At one time, the supply of fossil fuels appeared virtually endless. It was probably Marion King Hubbert who, in 1956, first clarified the finite nature of the world’s petroleum supply, now painfully evident to consumers of petroleum products. Extraction of oil from the Athabaska Tar Sands, became feasible when crude petroleum reached eighteen dollars a barrel and with an adequate water and natural gas supply to facilitate the extraction. Estimated at two trillion barrels of extractable oil (of which only 10% is easily accessible), the Tar Sands reserves now exceed those of Saudi Arabia.
Thanks to our natural resources Canada has become insulated from the economic buffeting currently experienced by the United States.
What Canada is doing is continuing to feed American addiction to fossil fuels
At this point, the easy to access surface bitumen, lying just below the vegetation provides the raw material required for extraction, following which, the remaining sand and clay are redistributed over the ground; by law, old mines must be filled, flora replaced and fauna integrated. Syncrude appears to the visitors to have successfully carried out reclamation “birds in the trees, the herd of bison that has expanded from 35 to 300, recycling of water into the river”, etc. Each year, Syncrude produces a sustainability report which provides an overview of our performance in the areas of finance and economic contribution, stakeholder and employee engagement, community investment, health and safety, and environmental stewardship.
The soil of the earth is actually a larger sink for carbon than the plant material that exists on the surface of the earth, so when the surface is stripped , the fabric of the soil is disrupted. We do not yet know what the loss of CO2 to the atmosphere is; added to that is the methane released into the atmosphere. Finally, with the best intentions of regulators and oil companies, it is anticipated that it will take thousands of years to develop a soil profile for the roots to hold onto. The process also increases the salt content of the sands that are replaced, with consequeneces for the health of the trees that are planted in the reclaimed areas.
You just don’t get things put back exactly the way they were
In discussing their recent visit to the Syncrude Tar Sands (one of 19 such projects), Gerald Ratzer emphasized over and over the hugeness of every aspect of the project, from the size of the tires on the equipment to the domensions of the sites. Tony Deutsch, however, pointed out that when flying over the miles and miles of muskeg, the tar sands development appears very small.
Following the Enron scandal and the passing of the Sarbanes-Oxley Act, a number of pension fund managers and state financial officials are demanding companies declare their climate exposure, both regulatory and from the standpoint of physical and/or environmental harm as a financial risk.
Economic considerations
With respect to the economics of the operation, Syncrude documents its lifting costs at $14 - $15/bbl. This figure can be somewhat misleading as it does not include such factors as employee pensions, costs of reclaiming the land, or royalties, a topic that has been much in the news recently. A more reasonable estimate of total costs would be $25/bbl. Even at $15, the cost is considerably higher than marginal costs in the Middle East. Were oil prices to go back down to pre-Iraqi War levels of $18, it would be another story.
Royalties now are 1% of total revenue until all costs of capital equipment (new equipment costs can be in the neighborhood of $4 billion, all of which can be written off against revenues) have been paid down. Thereafter the royalties are 10 times that amount, however new proposals would see royalties hiked to 25-30% of revenues. The tar sands companies are resisting the hike and threatening to leave the province should it take effect as proposed.
Alternatives
As flexible as the petroleum market appears, at one point, alternatives will need to be provided. Nuclear, wind and solar energy have been proposed but require significant initial investment, particularly when considered without taking into account the cost and dangers of climate change and the potentially greater cost of delay. However, the cost of the inevitable initial investment will undoubtedly rise with the passage of time. Another option, mentioned previously but deemed extremely expensive, is the ability to beam solar energy to Earth from the moon thus supplying an unlimited quantity of solar energy to the entire world.
Social considerations
There is an immense shortgage of labour in the area. The Tar Sands provide employment opportunities for Canadians from across the country, but the services sector is unable to attract enough people to do the jobs and the cost of living is unafforable for people working in the low paying jobs at Canadian Tire or Tim Horton’s. Suceess has, as one might expect, been achieved at great social cost to the workers and the community. There has been no sense of community structure because of the necessarily transitory nature of those workers, not unlike the Klondike in the gold rush era.
If the oil companies were to slow down their investments because of the increase in royalties, the reduction in demand on the over-extended municipal infrastructure might have an unintended beneficial consequence
One observation concerned the prevalence of recent European workers in the hospitality service industry, a sector that in the rest of the country tends to be populated by people from Asia or other developing nations.
The real issue is, will we have a political leadership that is prepared to look more than 4 years down the road or can we convince our politicians that we, the electorate want them to do so
I would hope to see economic leadership — heads of businesses who will step forth and convince [their peers] that there is money to be made in renewable energies and environmental technologies
The economy of North America is receding. The Bank of Canada will publish their update on monetary policy on October 18; they will have to revise their economic outlook for next year. They are just too optimistic. The IMF is much closer to reality with projections of 2.3%, for Canada 1.9% and for the U.S. 2%.
In an interview today (Wednesday) Alana Greenspan declared that there was no credit crunch in the U.S. , only a rise in interest rates; this is in direct contradiction of the views of other authorities.
The nomination of Mark Carney as Governor of the Bank of Canada has come as a surprise to many who believed that the nominee would be Paul Jenkins, however he has an impressive track record for someone so young (42) and the confidence of the Minister of Finance. It is expected that he will do very well.
The ramifications of the ABC Paper débacle will likely involve a seris of law suits, the first against the trusts, next against the DBRS . Why suits against the banks “because that’s where the money is” and many Canadians naively believed that the ABC Paper was backed by the banks.
Our favorite technical analyst suggests that while energy stocks are hot ; and oil according to the chartists will go above $100, what we should be talking about is longer term,- where this world is going to be in 2 years and 10 years. We have to recognize that we have been in a bull market since 1974. The end of the next (40 year-) cycle is 2014. Since 2000, we have seen sequential rallies and corrections and this will continue through 2009, HOWEVER, we have a problem in the Canadian Index. Banks will not be strong, the energy stocks’ performance will counter balance, and the Index will not perform. Activities will be concentrated among the low-price stocks.
Nikolai Kondratiev in 1925 first noted the existence of a regularly recurring economic cycle approximately half a century in length. According to resident market mavens, we are currently at the low part of the Kondratiev wave that will end in 2014. The recent increasing birthrate is believed to be heralding a new baby boom that should be reflected in economic growth. The stock market indices will not necessarily reflect this growth as it is stock of the older less active companies that determine the movement in the indices as opposed to that of energy, technology, gold and material.
Another view suggests that at the end of every era there is a stock market mania: in the ’70s, gold and in the ’80s Japan, while in the ’90s it as technology. One of Wednesday Night’s experts suggests that we have two such manias coming up: the first, emerging markets; China has already started and others will follow, Brazil, Korea, India, Thailand, even Russia. The second is energy and the wise investor will follow both.
News of Wednesday Nighters
The first message and dispatch has arrived from Robert Galbraith in Kabul. All is going well. The Suburban is carrying his dispatches and the Wednesday Night sites will do so as well. He sends love to all.
John Ciaccia has been very ill, having suffered a burst aorta on August 28th. Thanks to exceptional medical care in Quebec and now in Montreal, he is slowly recovering, but is still frail and not yet up to receiving visitors. Cards and brief phone calls are very welcome.
The Invitation
Today we have the first snow of this extraordinary year and as we write, it is falling with soft persistence, making the overdue seasonal statement, reminding us of Christmases past and the many far-flung and near-by friends who have and continue to enrich our lives throughout each year.
February 28, 2007
We are all a-twitter with the countdown to the 25th, but must settle down and take matters (somewhat) seriously this last week of the 24th yea
U.S.
The Dow Jones reached a record level yesterday at 14,165 a gain of 762 points since the Sept, 18 bold cut of ½% by the Fed on its administered rates, despite crude reaching a record $84.10 U.S. on September 28, a weak economic outlook for the second half and the drying up of private equity and mergers and acquisitions in the third quarter, the lowest in four years. “The Federal Reserve/(F.O.M.C.) minutes published yesterday, indicated unanimity in their decision to lower Fed funds to 4¾% and discount rate to 5¼% as they were worried that a jarring credit crunch would stifle the economy, that the credit crisis and worst housing slump in sixteen years could undermine their economic health. They expressed concern that a weaker economy could worsen the credit crunch and reinforce the economic slowdown. Financial markets were expected to stabilize over time. The cut was appropriate to help offset the effects of tighter financial conditions on the economic outlook. Economic growth is likely to run at a sub-par pace and they expect inflation data on the favourable side.” Employment data have been revised to average, close to 100,000 new jobs per month in the last three months and unemployment rose to 4.7%, a one year high. Personal income and spending rose by 0.4% respectively in August and personal consumption expenditures inflation eased to 1.8% (year/year). The manufacturing sector is weakening with the third consecutive decline in the I.S.M. index, weaker new orders, production, employment, all declining one to two points, but prices were off four points in the index. Factory orders (August), off 3.3% was the largest decline in seven months and durable goods orders off almost 5%. Non-durable goods orders eased 1.6% and non-defense capital goods orders, excluding aircraft, down 0.5%, a good gauge of investment plans. Pending home sales (August) were at record lows, down 6.5% (-22%, year/year) because of high credit costs and lender restrictions. The U.S. dollar weakened to a record Euro $1.42 U.S. on September 26 and is now trading just below $1.41 U.S. The Fed is likely to ease by another ¼% on October 31 to 4½% federal funds rate.
CANADA
At 14, 276, the T.S.X. is now 350 points away from its July 19 record of 14,626 and has recovered 1,427 points since its bottom of August 16, with crude reaching a record $84.10 on September 28 and gold, $754.00, a twenty-eight year high on October 1. Since then crude has lost $3.00 U.S. and gold, $14.00 U.S. The Canadian dollar has traded at a thirty-one year record high of $1.0217 U.S. on October 5 and has eased slightly since. The Canadian economy has remained very strong with 75,000 new jobs created in August-September and an unemployment rate of 5.9%, a thirty-three year low, very strong housing starts (+25% in August-September), building permits 1.4% (August), a fourth consecutive monthly rise, a strong manufacturing sector, particularly in Western Canada, strong consumer spending, business capital investments, a strong non-residential sector, healthy profits and a strong energy sector. With a record currency, exports to the U.S. are likely to remain weak. David Dodge estimates that “the Canadian economy appears to be operating further above its non-inflationary production potential. Domestic demand remains robust. Wages are rising (4.2% hourly earnings year/year, a ten year high). Housing sales and prices are at record pace. The turbulence in financial markets has meant some tightening of credit conditions that should temper growth of domestic demand.” Bank of Canada is likely to remain steady at 4½% overnight rate and 4¾% discount rate at their meeting October 16. Every three years, Bank of Canada, with fifty-three other Central Banks and monetary authorities conduct a survey of foreign exchange activities world-wide. In Canada, the survey is done with eighteen institutions representing 99% of foreign exchange activities. It concluded that there is the equivalent of nearly fifty-four billion dollars U.S. average daily foreign exchange trading, an increase of 11% versus 2004 with just over 95% involving the U.S. dollar. The Canadian dollar was involved in almost 68% of the transactions, the Euro, 11.7%, Sterling for 6.9%, Yen, 5.4%, Mexican Peso, 3.9% the Australian dollar, $3.5% and the Swiss Franc, 2.6%. Other currencies, including the Hong Kong dollar, for 2.5%.
Note
Wednesday-Night creates charts and follows stocks, including timely related financial news items, in which Wednesday Nighters are interested and in order to demonstrate a service that could eventually be developed and marketed. Wednesday Nighters are invited to participate and help to test the service. see Wednesday-Night.com Flip charts
QUOTES of the EVENING from recent Wednesday Nights
It’s not a Bush problem, it’s an American problem. He is playing double or nothing. He is trying to shift the responsibility from the Coalition to the Iraqis
New York City has more police officers than Iraq has troops
Friday 12 October 2007 Domtar (UFS) - US$8.21 - Conifex Announces Termination of Agreement to Acquire Domtar Lumber Business
Outperform, Average Risk, Price Target: US$10.50
Domtar received notice from Conifex, terminating the agreement to acquire its lumber business for $285 million. The notice from Conifex followed a written notice received by Domtar on October 1, 2007 from the Quebec Minister of Natural Resources and Wildlife revoking Domtar's forest license rights to the permanently closed Grand-Remous and Malartic sawmills. The successful tenure transfer of all forest licenses is a condition of closing for the transaction. Domtar will file proceedings with the Quebec Superior Court demanding that the licenses be reinstated. RBC CM believes Conifex may be using the revocation notice as leverage to improve the transaction terms, which may include a reduced purchase price, increased minority ownership by Domtar, or higher cost sharing by Domtar during a transition period, or a combination thereof. Sale of the wood business provides an opportunity for improved senior management focus on the core paper business. RBC CM still expects Domtar will work to close the transaction, but uncertainty in the interim will be a modest negative for the shares.
NEW YORK (Reuters) - Oil surged over 2 percent on Thursday, approaching
its record high after a surprise decline in U.S. inventories
stoked concerns about supplies in the world's top consumer ahead
of winter. Full
Article
CHICAGO (Reuters) - Altria Group Inc is splitting the Marlboro
cigarette business apart, saying Wednesday that it will spin
off its Philip Morris International unit in move seen as unlocking
the value of that faster growing business. Full
Article
Boeing said that it would, after all, have to postpone the first deliveries of its new 787 Dreamliner. The company had given reassurances that despite production mishaps and a short test-flight programme the first delivery would take place on schedule next May. That date has now been pushed back to late November or December 2008. See article
Chrysler and the United Auto Workers union reached a tentative contract agreement similar in scope to that signed between the UAW and General Motors two weeks ago. A strike at Chrysler that began just hours before the negotiations concluded was halted.
Stephen S. Poloz VP EDC Economics Weekly Commentary Is loonie strength due merely to eagle weakness? - October 10, 2007
With the Canadian loonie flying alongside the American eagle, it is easy to forget that just 200 days ago the former was cruising 15 cents below the latter. How, exactly, did we get here?
There is certainly no shortage of explanations for the strong Canadian dollar. We are reminded that Canada has a trade surplus, a fiscal surplus, a strong consumer, high commodity prices, and incipient inflation pressures that point to the possibility of higher interest rates. All of these, and other factors, may play a role at one time or another in boosting the Canadian dollar. Past issues | his WN page
Andy Nulman 
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Stephen S. Poloz
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