Tuesday, 5 April 2016

Pipelines to Nowhere: Part II, by Will Dubitsky, Updated 03 05 16

In my article of March 7, 2016, Pipelines to Nowhere, a portrait was presented to the effect that 
the global green economy is advancing very quickly and conversely Canada is falling further and further behind.  Unfortunately the actions, statements and Budget of the current federal government suggest that this green economy gap between Canada and its competitors is bound to grow.

Summing up the March 7 article, the premise was offered that Canada is on the wrong course with regard to its proposed pipeline projects, because the market for product concerned, oil, will not return to strong growth, thereby making Energy East and Kinder Morgan economically redundant.

What follows is additional information that further substantiates the folly associated with increasing global supplies of oil without corresponding increases in demand. 

Global Emissions flattening out

First, in the March 7th article it states that global emissions production has been flat since 2013 and that renewables accounted for 90% of new electrical generation capacity added in 2015.  This is not the result of a rabbit being pulled out of a hat!  These results have been building for some time. Specifically,  since year 2000, a total of 21 nations have reduced annual emissions while experiencing economic growth. 

Free fall of the US coal sector

Second, in the March 7th article, it stated that 68% of US new electrical generation capacity added in 2015 was associated with renewables.  The flip side of the US success with renewables is that coal is having a  dismal plight with US coal producers representing 45% of the country's coal output having filed for bankruptcy.  As if that is not bad enough, the US Energy Information Administration estimates that US coal production in 2016 will experience an annual decline of 16%, something not seen in the US since 1958!

Tipping point favouring electric vehicles may come as early as 2020

Third, partial numbers were provided in the March 7 article on electric vehicle sales in China. But now the 2015 totals are in, enough to make Tesla blush. By far China is leading the pack with 331,000 electric vehicles sold in 2015.  This year, 2016, promises to be much better with China's BYD expecting its electric vehicle sales to triple.  This gives reason to believe that China will achieve its objective to manufacture 2M eco-vehicles/year have 5M of such vehicles on China's roads. 

Equally impressive it appears that the automakers around the globe also view the tipping point coming in around year 2020. In December 2015, Ford announced it will be investing $4.5B in electric and hybrid vehicles between now and 2020 and that 40% of their nameplates will be electric and hybrids by the end of the decade.  The Hyundai-Kia group also aims to lead the charge on next generation vehicles, with plans to introduce 26 hybrids, plug-in hybrids and electric vehicles by 2020.  Similarly, Volkswagen's CEO Matthias Müller has stated that the company plans to  "make electric cars one of Volkswagen's new hallmarks" with 20 new models that plug in by 2020.

Clearly the actions described above will lead to a substantial penetration rates of electric vehicles in the medium term that will be devastating for the demand for oil on global markets.  Such are the conclusions of independent energy advisors Salman Ghouri and Andreas de Vries.  Their research of low, medium and high electric vehicle market penetration scenarios, indicated that, even in the low penetration medium term scenario, there would be a major impact on crude oil to the effect there would be a supply-demand imbalance.

However the pace of electrical vehicle penetration may be higher than anticipated because the decline in battery storage costs is happening faster than originally projected.  This means that purchase prices for electric vehicles may be competitive within a few years, in part, because "fueling" expenses will be several times less than gasoline-powered vehicles and maintenance costs will be relatively low. The low maintenance expenses are attributable to their being only 20 moving parts for the electric "powertrain" of an electric vehicle, compared to the 2000 moving parts of an internal combustion engine.  

Big Oil coming around to heeding the cumulative evidence

Fourth, Canada's tar sands sector is coming around to validating these irrefutable trends, though the sector still clings to the belief that the current slump is cyclical, rather than permanent.  In April 2015, Alister Cowan, the CFO of Suncor was candid in saying that “The years of large, multi-billion-dollar projects are probably gone.” 

With the 2016 cash flow projected by The Canadian Association of Petroleum Producers (CAPP) to be in the negative for the Canadian oil and gas industry to the tune of spending plans for $30B coupled with revenues of $17B, it is clear that these sectors will be cutting costs and avoiding big projects for several years in the hope of eventually achieving balance sheets in the black.  

Accordingly, the CAPP, anticipates that spending in the Canadian oil and gas sectors in 2016 will likely be 62% less than in 2014.

Looking Ahead and Backwards

Fifth, there are several factors which suggest that the green economy gap between 1) Canada on one hand; and 2) China, the European Union and the US on the other, will continue to grow ... to grow larger than it is now as the pace accelerates for advancements of green economics in these other countries.   Budget 2016-17 offers bad omens in this regard.

1) The current Liberal Budget offers less funding for clean techs than previous Liberal governments. 

2) The Budget three sentence description of the $2B Low Carbon Economy Fund for years 2017-18 and 2018-19 has a striking resemblance to the still-born $1B Climate Fund of the previous Liberal government to the effect that the government would purchase emissions from the largest emitters. Thus the largest emitters would stand to gain the most of the pay the largest polluters the most fund, as opposed to the polluter pays concept.  

3) In keeping with Liberal push for pipelines, the NEB Energy East hearings are prolonged by 3 months to take into account emissions, though Trudeau and the Liberals know very well that it will take much longer for there to be proper research contracts set up and undertaken to produce credible GHG results. 

More important, the Liberal view as expressed in Budget 2016-17 leaves the "too close" to the industry NEB in charge of all future hearings on other pipelines rather that make an attempt to rehabilitate the Canadian Environmental Assessment Agency, an entity that was recognized for its world class independent environmental reviews.

4) The icing on the cake is such that the $46B/year USD in 2015 for fossil fuel subsidies in Canada, as per the estimate of the International Monetary Fund will remain intact because  -- so the Trudeau government argues -- now is not the time to reduce funding to the sectors that are hurting.

To the contrary of the Liberal mindset, the $46B USD in annual Canadian subsidies for the fossil fuels sectors offer a key for an accelerated diversification of these sectors to be part of a Western Canadian and Canada at-large effort to catch up with Canada's competitors on the strongest growth and job creation sectors of our times, the green sectors.  As decribed in the March 7 article, Pipelines to Nowhere (Part I) Norway's Statoil and Denmark's Dong Energy offer models for the transformation of the fossil fuel industry.

The current Liberal government like past Liberal governments have given priority to yesterday's model for corporate rule.  The result it that it remains questionable if Canada can meet the very modest Conservative target should the Energy East and Kinder Morgan pipelines get approved

For an in-depth analysis of the Budget 2016-17 and its consistency with recent and past Liberal actions, refer to the The Common Sense Canadian article entitled: Liberal Greenwashing: Budget 2016-17, Recent and Past Performances.

Emperor Trudeau has no clothes.  There is no Plan B for competing in the new green economy, just a lot of half measures. This is no different than the situation during previous Liberal reigns when emissions went up -- for lack of credible action plans.  I know this too well having been a Government of Canada employee working on sustainable development during previous Liberal reigns.

For more detailed analyses on the weak links in the Liberal chains, one can refer to the accompanying document regarding 1) the 2015-16 actions of Justin Trudeau; 2) the Liberal machine, past and current and 3) Budget 2016-17.  As such the accompanying document underlines the sharp contradictions between Trudeau's charm giving rise to uncritical journalism projecting Trudeau as a Messiah on the environment.

Will Dubitsky: Updated 03/05/16

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