Newfoundland's oil and gas company acting CEO, Jim Keating, is touting a solution to Muskrat Falls' almost worthless surplus electricity. He suggests using a ‘shore-to-offshore’ extension cord for future oil production platforms. Presently, the electricity used on offshore production platforms is produced by generators using natural gas feedstock which comes straight from the well bore - no worries about Alpine conditions - or software - leaving a high-cost production platform in the dark.
Keating is spouting a Norwegian concept. All you have to do is run a 400 km. “power cord from Soldier’s Pond”, Keating told NOIA, out to one of the as yet undiscovered 16 prospects. Keating neglects to mention that the ‘juice’, as Dunderdale used to call the power, is connected to another 1100 km. extension cord, which the Norwegians don’t need to account for.
And, by the way, how many offshore prospects are there in Jim Keating’s frame of reference? The number is specifically - not approximately or even a guesstimate - 16 - and that’s just in the West Orphan Basin.
None - nada - have received confirmation associated with the dreaded tip of a drill-bit. All are squiggly lines on 3D seismic surveys. For Nalcor’s man, of course, this is just a detail.
When this kind of nonsense is allowed to preoccupy civil servants pretending to be “oil-people” as they live off the public’s dime, you just know that not just NOIA but also the new fellow occupying the eighth floor, is unsure what constitutes sensible public policy.
The guy with this 'bright idea' has already distinguished himself having taken an active role in the sanction process that brought us the Muskrat Falls Project.
Jim Keating arrived at the Muskrat Falls Inquiry with Ed Martin’s copy book, used to pummel the natural gas option in 2012. Dr. Stephen Bruneau and Cabot Martin had made compelling pitches for a natural gas pipeline to the offshore; Bruneau showed that cost estimates easily competed with the reckless Muskrat Falls project. He had an opportunity to push up against the myopia of CEO Ed Martin; instead he chose to be more toady than thinker.
Keating might have thought that he could easily impress Inquiry Counsel Barry Learmonth, too.
On the Witness Stand he ventured that forcing an operator’s hand about developing the small quantity of natural gas required to fuel gas turbines at Holyrood might have a “chilling effect” on investments in the province. The argument didn’t impress Learmonth at all, especially since Husky likely didn’t need to be squeezed at all.
In fact, back then, Husky Energy might have welcomed the opportunity to kickstart production of its natural gas reserves, rather than have re-injection of the gas their only option. And if that wasn’t the case, the CNLOPB is empowered, anyway, with legislation to prevent “waste”; 30% of re-injected gas is not recoverable.
At the Inquiry, Keating confirmed that Nalcor did not commission a feasibility study on the natural gas option “Because”, he said, “we had understood...that a small-bore pipeline to feed the domestic market was either uneconomic or less optimal than a host of other natural gas opportunities”.
Had the process of selecting the “lowest cost” option to Muskrat been objectively assessed, one in which Consultants were not expected to just report Nalcor’s self-serving conclusions, the natural gas issue might have been handled differently. Instead, Nalcor arranged for studies on the natural gas issue they could influence.
In 2012, following Dr. Bruneau’s “attention-grabbing” presentation at Memorial, the Dunderdale Government ordered up not one but two Consulting Reports. One of those was generated by Ziff Energy who reported that neither the natural gas option nor Liquified Natural Gas (LNG) were feasible. The second, conducted by Wood Mackenzie, agreed with Ziff's conclusion regarding natural gas but found liquified natural gas (LNG) a potentially viable option, the new consultant having used significantly lower cost estimates for the imported fuel. The revelation was kept out of public view until it was revealed by the Commission of Inquiry. In 2012, as Ed Martin pushed a compliant Dunderdale Cabinet to sanction the project, the public only got to see the version of the Wood Mackenzie Report that served Nalcor's interests.
At the Inquiry, Co-Council, Barry Learmonth recognized that the public had been fed a lot of baloney on the LNG option, possibly the natural gas option, too.
Learmonth wanted to know the reason CEO, Ed Martin, had sent Keating, Nalcor’s communications director, Dawn Dalley, and Natural Resources bureaucrat, Charles Bown, an email saying: “Dawn and Jim, We need a strategy to deal with the gas stuff.” Learmonth wondered aloud to Keating: “If Ziff is gonna be doing an independent report why would...Nalcor need a communications strategy...wouldn’t it be better to wait ‘til you got the Ziff report...?”
Equally forceful was Learmonth’s effort to have Keating explain his contact with Husky at the outset of the Ziff study. Learmonth read an email into the record sent by Keating to the vice-president of Husky Energy in which Keating says: “Could I take you up on (the) offer to meet someone in your shop to get some alignment on piped gas issues…..We will take you through our assumptions and costs and would be interested in your considerations.” Keating is seeking “alignment” with Husky in advance of Ziff’s interview with the offshore operator. No narrative that opposed Ed Martin’s was acceptable. Isn’t that how Muskrat Falls became the sole option?
Learmonth asks the Nalcor V-P why in “less than a week after Bruneau’s presentation” he is communicating with the same Husky V-P who asks: “OK, now what?”, ostensibly seeking further direction, and not wanting to be off-side with Nalcor. Keating responds in a second email to the Husky executive: “I should have added...that its ‘all under control’. The province used Ziff to do a report on LNG. We had used PIRA. In a public forum, its better to ” - take - “a 3rd party to dismiss. We will work with Ziff so they understand our NG (natural gas) opportunity or lack thereof.”
The intent of the Husky exchange was not lost on the Commission Co-Council, as several others attested, but none was as succinct as this next one:
Mr. Learmonth: Yeah. Well, I suggest to you….Nalcor at this time was determined to shut down the natural gas option and you were waiting to get this information to substantiate that decision. Is that correct?
Mr. Keating: That’s correct.
Later in the Examination, Learmonth raises the contents of an email sent by Keating to CEO, Ed Martin:
MR. LEARMONTH: This is an email from Jim Keating, you, to Ed Martin...April 12, 2012...“Spoke with Ziff 3 hours. Real good. Ziff said ‘Husky says they are considering using gas for pressure support in the future. That’s it. End of story.’ I pile drived another dozen issues. They most like the one that ‘oil runs out in 2023 or 2028 at latest.’”
So you had a three-hour telephone –
MR. KEATING: Yes, I did.
MR. LEARMONTH: – with Ziff?
MR. KEATING: Yes, I did.
And you’re saying – earlier, you said that mainly you’re intending to inform them, not persuade them?
MR. KEATING: Yes.
MR. LEARMONTH: Yeah. Well, why would you be pile driving?
Keating was on the leadership team at Nalcor; he was assigned to kill the gas to shore project, and he also played a role in getting the Muskrat Falls Project approved. One would think Stan Marshall might have cleaned house of all who participated in the dabacle that followed. It is no credit to him that virtually all the actors, except Ed Martin and V-P (Financial) Derrick Sturge, have been kept around.
Perhaps feeling more insecure now that Ed Martin is no longer in charge, Mr. Keating is onto another story. Problem is, the Labrador Island Link's reliability has already been debunked by Liberty Consulting, acting for the PUB. Real ‘oil-people’ hate unreliability; they would not consider Keating one of them.
Nalcor is keeping Holyrood “warm” for the winter; that means $20 million less for Muskrat Falls rate mitigation. Another Study is underway to see if Bay d’Espoir has more winter ‘peaking’ potential to help make the Avalon power supply more secure.
Can’t you hear the Norwegians snicker?
In a new Administration, early is the best time for the Premier to exorcise the demons of the ego and self-indulgence of his predecessors. Good public policy is hard to implement at the best of times. But the difficulty is far less compelling when one of the reasons to rethink dumb public policy mistakes keeps looking for our attention. The Premier will need to conduct a good many reviews; the requirement to operate an oil and gas company should be one of them.
Jim Keating and his large coterie still cost us millions.
This is one bit of nonsense that should come to an end.