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An Open Reply to Joe Oliver's Propaganda for the Petro State
ENERGY & EQUITY: Nikiforuk joins the fray.
Bitumen buddies: Resource Minister Joe Oliver with Prime Minister Stephen Harper.
Canada's Natural Resource Minister Joe Oliver has just pulled a Hugo Chavez: he's penned a formal and desperate attack on democracy and interfered in the nation's allegedly impartial regulatory regime. And all for bitumen exports to China.
In the process the Tory panjandrum has unwittingly highlighted the nation's dangerous descent from messy democracy to full blown petro state.
On Jan. 9 Oliver accused foreigners and "radical groups" of trying to derail the Gateway Enbridge pipeline as well as Canada's tardy attempts to diversify foreign trade.
The minister's petro rhetoric also charged "jet-setting celebrities" with lecturing Canadians on how to develop their natural resources. Oliver, a former investment banker and a "one per center," even ridiculed Canada's regulatory energy process, now 90 per cent funded by industry levies, as too slow, complex and cumbersome.
The implications, of course, are startling. Oliver basically told the world that Canada's right-wing Tory government would prefer do away with a democratic process in which 4,500 citizens can oppose a project. That would hasten, of course, the connection of Alberta's tar sands to their eventual customer China -- a nation where government planners simply bulldoze Aboriginal dissent and attack local communities with armed force. It's nice to know which side Oliver is on.
The minister's statements signal Canada's maturity as a dysfunctional petro state. Oil exporting nations, which run on oil loot instead of taxes, don't function like real governments because over time they come to represent hydrocarbons the same way plantation economies once championed slaveholders.
Ultimately, most petro states, from Russia to Saudi Arabia, fear dissent, transparency, fair markets and good governance. And Oliver's letter proves the case with a clarity that should strike fear into the heart of every veteran, every Aboriginal, every Canadian.
Piping in the misinformation
For starters Oliver's letter is a pipeline of misinformation. The Tory even calls a foreign funded pipeline designed to send raw unprocessed bitumen to refineries in Imperial China "an urgent matter of Canada's national interest."
But that's the crudest of fictions. A private $6-billion proposal funded entirely by 10 foreign companies (China's Sinopec is one) has nothing to do with Canada's prosperity or security. But it will support the one party petro state that has ruled Alberta for 40 years and that now forms the base of Canada's majority government. It would also provide energy for a growing Asian empire that might soon aggressively challenge the global position of the United States the same way Japan did in the 1940s. From any thoughtful perspective the Gateway proposal remains a risky and foolhardy piece of political engineering.
Oliver's letter also says that environmental groups and First Nations opposed to the Enbridge pipeline are largely funded by foreigners or a couple of U.S. foundations. Oliver's insulting implication is that Canadians only question the dominance of Big Oil when paid. But that's just nonsense.
In fact, Oliver needs to do some serious math and check his unethical sources. First, the size of environmental funding from U.S. charities ($300 million over a decade) is puny. It was used to fight industrial fish farms, tanker traffic and ruthless forestry practices. This Robin Hood funding (crudely, much of it comes from foundations started by oil wealth) gets punier on the tar sands front. Probably no more than $30 million has helped green groups fight Big Oil over the last five years. That sum is peanuts compared to $30 billion that foreign companies and states poured into the tar sands over the last decade. Or the $25 million spent by the Alberta government on bitumen propaganda last year. Or the tens of millions spent by the Canadian Association for Petroleum Producers. It's also tiny compared to the amount of annual revenue Ottawa makes from bitumen ($5 billion, according to the Canadian Energy Research Institute) And the $30 million is practically insignificant compared to the $1 billion worth of subsidies granted to oil companies every year by Ottawa's oil addicted libertarians. In other words, Oliver is as deluded as Syria's Bashar al-Assad, who also maintains that foreign interests are trying to destabilize his country.
For the record, foreign-owned bitumen companies taxed by Ottawa now pay a healthy chunk of Oliver's salary. (All corporate oil taxes go into general revenue because Ottawa's gamblers don't believe in saving oil money for future generations.) Foreign dollars also account for half of $60-billion merger activity in the industry says a 2011 report by the Canadian Energy Research Institute. These foreign investors include China, Thailand, Norway, France, Korea and the United States. (So U.S. environmental money is really watching U.S. Big Oil money in Canada because Americans care more about transparency and fairness than most Canadians dare.)
Accepting money from any group or organization, however, involves moral risks for environmental types and governments alike. A competent resource minister might well ask how more than $16 billion worth of Chinese investments in bitumen projects might impact or erode our regulatory, economic and political sovereignty?
What do resource ministers do?
In many oil producing states such as Norway or Uganda resource ministers perform their jobs competently. They do so by representing their citizens instead of resources and they put the national interest ahead of Chinese ambitions. They also save wealth for future generations and actively monitor how oil extraction can cripple other economic sectors such as agriculture and manufacturing.
Whenever oil becomes a nation's dominant export, the Dutch Disease follows. The symptoms are heavy: petro dollars inflate the national currency making it harder for other sectors to export, which, in turn, results in a loss of diversity in the economy. Oliver's failure to address these formidable curses illustrates that only one foreign group of radicals is now selling Canada short and they happen to be Ottawa Tories.
In his letter Oliver omits any mention of risks associated with expanding bitumen production rapidly. That's because Canada's single-minded petro state hasn’t done a formal socio-economic impact risk assessment as recommended by Parliament in 2007. But such foresight is urgently needed. Oil claims the most violent volatility of any global commodity. As a consequence governments that depend on oil revenue instead of taxes take on, in aggregate, boom and bust economies, revenue floods and droughts and powerful currency storms. Oliver's failure to discuss let alone address these risks again reflects the government's extreme plan to enrich China and impoverish Canada. (Subservience is one of Canada's oldest resources.)
Oliver's correspondence confirms Canada's status as a tin pot nation. Ottawa is more interested in quick and dirty revenue than in gradual wealth creation. Perhaps David Hughes, who worked for Natural Resources Canada for more than 30 years and knows more about energy than Stephen Harper's entire cabinet, says it best: "Canada lacks any sort of energy strategy other than to sell raw resources down the pipe as fast as possible hoping that the resulting economic impact will somehow stoke the political fortunes of the governments of the day -- in this case Harper's majority government and the Alberta government. Mr. Oliver's open letter underscores that dissent will be discouraged."
Just say no
In sum Oliver's letter reveals the audacious poverty of Canada's current energy agenda: Ottawa wants to live off the proceeds of a resource largely owned by foreigners with no Canadian savings plan for the future. To distract attention away this disastrous scheme, the Tories have resorted to propaganda that blames foreigner radicals for all the uproar. How Saudi-like.
But Oliver is right about one thing. Canadians are now faced with a historic choice: they can support a radical petro state that wastes a valuable inheritance; that undermines climate change science; and that actively courts an industrial Communist regime that squashes dissent. Or they can reject this extreme ideological agenda by saying NO to a commercial pipeline that will never be in the national interest.
By saying NO to the Enbridge Gateway Pipeline, Canadians can really say YES to decency, change and renewal. A NO means YES to energy policy in the national interest instead an unethical agenda drafted by foreign oil lobbyists. A NO means YES to protecting irreplaceable assets: our salmon heritage, the Great Bear Rainforest; the diverse richness of coastal First Nations and the future of our children.
A NO means YES to a national debate on the management of oil wealth for the 99 per cent. A NO means limiting development of a strategic yet dirty resource to North American markets. And a NO means YES to a clean energy transition that acknowledges both wasteful energy consumption and acidification of the ocean as costly ethical problems.
Last but not least, a resolute pipeline NO means a big YES to democracy or as one great but foreign statesman put it, "a government of the people, by the people and for the people." ![]()




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Fiat lux
19 weeks ago
Once again and
Once again and more......
With the NAFTA and other rackets having destroyed Canada's industries, causing unemployment and poverty, the country now has to rely selling the ground from under citizens' feet, while calling it GDP.
The excuse is that these idiotic, criminal schemes will "create jobs", but what they don't say is what kind of jobs and how many jobs they export to other countries, who buy the resources, and then bring back the money we pay for the products made by jobs from our resources to buy up more of the country, where citizens can no longer afford to own homes, because of the "wealth creating foreign investment" of Canadian money coming back, inflating and buying up everything.
This racket also shows the beautiful brotherhood between communists and capitalists, who claim to be on opposite sides and fighting each other, yet, under the blanket they are the same gangs of crooks, colonizing, robbing and enslaving their own and the world.
If there's one thing I've learned, having lived under every known ideology, it is never to trust the "3 C-s" : The Communists, Capitalists and Conservatives.
Predator, lying criminals at the top, empowered by billions of brainwashed, stupid followers marching to their own doom.
Ed Deak.
coop
19 weeks ago
As always, Andrew Nikfforuk nails it!
Thank you for the awesome column and thanks to the Tyee for web-publishing it. And here is my question that never seems to be asked, let alone answered. Why doesn't Canada refine this oil here? Why doesn't Alberta pipe the oil to Eastern Canada? Why does Canada have to import half (?) of its oil from other countries, when we have so much of it? Not that I like the tar sands, but it seems we are stuck with this mess, so why not use the oil in Canada? My guess is that the oil companies make more money exporting the tar and importing the gas under the current system, than if Canada were to become self-sufficient. Any other thoughts out there?
kootenay
19 weeks ago
Canada is one of the last
Canada is one of the last nations on earth to be pilfered by Multinational Corporations. It took 20 -30 years to eliminate the Canadian social infrastructure, and install tea-party politicians at all levels of government, but the task is finally complete.
The fact that Steve H appointed Joe Oliver as our Resource Minister is strong evidence of that. What a shame to squander our natural resources, environment and our children’s future on what amounts to no more than a ‘get rich quick’ scheme.
Canada with its’ natural resources used to have the ability to develop those resources in-country and create good jobs, strong communities, and a productive future for the upcoming generations. We don’t even own our own resources anymore and as foreign ownership increases, so does foreign control of our resources.
Essentially, our governments are selling us into poverty. It really does make you wonder just what kind of vision Steve H has for Canada? Is he so stupid he can’t see the logical conclusion of his policies, or does he just not give a damn about people?
ron wilton
19 weeks ago
possible answer to coop
If we were to build refineries in Canada wherever the delivery to market would be close, and upgrade and refine the Alberta goop here, there would soon be a surplus of product which should translate into lower prices at the pump for Canadians.
This in turn would translate into lower profits for the oil companies and fewer tax returns to provincial and federal governments.
By shipping the goop offshore via KXL or Enbridge Gateway, the oil copmpanies will get a much higher price than they do now from the U.S. market.
This tactic not only avoids creating a surplus of supply in North America causing lower prices, revenues, taxes, etc., but actually creates a potential shortage of supply in Canada and the U.S., which will maintain and eventually increase high prices and taxes etc. here.
Also by selling offshore at a higher price than they get now from the U.S., they will be able to charge the U.S. more and that will translate into higher prices, profits, tax revenues et. etc. here.
In other words, we are being screwed royally by the oil companies and our provincial and federal governments.
Bill_Horne
19 weeks ago
a trial balloon?
Could it be that Oliver, Harper & their spin doctors are very much aware of the contradictions, BS and insults in their latest actions, and are testing out more brash, blunt tea party methods to rile and evaluate their opponents?
seth
19 weeks ago
St Stephen the Holy
St Stephen the Holy Canada's Dear Supreme Fascist Leader for Life is 100% bought and paid for by foreign oil and religious interests. Thanks Andrew for calling him on this hypocrisy.
What the Pious one is trying to hide is the idea that far greater economic benefits would be achieved by shipping the tar back east for refining and end use there, since eastern Canada already imports more than oil than the west exports.
Switching pipeline funding to a heavy oil upgrader, repurposing the canada mainline gas pipe to oil, replacing the gas with as few as 15 new clean and green zero environmental footprint, zero pollution nuke plants, would result in investment paybacks of 4 years at a 25% rate of return with thousands of lives saved by eliminating the deadly gas air pollution.
Unfortunately Your Dear Supreme Fascist Leader for Life - St Stephen the Pious whose religious vision's seeing Canadians as mindless hewers of wood and diggers of oily dirt and nukes the devil's fire, line up well with Big Oil's business interests. So having already eliminated Canada's nuke industry, new refineries and nukes are out.
As an alternative how about we'll let Alberta ship their oil through British Columbia, the day Quebec lets Newfoundland ship their electricity through Quebec.
Stewart MacKenzie
19 weeks ago
Bill: They may have succeeded...
beyond their wildest dreams; they certainly have riled up Canadians in large numbers as Joe Oliver's hasty "rephrasing" seems to recognize. Unfortunately for Harper's gang, the cat is out of the bag now and won't be rebagged! We know what Joe said in the first place was what he and Harper really meant and no amount of backtracking will change that!
Fiat lux
19 weeks ago
All empires go that one fatal
All empires go that one fatal step too far and self destruct.
Because wealth can not be created, only taken, all exploitative ruling systems have to be built on the principle of "competition" to rule and steal, demanding ever increasing energy inputs to stay on top to rule, until they burn out and self destruct.
What we're witnessing today is the self destruction of phony empires built on criminal, ideological/economic theories.
There's no way to save the present system.
And future generations better take notice so they won't repeat the same stupid, greed based mistakes, but try to become human beings with brains, for the first time in history.
Ed Deak.
John R Bell
19 weeks ago
Gratuitous attack on Chavez and
I am wondering why Nikiforuk made the gratuitous attack on Chavez which added nothing to his admittedly good argument. Something else Nikiforuk seems to have missed is that Canada has never had direct direct or genuine democracy (as in government by the people) so we are in no position to criticize Chavez for his alleged lapses.
rockdoc
19 weeks ago
Further incriminating evidence on Gateway
Great article Andrew! For further info on why Gateway doesn't make any sense David Hughes produced a report titled "Northern Gateway Pipeline: An Affront to the Public Interest and Long Term Energy Security of Canadians" which has been filed as evidence by an intervenor in the NEB hearings. It is available here https://www.neb-one.gc.ca/ll-eng/livelink.exe?func=ll&objId=775621&objAction=Open
josh.brandon
19 weeks ago
Harper's Petro-state agenda
Stephen Harper is often criticized for having a secret agenda. It turns out it was not so secret after all. The Conservatives’ agenda is to maximize the rate of natural resource extraction, regardless of its costs to the environment, society, future generations or other sectors of the economy.
pwlg
19 weeks ago
Exactly!!!
I am so glad Nikiforuk is able to put into words the thoughts many of us had when hearing of Oliver's comments.
Our national broadcaster, CBC, has been terribly lacking in its choices of comments it has so deliberately manufactured.
We get lots of the phoney "ethical" oil folks, former lackies from the King Harper's office, stooges from Ralph Klein's den of irrationality and the Fraser Institute, spouting their propaganda but rarely hear from voices like Nikiforuk's or other real intellectuals in Canada.
I know that Andrew Nikiforuk is a resident of Alberta but if anyone deserves an Order of BC it is Andrew for his continued work on the petro-states of Canada, Alberta and BC.
In BC the Campbell government used future lease sales of the gas fields of BC to finance their income tax reductions, corporate tax reductions and the elimination of bank taxes as well as returned subsidies to the oil and gas industry.
pwlg
19 weeks ago
China's increasing militarization
We know that the US uses 25% of its oil consumption for military purposes.
Will the proposed pipeline diluted tar shipped to China aid in the increased militarization of China?
If we won't trade with Iran and Syria why do we trade with China.
China, the US and Russia have refused to sign the anti-landmine treaty. These 3 amigos are the biggest arms dealers in the world and have the most influence on the UN's so called Security Council.
Island Artist
19 weeks ago
Open Letter to Oliver
Excellent article! Thanks for the additional information.
Jeffrey J.
19 weeks ago
Nikiforuk Eloqent As Always
Andrew Nikiforuck, courageous author, speaks eloquently of the facts. There is no better response to Joe Oliver's illogical diatribe (written by a multimillionaire 70 year old investment banker).
For those who haven't read Nikiforuk's two published books, don't hesitate. Tar Sands is a great read. As is Empire of the Beetle (riveting account of the BC's mountain pine beetle/global warming epidemic).
We are privileged that the Tyee has such a great journalist informing the public of how things are.
Great coverage.
RickW
19 weeks ago
pwlg
And you can bet Stevo wants some of that action!
Bucket of Oil
19 weeks ago
Supreme court rules in favour of the Gitxsan First Nation
http://powellriverpersuader.blogspot.com/2012/01/breaking-news-elmer-derrick-and-gitxsan.html
Elmer Derrick and the GTS is shit out of luck, so is Enbridge!
OwlRol
19 weeks ago
Corporate profit trumps all, but...
Ed & pwlg pose an interesting notion, that of Canadian tar goo, exported to China, to be used by their growing military.
Given the not so long ago position of the Harperites that foreign state corporations, notably China's, should not have mass access to the tar sands, I wonder who twisted Stevie's arm on this one.
Despite all the U.S. foibles, they have essentially been Canada's protector (even if it's for there own purposes) during global military crises, especially after WW2.
Originally, the threat of exporting to China was an Albertan response to try and lever U.S. opposition to "dirty oil", but it seems to have morphed into a sell to anyone, corporate profit trumps all notion.
We know that multi-national corporations have no loyalty to any given state, even the ones that nurtured their beginnings.
But do Americans have the justification to feel betrayed by the Canadian Conservative government as this energy sale boosts the U.S.'s main competitor, both economically and soon to be militarily (can't delist the Russians yet)?
Of course the military industrial manufacturers love it, as they get orders from all over, even as the U.S. tries to cut back on their military expenses.
So, as Stevie flies to China again, will he promise tar goo delivery, regardless of Northern Gateway opposition?
What does the U.S. government, including the Republicans, think of big Canadian energy sales to China, perhaps enemy is too strong, but their global competitor?
Has anyone in the Harper government really considered the global stakes beyond corporate profits? A few pathetic F35s won't make any difference if things get nasty.
Recall how the U.S. and other western nations supported the Nazis as a block against godless Communism, meanwhile the Nazis and Soviets collaborated prior to and at the start of WW2. What a mess.
Times are different today and war between any major powers is unthinkable, but so was the same thinking in the 20s and early 30s.
I don't think that the Harper crew are stupid, although Joe Oliver's rant among others makes me want to re-evaluate this notion. It's just that their approach to government is uni-directional in each of economic and social policies, like a horse with the blinkers on.
The global power shifts are not a hockey game and the ramifications of shifts do not translate into a trophy cup.
frank2
19 weeks ago
The conservatives are
The conservatives are caricaturing themselves. I only wish the Air Farce were still around to finish the job.
Bailey
19 weeks ago
Pow! er...
As long as the Harpers of the world want the power that comes with high office that can ignore the people, their interests or their futures, nobody is safe.
They do want it, clearly.
He wants it bad as bad gets. He will sell you for it. He'll sell your kids too, and your sweet silver haired granny. Hell, he'll sell HIS sweet grey haired granny, if he has one.
I have sometimes thought that the only way to make the world safe is to canvass the crowds for the one person who most doesn't want the job, whoever would run farthest and hide best to avoid it, then shanghai the poor schlub and make him do it.
Then at the end of his term, toss him out with one of two rewards, depending on what he's earned, a huge pot of money or a date with Mme Guillotine. Either way forbidden absolutely to ever work for anybody again.
You might get a hope of honesty in office with that system. You never will with power mad twits in office. These guys will lie steal and kill for an extra twenty minutes of the stuff.
RickOshea
19 weeks ago
My Random Thoughts
Because the ERoEI (energy return on energy invested) of tar-sand production is so abysmally low, they are desperate to acquire the cheapest transportation solution possible no matter what the risk.
matthew kemshaw
19 weeks ago
I'm not sure simply
I'm not sure simply condemning the sincerely condemnable actions of our government is good enough. Seems to me that we need to understand the specter of the larger goal driving our government and then communicate about alternatives (NOT condemn their goal, but suggest others, which are essentially more attractive).
This pipeline is raising a larger issue, namely what is our goal as a nation "Canada?" Those who are promoting this pipeline seem rapt in a monological obsession with the goal of constant economic growth. Our federal government seems to see this growth as necessarily tied to the export of crude oil (don't be fooled, oil IS dirty - try rubbing some on your face). What if our goal as a nation were something else? What if our primary goal was community and individual health? Or a clean energy future? Canadians should really pause on this. Consider cancer. Think about what our true goal is and recognize that change is constant. The current economic order in the world hasn't been around for very long and it will change. Imagine a clean energy future. Imagine a truly healthy community. What are people doing? Let's talk about THIS, rather than just complaining about these assholes. Using their language and talking about what they're talking about does us little good.
Fiat lux
19 weeks ago
matt.... The problem is not
matt.... The problem is not what they call "economic growth", but what it really means, as you also point it out in your note. Definitely not what the advertising is selling us.
Money, created from the air, is now a licence for the control of energy, issued by a special interest sector for its own purposes.
The more money these crooks create, while calling it GDP, the more and higher their resource demands to maintain the artificial value of that imaginary money.
We now have an over 1,000% inflation since the mid 70s, when this criminal theory was forced on us, and the world, by big business , in control of our university economics departments, brainwashing students and the public.
Once upon a time we could buy a WV for $1,200, we bought our first house in Vancouver for $6,500, with $500. down and $45/mo. People had full time, well paying jobs, no foodbanks, no homelessness, a few at the soup kitchens, no global warming, 2% cancer rate and no Fraser Inst. until 1976, set up as a PR agency.
What do we have now, what can these crooks show for benefits, yet the public keeps voting them in ?
Harper is a psycho maniac and will totally sell off this country, as per long standing plans, while calling it "freedom" as usual with the worst dictators.
If the capitalists were such promoters of "freedom" and the rest of their lies, what the hell are they doing with their brothers in communist China and why is Harper visiting them next week to lick their boots, begging them to bring back our Canadian dollars, stolen from foodbank lineups, to buy the country up with ?
Perhaps we should demand a definition as to what "growth" really means, apart from legalized theft.
Ed Deak.
dave49
19 weeks ago
Great piece Andrew
I talked to an American friend who is an activist and his view was that American foundations are working to protect American interests as represented by the Keystone XL pipeline. Gross interference? No, business as usual. Americans foundations have been directing money to advance their aims for years. The sword of influence-peddling has two edges and Harper and Oliver are deliberately ignoring this FACT.
Anyone who has flown over BC can attest to the beauty of the rugged, mountainous terrain. The land will not make it easy to build such a pipeline. If it is ever built, it will inevitably take longer and cost more.
So what if we're half way through this turkey and Keystone XL is approved. Who gets the bitumen? Who pays for the financial bath?
This has the potential to turn into one big F___ING mess on several levels and Mr Harper and his actions and pathetic decisions will have been the cause.
igbymac
19 weeks ago
Ed Deak, John R Bell
Ed Deak, it was refreshing to hear someone accurately cite Adam Smith for a change. Both in the USA and here in
CanadaAmerika_51, it's increasingly difficult to have a discussion due to the rhetorical commodification of political words and views.John R Bell, I agree (re: Chavez comment). I am only familiar with the highly informative writings of Andrew Nikiforuk here on The Tyee. But I, too, feel he has a certain ethnocentric vein at times.
Further in this same piece he refers to the tar sands going to China and thus in support of its military adventures. China's military purpose is, or it is presumed, to offensively challenge the hegemonic dominance of the USA.
What I took from that reference is that Canada, acting in its best geo-political interests, should be leery of proceeding on this course because it might upset our American protectorate. In framing it this way, two issues natural flow: 1) the legitimacy of Canada's geo-political involvement for security from the Empire, and 2) Canada favouring certain trading partners over others.
What is eroded in both regards is more of Canada's nation's sovereignty. Perhaps Thomas Jefferson's First Inaugural of 1801 stated what should be our national objective:
"Peace, commerce, and honest friendship with all nations, entangling alliances with none."
My remark is collateral to thrust of this overall fine article by Andrew Nikiforuk, yet it creeps into the analysis of his discourse all the same.
maryinga
19 weeks ago
Action plans for defeating the Gateway
This pipeline must not be built.......and Joe's comments should be seen as part of the rhetoric that will convince more and more Canadians that staying in the safety of our living rooms or offices, fulminating to a computer screen, is not a form of ACTIOM.
Andrew N. has been telling the truth on this issue for years. Time for all of us to stop getting angry in private and begin connecting with others who are willing to oppose these madcap plans to sell our nation down the river to whoever has the money to pay for the 1%'s dreams of "economic growth".
We must do what Americans did for the Keystone, and do it if possible even more powerfully. Let's get started.
the real ODB
19 weeks ago
Olly the Idiot!
Oliver and Harper are forgetting a very important fact (well, lots actually, but later on that!). Try and ram this stupidity thru and how are they gonna deal with the thousands of concerned people blocking the way. The prisons haven't been built yet.
hapibeli
19 weeks ago
Bubble, bubble, toil and trouble
Shale Gas Is a Bubble
"The shale gas bubble is the big economic story you haven’t heard about, though that will likely change in the near future. Behind all the hype about limitless shale gas are two simpler and noticeably less impressive realities. The first is that fracking technology applied to shale deposits can free up modest amounts of natural gas. The second and more important is that for the last half dozen years or so, at least, fracking technology applied to Wall Street has been able to free up immodest amounts of credit, providing the funding for an explosive growth in the natural gas drilling industry.
The intersection between those two facts has produced a classic bubble, with wildly inflated reserve estimates bringing a torrent of cheap credit to bear on an asset that can’t support the grandiose claims made for it. Because US mineral rights laws and Wall Street’s expectations both require firms that buy shale gas rights to produce right away, irrespective of the state of the market, natural gas is now selling for a price—wobbling around $3.50 per thousand cubic feet, last I checked—that covers much less than the cost of drilling and extraction. My readers will no doubt recall real estate speculators in the midst of the bubble feverishly buying rental properties even when the rent covered only a small fraction of the mortgage payments; the logic here is exactly the same.
Thus it’s as certain as anything can be that at some point in the fairly near future, probably though not certainly within a year or two, the shale gas bubble is going to pop, major names in the industry are going to go the way of Countrywide Mortgage and Washington Mutual, and gas drilling is going to slump until rising gas prices and declining budgets for exploration and drilling come back into a relationship that makes sense. Mind you, it’s equally certain that the closer we get to the bubble’s end, the more extravagant will be the claims made for the permanence and game-changing nature of the so-called “shale gas revolution,” and the more abusive will be the responses of those whose jobs depend on the bubble to any suggestion that a bubble is in fact what’s going on."