Oil's well?

Tories reject call for carbon tax

The Harper government has rejected a new report that calls for the introduction of a levy on pollution to be coupled with a 50% income tax break for the average Canadian. The report, released on Monday by environmentalist David Suzuki and economist Mark Jaccard, who heads a consulting firm that conducted the study, suggests that a levy on greenhouse gas emissions -- also called a carbon tax -- could be phased in, generating between $53 billion and $103.1B in new revenues without increasing the tax burden of the population. "There is a lingering misconception that a carbon price is nothing more than a tax grab," the report said. "While the receipt of substantial revenue -- more than $50B per year -- accompanies any effective carbon price, the revenue is simply the byproduct of putting a price on carbon emissions." In order for the Harper government to achieve its current goal of reducing Canada's emissions to 1990 levels in about 15 years, the report -- titled Pricing Carbon: Saving Green: A carbon price to lower emissions, taxes and barriers to green technology -- suggests a carbon tax of about $40 per tonne would be required in 2010 that would rise to about $100 per tonne in 2020. "While most Canadians have to pay about $90 a tonne to dump waste at their local municipal landfill, anyone can dump thousands of tonnes of carbon into the atmosphere absolutely free of charge," the report said. "The bottom line: we must stop using our atmosphere as a free dumping ground."

A representative of Environment Minister John Baird immediately rejected Suzuki's proposal, explaining that the government would stick with its own plan to cap pollution from large industrial facilities that requires them to reduce emissions per unit of production. "The government believes that Canadian families pay enough in tax," said Baird's director of communications, Garry Keller. "They don't need another tax imposed on them, especially a $50B tax." Under the government's proposed system, a price would be set on emissions based on a market mechanism that requires companies that do not meet their targets to buy credits from companies that exceed their required reductions. The three opposition parties have rejected the approach since the targets allow sectors to increase their pollution if they are in growth.
(Vancouver Sun 080226)

I believe a carbon tax is the only way to equitably distribute responsibility for greenhouse gas emissions. Industrial sources may be the largest contributors, but individuals and families must get an idea of how much gas they release in their role as consumers in order for true change to take place. Why shouldn't citizens be culpable along with industry? If everyone's paying their fair share, then everyone will be making an effort to lower their tax burden. The Conservatives are implying that this would be additional tax to what Canadians are already paying, but in reality they would need to phase out some of the taxes already in place and substitute these losses with carbon tax gains, like the Suzuki Foundation is suggesting. Typical of the Conservatives to dismiss the notion outright without any discussions on the topic.

Oil juniors under pressure

Lost in all the noise about Big Oil profits, related bigger government demands and even bigger green expectations, is a somber trend: Canada's junior oil sector is withering, and there's doubt it will recreate itself once again. The reasons are partly demographic. Many of the wildcatters who built the exploration-focused companies populating the bottom end of the industry are reaching retirement age. But even those who could have given it another go are pessimistic they can make it under current industry conditions -- rising royalty rates in Alberta, high costs and competition for labour and services from the oilsands, little capital market support, climate-change policy, competition from cheap imports of liquefied natural gas coming from offshore. While larger companies with diversified assets can weather adverse conditions by moving elsewhere or to different plays, junior companies don't always have the choice. "A lot of guys think it's the end of an era," said Gary Leach, executive director of the Small Explorers and Producers Association of Canada. "Those who cut their teeth in the 1970s and 1980s are about ready to say 'I am done.' The junior sector is built on optimism. But right now there is more reason to be somber about the future than excited." Canada's unique junior sector, which grew in the past few decades from a unique combination of supportive regulations, capital markets and data transparency, has repeatedly reinvented itself, as busts morphed into upswings, often lead by the same groups of oilmen. This time around, "I am not seeing the startups," said Leach, lamenting government indifference. From here, "it's a big blank page." The group's membership has shrunk 20% relative to last year, or to 400 companies, from 500. Meanwhile, consolidation is continuing at a furious pace and a large number of juniors are for sale.
(National Post 080226)

I don't think the junior 'industry' will ever be the same again. The established groups are retiring and the barriers to entry are too high for new interested parties to enter the game. The oil industry will continue to consolidate - most likely this rate will skyrocket - as easy-to-find reservoirs disappear and the only way for the industry to remain profitable will be to cannibalize itself.

Big Oil embraces wind power

After years of watching the world's fastest growing energy business from the sidelines, big oil companies are playing catch-up and investing billions developing new wind power projects. "Shell and BP see wind as an increasingly important part of the energy industry," said Randall Swisher, of the American Wind Energy Association. "They want to look for new opportunities, and wind is clearly in their sights." Shell is developing a US$4 billion wind power project in the Texas panhandle. When complete it will surpass Florida Power & Light's "Horse Hollow" wind energy facility to become the biggest in the world. Not to be outdone, legendary oilman Boone Pickens announced his own wind project in the same Texas panhandle area - a project even larger than Shell's and costing $10B. Pickens, the 131st richest person in America, amassed his fortune by betting early on promising new energy sources - his largest holdings are oil sands giant Suncor, EOG Resources and Quicksilver Resources. "I have the same feelings about wind as I had about the best oil field I ever found," Pickens said in an interview. It looks like Pickens' bet on wind energy is a good one. So far in 2008, investors in renewable energy stocks have been sipping champagne while the rest of the market has been in the doldrums. Wind energy developer Nacel Energy has seen its stock jump 70% since IPO. The company announced an 80-megawatt wind power expansion January 10th - enough energy to supply 25,000 homes. Analysts have a $3.07 target on Nacel - nearly double its $1.84 close yesterday - stating the Company is undervalued compared to its peers. Also a favorite with analysts and investors is wind turbine blade supplier Zoltek. Other power producers with significant wind in their generation mix include Xcel Energy and Southern California Edison.
(PR Newswire 080226)

Good news. I think I'm going to buy shares in Nacel.

Expected US cold snap drives oil price

Crude oil rose Monday on forecasts fuel consumption will rise because of cold weather in the northern half of the US. Home-heating demand in the Northeast will be 7% above normal for the next week, said Weather Derivatives, a forecaster in Belton, MO. Inventories of distillate fuel, a category that includes heating oil and diesel, fell 2.5 million barrels last week, according to a Bloomberg News survey. "Heating demand is a bit of an issue today, which is helping heating oil and especially natural gas," said Tim Evans, an energy analyst at Citigroup Global Markets in New York. "The entire energy complex is getting a boost." Crude oil for April delivery rose US42 cents, or 0.4%, to settle at $99.23 a barrel on the New York Mercantile Exchange. Futures surged to $101.32 a barrel on Feb. 20, the highest since trading began in 1983. Prices are up 62% from a year ago. Natural gas for March delivery rose four cents to $9.186 per million British thermal units in New York, the highest closing price since Jan. 31, 2006. Prices are up 18% from a year ago. Heating oil for March delivery rose 2.23 cents, or 0.8%, to settle at $2.7853 a gallon in New York, a record close. Futures touched $2.8005, the highest intraday price since trading began in 1978.
(Calgary Herald 080226)

What's going to happen in the spring when the prices traditionally go up even more?