What is the new normal for energy?

I received a call today from a reporter in New Brunswick. The NB Premier, Bernard Lord, announced today a full rebate of the provincial portion of sales tax on electricity and other heating sources. He also committed to bringing regulation to the gasoline and home heating markets.

While the Premier also talked about energy efficiency and increasing renewable sources of electricity to 30% by 2016, it was his comment about why he was doing this that caught my eye.

"I'm not suggesting today that regulating gasoline will provide lower prices," Lord said. "It will provide more stable prices and what we have seen because of the world market situation we face now, it's an unusual situation that requires regulation."

Premier Lord talked about the uncertainty worldwide in energy markets and a need for certainty in New Brunswick.

Sorry, Premier Lord, but uncertainty is the new normal. With conventional oil production reaching its peak worldwide, and mammoth drilling efforts in North America just to keep natural gas production the same as last year, volatility and uncertainty are going to be around for a while.

Of course, just like here in Ontario, the provincial government has a lot more power over electricity than other energy sources. And like here in Ontario, the government is keeping electricity rates artificially low, subsidizing those who use lots of electricity by taxing everyone. Premier Lord has vowed that regardless of the outcome of a Public Utilities Board hearing on electricity rates, he will cap the rate increase at 8%. When combined with the 8% sales tax cut, prices will not change.

I recognize the realities of politics, especially for a minority government. But both economics and common sense says that if you want people to use less of something, it has to go up in price. (Besides, they are paying for it one way or another.) Explain the situation to people. Provide relief for those who need it. Increase the price gradually. But don't imply that this is a temporary situation we need to get through.

Expensive, uncertain energy is the new normal.

CNN on the bandwagon

CNN will air a special on Saturday night at 8:00 pm (and I believe other times as well) titled “We Were Warned: Tomorrow’s Energy Crisis.” It is a fictional glimpse into the future where hurricanes and terrorists conspire to create oil and gasoline shortages. I guess it is still too scary to say this is a real scenario; however, any publicity of the issue is good publicity. More information on the program is available here: www.gazette.gmu.edu/articles/7978/

Some not so good news

Henry Groppe founded Groppe, Long & Littell in 1955. The Houston, Texas based energy consulting firm serves corporate, government and private clients and is noted for its long range forecasts of oil and gas supply, demand and prices. Yesterday on Report on Business Television, Mr. Groppe stated that world wide conventional oil extraction has peaked, with some interesting corrollaries. One, all countries will be producing at maximum capacity from now on. Two, as a result, OPEC essentially has no influence on oil prices any more. Three, because of oil sands production, Canada will be the number one oil exporter to the U.S. in the future.

Mr. Groppe described three eras of oil:

1870 to 1970 – the U.S. dominated oil production, and oil prices (in 2004 dollars) averaged around $13 per barrel

1970 to 2004 – OPEC dominated, and oil prices averaged around $36 per barrel

Now and Forwards – the new era, where scarcity and price rationing (and volatility) will dominate.

ROB TV archives are here – look for March 10, 2006, 12:30 p.m.

Some Good News

Galleon Energy Inc. announced on Thursday a major find of light, sweet crude oil along with natural gas in Alberta. (Not surprisingly, Galleon shares have jumped about 36% in the past two days on the news.) Since Galleon is a junior oil and gas company, the expected production of 4,000 to 8,000 boepd in 2007 is very large for them. Of course, to keep this in perspective, this would represent about 0.007% of current world daily consumption. Still, new discoveries of light sweet crude oil are rare these days. For more information, go to the Galleon Energy web site.