province develop a new gas strategy as an integral part of developing the White Rose field; that his company is going to join the Province and a group of capable international consultants, in a combined effort to satisfy, more cheaply, the electrical needs of NL, using OUR GAS RESOURCES!  You can be certain, “Yes, Premier” would be quickly audible from Husky’s man.  That’s the exercise of power! That’s political leadership.
And, if Dunderdale possessed that confidence, that skill, Husky would respect the Premier for her bold initiative.

Likely, Martin was thinking those thoughts at his Press Briefing.  Likely, he hoped that the media understood, not just the things he said, but what he implied and what, in a less public forum, he would say, even more frankly.
In allowing Husky Energy to bolster the Government’s position on Muskrat Falls, Dunderdale has weakened an already weak Premier’s Office.  She has raised a white flag in the pursuit of our fundamental resource interests. Brian Peckford, Bill Marshall (the highly competent former Energy Minister under Peckford and now retired Supreme Court of Appeals Judge) and others must be livid!

Dunderdale’s inability to recognize that good public policy must be allowed to emerge amidst change, is bad enough.  Worse is that, under her leadership, we have become, as big oil always wanted us to be:  partisan, pliable and parochial. 
It will take some time to re-assert our place, as stewards of our own resources, we once earned. 

But, it won’t begin until this Premier is gone.

7 comments:

  1. The abuse that Cabot Martin has received by the sitting government is deplorable. Mr. Martin is merely trying to educate the ignorant. They have been warned, and choose to ignore. At their own peril.

    The combination of a aging population and very low energy costs means that North America is ripe for an extended period of low inflation, if not even stagnation. We are at that point in the economic cycle.

    However, the "stable" energy prices that Dunderdale and others quote are premised on a 2% annual inflation.

    Just as Brinco failed to recognize inflation in negotiating the Upper Churchill, Nalcor have not considered the potential for energy price stagnation into the future.

    The long term stability of energy prices brought by Shale gas in North America is really the unheralded smoking gun of the Muskrat Falls debate.

    We will be paying twice the market value for energy for many years to come. The Government need to clear the shit from their eyes and really look at the entire project objectively, in the context of what is happening in the entire world, and not their own little magical place.

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  2. Husky and Nalcor seem to be running the PCs not the other way around in regards to Muskrat Falls.

    Does Husky have unlimited rights to Grand Bank natural gas? Or can a more cooperative gas company come in and make a 30 year supply contract for Avalon power generation?

    180KM offshore V 1,100KM from Labrador, scaling demand V take or pay 57 year PPA, Known MW capacity V 824MW rated generation with possible WMA conflicts, $1 billion for similar MW natural gas plant v unknown cost for MF damn + transmission.

    Natural gas infrastructure could cost $3-5 billion but there is over 60 TRILLION cubic feet of natural gas in the Grand Banks. NL via royalties alone will pay off any initial gas infrastructure (possibility a PRIVATE company would pay for 100% of the NG-I for lower royalty rates).

    Labrador can replace diseal generation with natural gas, lowering their carbon footprint.

    Gas is sold @ 1000 cubic feet - Grand Bank gas therefor has 60 billion units to sell.

    Grand Banks gas for domestic use equals 2-4% of current known reserve: Husky can surly make profit+ from the remaining 95+% when market prices match their pricing points.

    Natural gas and LNG have a much MUCH better long term export market V Muskrat power. USA becoming energy self sufficient through shale gas and new energy technology - even HQ is going to see their market value drop heavily in the next 30 years as a result.

    Alec C

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  3. It won't begin until this titular premier, and the real power behind the throne - the Nalcor head office - are gone.

    The tail is wagging the dog. It has to stop. If destroying Nalcor and the PC Party are the cost of accomplishing this, it's a bargain.

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    1. And who appointed these people at NALCOR? There is where the real power lies!

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  4. You refer to a seismic shift--- that low gas prices and possible lower oil prices will bring to the MF scheme. I referred to the quantum jump in efficiency for heating, reductions of 65 percent,in my submission to the PUB. Remember, gas still puts out half the CO2 as burning oil. It is looked at as a interim solution while more sustainable solutionsa come along. Efficiency enables us to skip the gas phase, except as a back up source, and go green. If we were Nova Scotia, with little hydro , efficiency would not be enough, but here--- I can't understand why Martin and others don't realize this.Really Nova Scotia needs all of MF, if they can afford it. Maybe when Nalcor defaults Emera will pick it up. Bt 2050 we need to reduce fosil fuel burning worldwide by 80 percent to meet the necessary environmental levels. Gas for N.S. cannot achieve this level. And gas for Nfld improves but far from eliminates the CO2 problem. I see only 2 ways for Nfld to displace CO2. One is the expensive MF. The other less costly, is efficiency plus wind plus small island hydro additions. Winston Adams

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  5. Wind can easily be integrated into our grid, in conjunction with rapidly-responding gas turbines when wind levels are low. That combo, plus small hydro, if necessary would be more than sufficient for this Island but we do need the efficiencies that Winston Adams is promoting as well. All of these, in combination, would be well less than half the cost of MF.

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  6. Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

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