Oil

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AltaRed
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Re: Oil

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Oil Sands in Canada
One of the better recent articles on Canada's oil sands. It is time for a national conversation.
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Re: Oil

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Globe & Mail:
Ontario Premier Dalton McGuinty has rebuffed Alberta Premier Alison Redford’s plea to publicly defend the oil sands, saying the high “petro” Canadian dollar has “knocked the wind” out of exporters in his province.

Ms. Redford, in Chicago for a few days talking up Alberta’s oil and gas industry, has said Mr. McGuinty needs to do his part to help tell her story: that Ontario’s economy is the second-largest beneficiary from the production of the gooey bitumen.

Mr. McGuinty flat out rejected that assertion, saying the harm caused by the high Canadian dollar relative to the U.S. greenback far outweighs any spin-off benefits Ontario might derive from Alberta’s oil and gas sector.

<snip>

“That has knocked the wind out of Ontario exporters and manufacturing in particular,” Mr. McGuinty said. “So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”
So much for standing by your partners.

Beyond the moral aspect, and on to the economic: Perhaps Mr. McGuinty would prefer Ontario to have its own currency.

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Re: Oil

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ghariton wrote:Perhaps Mr. McGuinty would prefer Ontario to have its own currency.
Would be better for AB to go its own way with its own currency. The prospects of Ontario going the way of Greece becomes more troubling with every new action and reaction McGuinty takes.
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Re: Oil

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Support Alberta's oil sands....just what does that mean? Sorta like the "support our troops" campaign. Of course we should support Alberta oil sands IF they are willing to start cleaning up their act. Is getting this oil out of the ground and selling it as fast as possible really in anybody other than "Big Oil's" interest....long term? We know that "Big Oil" really runs the province.
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Re: Oil

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There are hundreds* of years of currently recoverable oil reserves in the oil sands. The question is whether 2 million barrels of day production is enough, or whether 3-4 million barrels of day of production is optimum for Canadian GDP support. FWIW, most of the media attention is given to oil sands mining, i.e. oil too close to the surface to be produced any other way. Much of the (deeper) oil sands is being produced via wells (steam injection, SAGD, etc.) with a much smaller footprint. That has been going on for about as long as oil sands mining and will ultimately be the long range sustainable option, long after mineable oil sands has had its day and eventually disappears like the unicorn.

It is not so much that Big Oil runs Alberta, it is more a question of Big Oil having few other places to go in the global world and to not be the 'shut out' when cumulative emissions ceilings and water supply availability eventually cap production growth (if nothing else does in the meantime).

* 250-300 billion barrels. At 2 million barrels per day of production, that is 340 to 410 years... at 4 million barrels per day, 170 to 205 years. Odds are that technology will unlock even more recoverable barrels by 2200
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Re: Oil

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ghariton wrote:Globe & Mail:
Ontario Premier Dalton McGuinty has rebuffed Alberta Premier Alison Redford’s plea to publicly defend the oil sands, saying the high “petro” Canadian dollar has “knocked the wind” out of exporters in his province.

Ms. Redford, in Chicago for a few days talking up Alberta’s oil and gas industry, has said Mr. McGuinty needs to do his part to help tell her story: that Ontario’s economy is the second-largest beneficiary from the production of the gooey bitumen.

Mr. McGuinty flat out rejected that assertion, saying the harm caused by the high Canadian dollar relative to the U.S. greenback far outweighs any spin-off benefits Ontario might derive from Alberta’s oil and gas sector.

<snip>

“That has knocked the wind out of Ontario exporters and manufacturing in particular,” Mr. McGuinty said. “So if I had my preferences as to whether we had a rapidly growing oil and gas sector in the West or a lower dollar, I’ll tell you where I stand: with the lower dollar.”
So much for standing by your partners.

Beyond the moral aspect, and on to the economic: Perhaps Mr. McGuinty would prefer Ontario to have its own currency.
AltaRed wrote:
ghariton wrote:Perhaps Mr. McGuinty would prefer Ontario to have its own currency.
Would be better for AB to go its own way with its own currency. The prospects of Ontario going the way of Greece becomes more troubling with every new action and reaction McGuinty takes.
What are the points being made here?

That Ontario should just rubber stamp everything that every other province throws at it? That if their economists' analysis (and they are far from alone in this) is that the higher dollar has hurt their manufacturing/export competitiveness, they should just ignore that and instead accept what the economists from the completely objective "Canadian Energy Research Institute" and "Canadian Association of Petroleum Producers" say instead? That if abundant international evidence suggests that currencies heavily dependent on certain resource exports tend to find their currency closely tied to the world price for that commodity, Ontario should grab its pom-poms and cheer Alberta from the sidelines?

Having a Conderation means some federal-provincial frictions, and some interprovincial competing interests. Or is it supposed to be kumbaya time, all the time? 'Cause it's oil???

By the way, how would Ontario like this kind of scenario? Near-term, world oil prices soar while at the same time Canadian oil exports soar, driving the loonie up substantially. Ontario manufacturing/exports industries and tax base are gutted. The province's finances are eroded even further. Then the oil sands gets prematurely shuttered (see M.I.T. analysis below), Canadian dollar crashes and the purchasing power for the loonie ALSO craters for what remains of Ontario.

And Ontario should just sit back when Alison Redford goes to Chicago and surprises them with lectures about how they aren't being team players?

Canada’s Bitumen Industry Under CO2 Constraints
Chen, Y.-H. Henry; Paltsev, Sergey; Reilly, John; Chan, Gabriel
MIT Joint Program on the Science and Policy of Global Change
January, 2010
... with CO2 emissions (constraints) implemented worldwide, the Canadian bitumen production becomes essentially non-viable even with CCS technology, at least through our 2050 horizon. The main reason for the demise of the oil sands industry with global CO2 policy is that the demand for oil worldwide drops substantially. CCS takes care of emissions from the oil sands production, upgrading, and refining processes, at a cost, but there is so little demand for petroleum products which still emit CO2 when used that it can be met with conventional oil resources that entail less CO2 emissions in the production process.
What if - just what if - what organizations like the International Energy Agency are saying about the urgency of moving away from fossil fuels is true? McGuinty shoud just be blowing kisses to Alison Redford?
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Re: Oil

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Tsk, tsk Tidal. I was responding humourously to Georges' "light" comment about Dalton seeking his own currency. Don't take life so seriously. Of course, there will be differences of opinion and vested interests between provinces. It is just that Dalton may be conducting an orchestra on the Titanic.

Added: Seems Dalton may be doing a good job of driving his province into the ground all by himself with high priced wind power. Note the Wind thread.
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Re: Oil

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What I don't get is the 'weak dollar is good for manufacturing' . What happens when they become successful exporters like Germany? Does it become Ontario driving up the dollar compared to their more relaxed brethren in Quebec? This is what Germany is doing to Greece. Why does it have to be oil?

What if Ontario had better government and more productivity growth? Could they become better manufacturers. Look at examples Like Switzerland and Germany. Does the high dollar help or hurt that?

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Re: Oil

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tidal wrote:What are the points being made here?
Point one.

We are one country. Yes, we have regional differences, and different objectives, and potential conflicts. But the right way to handle these is to talk to one another, not to sabotage in public what each other is doing. Anyway, foreign exchange rates are a federal responsibility. Ottawa should be setting policy, not McGuinty. McGuinty's role should be limited to cooperating with Ottawa.

True partners resolve their differences between themselves. They don't call in the neighbours to do it for them.

Point two

Ontario benefits from a more prosperous Alberta in both the short and long run. In the short run, there is production -- and jobs -- in supporting the oils sands operation. There are also equalization payments. In the long run, a richer A;berta will buy more goods and services from everywhere, but especially Ontario.

Point three

McGuinty effectively wants a devalued dollar to make up for Ontario's high unit costs. Yes, that can work in the short run. But in the long run, unit costs keep rising, and eventually devaluation must be resorted to again. This vicious cycle ends only when the jurisdiction in question undertakes the needed structural reforms. And focusing on devaluation -- and dealing with its negative effects -- only serves to make it harder to focus on what needs doing.

Point four

Ontario will have to transition away from the kind of manufacturing it is doing today -- automobile assembly and so on -- and to higher-end value added functions. Also high-end services. Trying to maintain the status quo, by manipulating exchange rates or by other means, is like King Canute trying to hold back the tide.

Point five

There is some evidence that a low dollar was one of the factors for Canada's abysmal productivity performance through the 1990s and into the 2000s. For one thing, it made new equipment and technologies more expensive to acquire, and Canadin businesses are notoriously cheap. For another, with unit costs kept artificially low, who needed to be innovative? Doing the same old thing over and over was profitable enough, thank you.

Point six

Ontario has some 13 million consumers. When the impact of a lower dollar is estimated, the calculations seldom take into account that these 13 million consumers will be paying higher prices for imports, and so will have less money to spend on Ontario products (and so will be worse off -- but who cares about that?)

Point seven

Thank you for bringing environmental concerns to the table. But I doubt that Mr. McGuinty's actions here will have much of an impact on greenhouse gases. If that were really a concern -- and I notice that Mr. Mcguinty is silent on the issue -- Mr. McGuinty would be pursuing a carbon tax, or at least not lowering the price of electricity. As far as I can see, this is a red herring here.

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Re: Oil

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We investigate the effects of implementing CO2 emissions reduction policies on Canada’s oil sands industry
That's nice of them. What they don't say is how emission reductions will happen. That's the whole weak link in your hypothesis. What event or sequence of events will get the world to limit GhGs? I'm sure you've looked at all the charts showing increased coal usage YoY.

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Re: Oil

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ghariton wrote:
tidal wrote:What are the points being made here?
Point one.

We are one country. Yes, we have regional differences, and different objectives, and potential conflicts. But the right way to handle these is to talk to one another, not to sabotage in public what each other is doing. Anyway, foreign exchange rates are a federal responsibility. Ottawa should be setting policy, not McGuinty. McGuinty's role should be limited to cooperating with Ottawa.

True partners resolve their differences between themselves. They don't call in the neighbours to do it for them.
I am not cheering on McGuinty. But this was started by Redford going to Chicago and blindsiding Ontario and Quebec and saying that they should be lobbying for Keystone? Maybe that is "co-operating with Ottawa", but it sure seems to have caught the other two completely by surprise, so who was it exactly who is doing the "sabotage in public"?
Point two...

Point three...

Point four...

Point five...

Point six...
Anyone remember those simple "linear optimization" problems you got in high school? Something along the lines of:
"A public school is planning to knit some wool hats and mitts and sell them to raise money for a new net for the soccer field. Hats sell for $5, mitts for $10. Hats take 37.5 minutes to knit, and require 1 needle, mitts take 89.673 minutes to knit and require 4 needles. Hats require .6593 balls of wool per hat, and mitts require 1.1459 ostriches. There are two mice in the gymnasium. Sarah is feeling ill. There are 79 students who can knit, but Bobby is not very good at it. There are 1 ball of wool and no ostrich. Everybody go home and see if you have needles.

Please solve for the number of hats and mitts to knit that will yield the maximum profit."
I sometimes get the sense here that the submitted responses to problems like that would be along the lines of: "I will assume that various stated constraints that I don't agree with simply don't exist. Make as many damn hats and mitts as you want. There are no constraints on me!"

Sure, all of your points have merit. It is a difficult balancing act. But it's as if loonie could just rise inexorably with the price and quantity of oil exports, and Ontario's exports just have to suffer eroded competitiveness with, say, Japan or Korea as a result and be quiet and say yippeee. It's as if all the benefits that may or may not flow to Ontario from oil sands development have to be acknowledged and appreciated, but none of the downsides. Do you have a needle or an ostrich?
Thank you for bringing environmental concerns to the table. But I doubt that Mr. McGuinty's actions here will have much of an impact on greenhouse gases. If that were really a concern -- and I notice that Mr. Mcguinty is silent on the issue -- Mr. McGuinty would be pursuing a carbon tax, or at least not lowering the price of electricity. As far as I can see, this is a red herring here.
Don't know what McGuinty having a carbon tax has to do with that MIT report. The point is that the oil sands could be prematurely shuttered in the scenario they lay out. In which case Ontario could be doubly whipsawed. If you disagree with the MIT analysis, fine. But I didn't see anything about an Ontario carbon tax in there.

Back to what surprises me. Why is Ontario the automatic bad player here? They aren't allowed to have any provincial interests?
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tidal
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Re: Oil

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newguy wrote:
We investigate the effects of implementing CO2 emissions reduction policies on Canada’s oil sands industry
That's nice of them. What they don't say is how emission reductions will happen. That's the whole weak link in your hypothesis. What event or sequence of events will get the world to limit GhGs? I'm sure you've looked at all the charts showing increased coal usage YoY.
How it happens exactly, I don't know. There are many different ways. It is a fact that the EU is looking to radically reduce emissions by about 80% by 2050 already. Australia has a carbon tax. China is unilaterally proposing one. The EPA in the US is proceeding to regulate GHG's under findings of the Supreme Court that they must since the Congress did not act. So, lots of ways to do this.

But that really wasn't your question, though, was it. You were more focussed on the sequence of events that happen that accelerates that process globally. Again, I don't have a crystal ball, but I do know that time's arrow and physics are inexorably working in just one direction here. We may respond too late, but there is no way we will be burning all of our carbon reserves. Not even close.

And it is the repurcussion of one of those scenarios that MIT is discussing.
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Re: Oil

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tidal wrote:But that really wasn't your question, though, was it. You were more focussed on the sequence of events that happen that accelerates that process globally.
Exactly. I've noticed the US is burning less coal for now but China more than makes up for the slack. Even if some countries have restrictions and taxes the others will just benefit from the cheaper oil.

Something bad and obvious has to happen and then there still has to be a cheap solution kind of like CFCs or acid rain or even DDT. Fractional temperature or water level rises won't do it.

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Re: Oil

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Ontario is only the 'bad guy' when it spouts forth on vested interests that borders on garbage. McGuinty is his own worse enemy. If he wants to make Ontario more competitive, reduce coporate taxes in step with the Feds (or even more if he wants to be really competitive), abandon his love affair with expensive energy, and reduce other hidden taxes of various kinds, etc. To argue that loonie appreciation, especially if only at parity, is a disadvantage borders on the ridiculous for all the reasons George has pointed out. Free trade is a great equalizer separating the men from the boys.
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Re: Oil

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AltaRed wrote:Ontario is only the 'bad guy' when it spouts forth on vested interests that borders on garbage. McGuinty is his own worse enemy. If he wants to make Ontario more competitive, reduce coporate taxes in step with the Feds (or even more if he wants to be really competitive), abandon his love affair with expensive energy, and reduce other hidden taxes of various kinds, etc. To argue that loonie appreciation, especially if only at parity, is a disadvantage borders on the ridiculous for all the reasons George has pointed out. Free trade is a great equalizer separating the men from the boys.
See, to me, this is that "mittens-wool-profits" optimization problem again, with the submitted solution just pretending that constraints one finds unappealing can just be ignored. Ontario has huge deficits - who cares, cut tax! There is a solid body of economic literature documenting the mechanism, impact and evidence of "Dutch disease" for economies whose currency comes to be dominated by a single export resource - who cares, you losers, put on your big boy pants and take it like men! We need to transition off fossil fuels asap and renewables are currently more expensive - who cares, burn more fossil fuels, and don't go back and consider the first part of this sentence!

Problem-solving is remarkably easy in such worlds.
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Re: Oil

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Times are tough

The tough get going

And you suddenly expect politicians to act rationally?

Why does this amaze me about fellow FWF thinkers? :rofl:
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Re: Oil

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tidal wrote:There is a solid body of economic literature documenting the mechanism, impact and evidence of "Dutch disease" for economies whose currency comes to be dominated by a single export resource - who cares, you losers, put on your big boy pants and take it like men!
That is exaggeration to make an unknown point. No one is saying we should have a single export resource dominating the economy. IIRC from recent data, oil only recently outpaced the auto industry as the greatest single source of GDP but both are close. Regardless, the issue is denigration by an arrogant politician who throws his weight around in his own glass house. It makes him look quite silly and irrelevant by those who really understand the economy. Too often the premiers of ON and QC think what is best for them is best for Canada and they are the ones who seem to 'interfere' in International affairs. They fail to understand they are simply one of many cogs in the wheel. FWIW, a rising dollar hurts the oil industry too since the majority of its costs are in loonies and its revenue is priced in USD. That doesn't mean they should not have to be competitive with their counterparts worldwide.
We need to transition off fossil fuels asap and renewables are currently more expensive - who cares, burn more fossil fuels, and don't go back and consider the first part of this sentence!
That is a matter of opinion and some evidence, but by all means, not unchallengeable, at least not in degree. I tend to believe the Global Warming community has lost objectivity and hence some, if not a lot, of its relevance.
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Re: Oil

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tidal wrote: Back to what surprises me. Why is Ontario the automatic bad player here? They aren't allowed to have any provincial interests?
Ontario is the automatic bad player here because it is governed by a liberal/ Liberal government. Alberta and Canada are the automatic good players here because they are governed by conservative/ Conservative governments.

What surprises me is the fact that tidal is prepared to come back here month after month with incredibly informed, documented viewpoints while having, arguably, no impact whatsoever on the understanding of anyone else here.

What surprises me is that Alberta and Canada believe that they can operate as the developed world's bully boy of climate change denial and still command respect, unfailing support and regulatory approvals from all Canadians, neighbours and G20 partners.

And how is that working out for us ? Keystone Pipeline decision ?? UN Security Council membership vote ?? Hhhhmmm.

I guess they haven't found the time yet to study the Norwegian model as to how to be a quasi-responsible petro power. They could always ask Calgary's own Pembina Institute for some balanced advice but that won't happen because the Pembina is clearly an "enemy". gyr.
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Re: Oil

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gyrfalcon wrote:Ontario is the automatic bad player here because it is governed by a liberal/ Liberal government. Alberta and Canada are the automatic good players here because they are governed by conservative/ Conservative governments.
Ontario is bad because they don't think. Alberta is good because they export. Have you noticed every country in the world trying to gain an export advantage through either devaluation or regulation?

Now why does Ontario want to have a lower dollar to increase manufacturing? Do they want to sell more to Canadians which already have the increased purchasing power that a higher dollar brings? No, they want to export. IOW they want to be the so called 'problem' instead of Alberta. Then they will be the cause of the higher dollar. Nothing new as the whole world wants to export whether they have something worth selling or not.

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Re: Oil

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gyrfalcon wrote:Ontario is the automatic bad player here because it is governed by a liberal/ Liberal government. Alberta and Canada are the automatic good players here because they are governed by conservative/ Conservative governments.
It has to do with incompetence, disjointed logic, inconsistency, pot calling the kettle black, etc. Dalton has no rational, logical story and it falls apart when he speaks. What ON needs is a leader who can articulate a fully thought out strategy to bring ON back to economic strength. Perhaps then he will garner some respect from a range of quarters, including policy think tanks.
What surprises me is the fact that tidal is prepared to come back here month after month with incredibly informed, documented viewpoints while having, arguably, no impact whatsoever on the understanding of anyone else here.
I would say reasonably informed and documented viewpoints and I do have high respect for what tidal tells us (I read them), but I never accept vested perspectives at full face value. Global warning enthusiasts now have as much reason to be influenced in their viewpoints as the detractors. The Climate Change industry has been alive and well for perhaps 15 years. A whole industry, reputations and careers have been built on this and they stand to lose if they are even slightly wrong. How many bad apples are there? If you don't know what I am saying watch "If a Tree Falls" http://www.imdb.com/title/tt1787725/ and see how passion can turn into fanatacism into eco-terrorism. That is an extreme example of course, but everyone who has a vested interest has something to gain by protecting that interest... to the point of doctoring and coverups.
What surprises me is that Alberta and Canada believe that they can operate as the developed world's bully boy of climate change denial and still command respect, unfailing support and regulatory approvals from all Canadians, neighbours and G20 partners.
I look at very differently. Canadians are for the first time admiring the backbones of our leaders who are standing up for Canada in the Internatlonal arena rather than bending over for a reaming. The former US ambassador to Canada has gone on record for saying that Canada is finally getting respect for standing up for its rights, just like many other influential leaders. Does anyone not understand and respect, if not agree, with leaders like Obama, Cameron, Sarkozy, Merkel, Putin, etc.? We've been 'nice guy' patsies far too long, e.g. Chretien's sudden signing of the Kyoto accord in order to be 'liked' by groups and countries that do not really matter in the overall scheme of things. All any other major world leader saw there is a big S on his forehead for 'sucker'. The last time we had anyone of International stature was Pearson.
And how is that working out for us ? Keystone Pipeline decision ?? UN Security Council membership vote ?? Hhhhmmm.
They are working out just fine as part of the long term strategy. We are being noticed and courted by those who really count in the world. Think ahead 5-10 years.
I guess they haven't found the time yet to study the Norwegian model as to how to be a quasi-responsible petro power. They could always ask Calgary's own Pembina Institute for some balanced advice but that won't happen because the Pembina is clearly an "enemy". gyr.
Norway has the resources (petro$ per capita) to do a variety of things. Canada does not have the same ability at all with 8 times the population with somewhat similar absolute petro-dollars (oil and gas). That comparison is apples and oranges. P.S. The Pembina Institute has its own biases (for survival) too. It is not necessarily right, just a different viewpoint. FWIW, I get along well with folks in the Pembina Institute.

Added: If you take a thorough look at Norway's petroleum sector, you will see that it has created many large artificial islands and harbours and wharfs and docks to build and sustain its oil industry. IOW, it has had significant impact on its marine environment throughout its petroluem life. How is that different from Canada other than Norway's industry is offshore and Canada's is primarily onshore?
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Re: Oil

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I hope McGuinty's handlers are preparing Economics for Dummies notes for him for his next kindergarten class. Some good material in this school lesson.
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Re: Oil

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I hear that people from Ontario are snapping up Florida properties at 60 to 70% off pre-bust prices. I don't think that they would agree with McGuinty that a high CAD is bad news!
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Re: Oil

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Tidal mentions "Dutch disease", i.e. that an abundance of natural resource exports can lead to a decline in a country's manufacturing sector. While the term has been widely used in the thirty years since The Economist coined it, recent studies cast doubt as to how important the effect is or whether it is more than a very short-term, temporary reaction to an unexpected shock such as the discovery of a new oil or gas field.

As an example of the recent literature, see Cavalcanti, Mohaddes and Raissi:. From the abstract:
Our estimation results, using the real value of oil production, rent or reserves as a proxy for resource endowment, reveal that oil abundance has a positive effect on both long run income levels and short run economic growth. While we accept that oil rich countries could benefit more from their natural wealth by adopting growth and welfare enhancing policies and institutions, we challenge the common view that oil abundance affects economic growth negatively.
FWIW, I note that econometric studies of this kind are tricky and often inconclusive. Modelling complex systems is tough.

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Re: Oil

Post by AltaRed »

AltaRed wrote:I hope McGuinty's handlers are preparing Economics for Dummies notes for him for his next kindergarten class. Some good material in this school lesson.
A weak back peddle today, but I will give him a carnation (not a rose) for responding. Dalton still has not had his economics lesson though given he's still put a shot across the bow for clean energy (read nosebleed wind power prices).

It is admirable to push clean energy, but If he wants to go ahead with that, he needs to take personal responsibility for finding ways to make wind power economically viable for ON industry and find ways to avoid those meat grinders in peoples' back yards. Seems European countries are becoming less enthusiastic over time. Hope Dalton is paying attention.
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Re: Oil

Post by kcowan »

AltaRed wrote:It is admirable to push clean energy, but If he wants to go ahead with that, he needs to take personal responsibility for finding ways to make wind power economically viable for ON industry and find ways to avoid those meat grinders in peoples' back yards. Seems European countries are becoming less enthusiastic over time. Hope Dalton is paying attention.
I wonder if there have been any second thoughts when the turbines bearings give out owing to the difficulty in lubricating them?
For the fun of it...Keith
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