Joe Dukert* (email@example.com)
Considering the site (Calgary), it wasn’t surprising that Alberta’s oil sands figured prominently in discussions at USAEE’s 29th Annual North American Conference in mid-October. Naturally, various aspects of energy and environmental interdependence among Canada, the United States and Mexico did too.
But that wasn’t all. Nineteen countries were represented at Calgary by more than 230 participants with varied interests from government, industry, business, and academia; so presentations dealt with all major energy sources . . . as well as demand-side developments and projections.
Since abstracts were available in advance, the opportunity to pick and choose among 26 concurrent sessions during four time-periods outside of plenaries and dual plenaries made it relatively easy to select a “track” tailor-made to one’s individual preferences. In the sessions I attended, for instance, prospects for shale gas drew attention repeatedly -- with discussants agreeing generally that geopolitical as well as economic considerations for this relatively new source make it a potential “game changer”.
For 19 individuals who signed up early, arrived a day early, and were willing to pay a healthy extra fee, the conference experience began with a 6:30 a.m. to 8:30 p.m. air-excursion to Fort McMurray, the boom town built on extraction of oil and gas from the second largest concentrated hydrocarbon reserve in the world. Although it was disappointing that the group was unable to visit Suncor’s huge open-pit mine as originally planned (because of maintenance work on the access road), the corporate hosts went out of their way to display the mechanics of in-situ recovery and upgrading of bitumen into a close approximation of light, sweet crude.
The chief economist for Suncor’s operation accompanied the Fort McMurray visitors throughout. He fielded questions that ranged from the comparison between the break-even oil prices needed to justify either surface mining or the Steam-Assisted Gravity Drainage in situ method his company uses (answer: surprisingly close to each other when lifetime costs are considered -- with costs for either approach comfortably below current price levels) to the prospect of using carbon dioxide emissions captured in the future to enhance production in Alberta’s conventional wells (answer: not likely, because of distances involved).
Most surprising to those who had not visited the oil sands before was the obvious success (over time) in restoring large settling basins for jello-like solid waste to a condition in which re-vegetation of added topsoil and the return of native wildlife was possible. Ongoing efforts at environmental protection ranged from simple to high-tech: Brightly-colored scarecrows and air-cannon discourage birds from landing in toxic areas, while Suncor chemists seem to be making progress in speeding up (somewhat) the settling-out process itself by absorbing the liquid fraction more expeditiously.
The day following the Fort McMurray tour was the first official conference day; and an Oil Sands Tutorial Session filled the two rooms set aside for it to overflowing throughout the morning – even before the formal opening luncheon session, which featured an address by Alberta’s Energy Minister, Ron Liepert. He alluded frankly to legitimate concerns about energy intensity in oil sands processing and the necessity of extraordinary care in safeguarding the environment, but counseled equal attention to demand-side efforts in the North American transportation sector as an offset to climate change threats. Minister Liepert also emphasized that Canada’s provinces have greater relative responsibility than U.S. States, since natural resources reside inherently in provincial hands rather than the central government’s; and he described Alberta’s multi-billion dollar contribution to R&D aimed at “cleaner” development and production.
A refreshing characteristic of the Calgary conference program was its evenhanded treatment of oil sands from many aspects, since this energy source (like any I can think of) involves trade-offs between pluses and minuses.
The technical training session on the first day began with a video produced by the Canadian Association of Petroleum Producers, and it included insights from both large and small companies involved. But it also included an “NGO Viewpoint” from the Pembina Institute, an environmentally oriented group, as well as a presentation on behalf of Canada’s First Nations. A luncheon talk the next day also featured Joe Dion, of the Cree Nation. This former Grand Chief of Alberta (now President and CEO of one of the few successful oil resource companies initiated by First Nations) painted a complex picture of litigation dating back to the 1980s that he said established supremacy of century-old treaties about native land rights within Canada over the country’s Constitution. He also alluded to the sensitive issue of respect for cultural traditions that are generally unfamiliar to most of Canada’s population. In respect to oil sands development, these can be germane to issues of equity and energy economics.
Even the final plenary, organized by USAEE Council member Marilyn Radler of Oil & Gas Journal and with a panel consisting entirely of energy journalists, considered problems as well as promise in the oil sands. Independent journalist Andrew Nikiforuk (author of Tar Sands: Dirty Oil and the Future of a Continent!) warned that development of Canada’s oil sands is not regulated enough and that potential environmental harm is being underestimated. Veteran journalist Gordon Pitts of the Globe and Mail, putting Canada’s energy development into historical perspective, reminded the audience that development of the oil sands accelerated after September 11, 2001, as a matter of national security. Bill Whitelaw, president and CEO of June Warren-Nickle’s Energy Group and publisher of the monthly Oil Sands Review, introduced the concept of the “econolist,” a combination of economist and journalist, which the energy dialog might need in the shrinking world of traditional media. The tenor of the discussion seemed to lean toward (grudging) acceptance of oil sands production as a fact for the future, with concerns directed toward avoiding the transformation of Canada into a “petro-state”. Much, it seems, will depend on whether or not the U.S. reacts convincingly to the clear need to reconcile conflicting goals as best we can.
In the concurrent sessions, my own special interest in national and international energy policy induced me to focus first on a series of papers organized by Alan Krupnick, Margaret Walls, and others from Resources for the Future. Modifying the NEMS model of the U.S. Energy Information Administration, the group has done sensitivity analyses on more than 35 energy-environment policies and various combinations of such policies to gauge the simultaneous effects on CO2 emissions, total oil consumption, and welfare costs.
The RFF studies, supported by the National Energy Policy Institute, produced some provocative conclusions as I interpreted them. A mandate for LNG use in very heavy trucks looked like a big winner at first; but its cost-effectiveness for carbon reduction is open to challenge, and the difficulty in applying it to more than a relatively small number of vehicles showed up as the policy was examined in more detail. A subsidy for hybrid vehicles by itself could backfire, because their multiplication may relax the fuel-economy constraints on the manufacture of conventional vehicles. Simultaneous introduction of multiple policies seemed the best bet; but, without the clear use of price mechanisms, any of the combinations tested fell short of what might be considered successful in jointly addressing carbon reduction, lessening of dependence on risky oil imports, and cost-benefit. The study also used the term “Clean Energy Portfolio” to permit the inclusion of more nuclear power. One might agree or disagree with the policy advice that emerges from the RFF work, but this was the sort of conference session that I thought would be equally stimulating and useful to political economists or those more interested in modeling approaches in themselves.
It’s hard for me to be objective about the opening plenary panel on “North American Energy Interdependence”, since I chaired it; but here goes:
Professor Paul Portney, now Dean of the College of Management at the University of Arizona, opened. He emphasized that U.S. national energy policy (including the modes and degrees of international cooperation) is always a resultant of many forces – including (but not limited to) trade, tax and fiscal, military, and environmental considerations -- rather than a single neat plan . . . and that widely varying State policies wield great influence as well. He conjectured that the U.S. will establish a carbon price, but that for political convenience it might be represented as a “sin tax” on fossil fuels and a necessary revenue measure in the face of swelling deficits.
Dr. Francisco Barnés, a member of Mexico’s federal energy regulatory commission, then mentioned Mexico’s relatively new role of growing dependence on natural gas imports; but in addition he noted that its domestic gas production is increasing at the same time and that opportunistic cross-border trading carries benefits for both buyer and seller – a situation that will apply increasingly to electricity (especially from renewables, in light of Mexico’s official mandate to promote RE and the institution of a Cross-Border Electricity Task Force and efforts to increase grid reliability and resiliency). Mexico already has two operating LNG receiving facilities, with another being built; and Commissioner Barnés foresees that the future of LNG imports to satisfy demand throughout the continent will depend mainly on North American prices.
Finally, Art Meyer (Senior Vice President for Major Projects at Enbridge) pointed to almost half a trillion dollars in U.S.-Canada energy trade over the past five years as a solid basis for continuing partnership, but added that the appearance of shale gas is producing a “re-plumbing” of the North American gas network. He said calls to block U.S. imports of products from the oil sands on the basis of life-cycle carbon emissions were short-sighted in view of energy security and founded on failure to recognize the more promising means of limiting the emission of global warming gases through increased vehicle efficiency – which also requires binational cooperation in light of the close continental relationships associated with car and truck manufacturing.
Mr. Meyer concluded by calling for better use of such institutionalized fora of communication and cooperation as the North American Energy Working Group, established in 2001 but lately seemingly somnolent. All three panelists seemed to concur with my opening observation that the top leaders of the three countries (who may not even hold a three-way summit in 2010, for the first time in a decade) were shying away from anything that might suggest a single common policy, and that progress in the potentially fruitful area of trilateral energy-environmental cooperation would have to come from bilateral agreements and from private-sector initiatives grounded in mutual interest.
A dual plenary devoted to the interaction of unconventional North American gas and world markets credited small players with bringing on the shale gas success story, but also cited the contributions by the Gas Research Institute, the U.S. Department of Energy’s National Energy Technology Laboratory, and tax credits. Two-thirds of all natural gas rigs in North America are now using horizontal drilling, and its combination with multiple-well pads has reduced adverse surface effects. The Eagle Ford deposits of shale gas probably extend into northeast Mexico, but that country has not yet begun to exploit them. Ken Medlock pointed out, however, that shale gas is not the cheapest source globally. Furthermore, the lack of unbundled services in Europe hinders the development of LNG trade generally; and Ken views Iran as no more than a marginal gas supplier before 2020 – with no LNG exports from the Gulf of Mexico until the early 2030s, if then. He envisions the capacity factor of LNG receiving facilities as remaining below 20 percent for the next couple of decades.
The dual plenary on “Electricity Markets and Reform: Structure and Organization” dealt largely with various problems in integrating intermittent renewable energy sources into existing networks. It appears that this will involve not only new transmission capability (sometimes traversing considerable distances), but also improvements in dispatch technologies and “smarter” grids overall. Pioneers in facing the challenges include Spain (where the input from renewables hit 50 percent on a recent Sunday) and California (which Perry Sioshansi said has bootstrapped itself into “new RE” capacity close to 20 percent, apart from almost another 20 percent from large hydro).
Similar issues were addressed in a concurrent session that followed immediately, chaired by Council member Doug Arent, who directs the Joint Institute for Strategic Energy Analysis at the National Energy Renewable Laboratory, and another dual plenary in which Doug spoke. Presentations (available on USAEE’s Calgary Conference website) included references from two major NREL studies dealing with the costs and practicalities of integrating variable generation into regional grids in both the Eastern and Western U.S. They are worth examining.
I was struck in particular by a concurrent paper Mike Canes presented on the challenges and potential of using geothermal energy in U.S. military operations. While Mike had uncovered little practical justification for its use in tactical situations, he pointed out along the way that generating electricity from small conventional units in a hot war may cost $3 to $4 per kwh . . . and that risky, long supply lines have prompted the Department of Defense to examine some energy sources that might seem bizarre according to traditional economics. This, in my opinion, resonates in considering the worldwide policy shift toward unconventional sources (including -- but not limited to -- renewables).
When we begin to add externalities (however defined) to the equations of life-cycle costs and benefits, energy economists venture into new paradigms. That is probably why I was so impressed by the series of RFF papers mentioned earlier in this article. I later discovered that the concurrent in which they were presented was organized by special invitation. This is a relatively new technique in programming for the North American Conference; and in this case the results were impressive.
Another relative innovation was a plenary on the final day that attempted to improve understanding of volatility in oil and gas markets through a “Davos style” discussion on energy prices (including futures and derivatives markets), with audience interaction. Despite a crisp presentation by Jim Smith and efforts by moderator Dave Knapp to spark debate, I fear that a sparse audience and some over-long rejoinders kept it from being as productive as I had hoped it might be.
Oh well! The conference in its entirety seemed to hold something for everyone. There was time for networking; the room layout for sessions was close to ideal; and the food (including goodies during the coffee breaks) was the best I can remember!
* Joe is immediate past president of the USAEE.