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Globe & Mail (Canada): West’s ravenous oil appetite may lead to tough sacrifices

GWYN MORGAN
September 17, 2007

CALGARY — The Southern family’s Spruce Meadows equestrian centre near Calgary is ranked as the world’s top show-jumping venue. Each September, its flagship Masters Tournament brings together the sport’s best horses and riders.

While competition goes on in the tournament ring, private and public sector leaders from around the globe gather at this magnificent venue for the Changing Fortunes Round Table. Hosted by Ron Southern, who built Atco Ltd. into one of Canada’s most successful enterprises, invitations to the Round Table are much sought after. The session revolves around one or more internationally known marquee speakers, followed by plenary discussion among delegates. One example of Mr. Southern’s global reach is the recent presence of the head of the national bank of China alongside a former U.S. Federal Reserve Bank chairman and Bank of Canada Governor David Dodge.

This year’s theme was energy supply, demand and security. The keynote speaker was Exxon Mobil Corp.’s Rex Tillerson, now in his second year as head of the world’s largest private-sector energy company. He was joined by Thierry Demarest, chairman of France’s Total SA and by Royal Dutch Shell CEO Jeroen van der Veer.

One of the backdrops to the meeting was a landmark report by the U.S. National Petroleum Council entitled Hard Truths About Global Energy. The study projects global energy demand will grow by at least 50 per cent by 2030. Essentially all that growth will come from the developing world. Given that energy use is currently balanced between developed and developing countries, this means a doubling of energy use by developing countries in 23 years. Delegates from Europe, Latin America and China expressed no disagreement with the conclusions of the report.

For me, the report leads to two key conclusions:

International competition for energy will intensify, providing energy exporters with geopolitical and financial advantage over energy importers.

Reconciling growth of hydrocarbon demand with the need to restrain emissions will require major energy cost additions such as clean-coal technology and carbon sequestration in both developed and developing countries.

The speakers from Exxon, Shell and Total, together with the other leaders of Canadian and international oil producers present, agreed that meeting these energy growth projections is a daunting challenge requiring growth in hydrocarbon, nuclear and renewable fuels. Yet, even in the best-case scenario, renewable fuels will be able to satisfy only a small part of demand.

Electricity generation is the world’s largest energy consumer. Wind and solar are unlikely to supply more than 10 per cent of electricity. Nuclear plants require lead times of more than a decade, assuming the angst about their safety can be overcome. That means more coal plants. China is the most formidable and damaging example. Its electricity is generated by toxic-emission-producing coal. A new plant comes on stream every few days, killing miners underground and the public who breathe the air above. Ironically, while China’s coal is some of the dirtiest, Alberta’s is among the cleanest. Yet it is in Alberta a new clean-coal demonstration plant is planned.

This makes the Chinese President’s comments, at a recent APEC meeting, that Canada isn’t doing enough to cut emissions very curious, indeed.

The longer-term supply situation for liquid transportation fuels is also challenging. While biofuels get a lot of attention, the realities were brought home at Spruce Meadows. Biofuel means ethanol added to gasoline or plant oils added to diesel fuel. The first reality is that the net energy contribution of corn- and grain-based ethanol – after deducting the hydrocarbons used for tillage, fertilizer and distillation – is very small. Then there are the social impacts. Delegates from Latin America gave emotional commentary on the terrible impact that skyrocketing corn and grain prices have on food for the poor. Another unintended consequence is widespread burning of the world’s tropical rain forests so as to plant oil palms in response to huge demand for biodiesel.

That means crude oil will continue to be the key source of transportation fuels. But private-sector oil companies face unprecedented challenges in satisfying growing demand. Two big reasons:

More than 80 per cent of world’s oil is in the Middle East, Russia, Venezuela and other countries where resources are controlled by national companies which are instruments of government policy. It’s of note that the world’s largest private oil company, Exxon, produces only 3 per cent of world oil.

Canada’s oil sands are one of the West’s few large-scale sources of production growth.

The bottom lime is that global oil resources are dominated by regions subject to instability, such as the Middle East; hostility such as Venezuela; and/or a thirst for geopolitical dominance, such as Russia. As long as the West keeps using more oil, dependency on these areas will only increase. And while the oil flows over their borders, the largest cash transfers the world has ever seen flow back. This means sacrificing not only energy security, but also our financial independence to places that we can rarely call good friends.

Gwyn Morgan is the retired founding CEO of EnCana Corp. His column appears every other Monday in the ROB.

http://www.theglobeandmail.com/servlet/story/LAC.20070917.RMORGAN17/TPStory/Business

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