Air quality and health issues are a priority for Canadians. (WN.com Photo)

It’s understandable if you didn’t notice, but something important didn’t happen last week in oil markets.
Here’s the background: After a two-month slump that pushed the price of crude from more than $78 US to below $60 a barrel, providing welcome relief to both consumers and industrial energy users, the party seemed to be over.
Rumors swept through commodities markets last week that OPEC might cut oil production to squeeze markets and force the price back up.
The mere speculation was enough to push oil above $64 on September 27. Then, part of this scary story actually came true, as two members of OPEC--the Organization of Petroleum Exporting Countries--really did announce plans to cut production. Nigeria and Venezuela will make cuts beginning from Sunday.
And here’s what didn’t happen: a big jump in the price of oil. By the end of trading in New York on September 29, crude was at $62.91.
It was a dramatic illustration of how much the psychology of petroleum has changed since summer. As the world economy slows and inventories of oil and gas grow, the notion of a supply squeeze has lost most of its ability to spook markets, Canada.com said.
While this doesn’t mean that oil will keep dropping indefinitely, it probably does mean that we’ve seen the worst of the energy squeeze, at least for the next year or so. This news could hardly have come at a better time, with the economies of the US and Canada both facing serious stresses in the coming year.
Even as the centerpiece of US economic distress, a meltdown in residential real estate, keeps looking worse, the outlook for energy savings provides a welcome offset.
The biggest benefit will come in central and eastern Canada, where export-oriented manufacturers will feel the US slowdown with full force.
Quebec and Ontario are growing so slowly that any unexpected stress could raise the prospect of a recession, suggests economist Derek Burleton at the TD Bank. Instead, cheaper oil has given us a cushion.
And even if lower oil prices won’t be greeted with elation in the Alberta oilpatch, they could actually bring some useful economic cooling to that province’s overheated economy, which is suffering severe shortages of labor and housing, creating unwelcome price hikes.
Douglas Porter, deputy chief economist at BMO Nesbitt Burns, has been optimistic that Canada could make it through the coming year of economic slowdown without actually tipping into recession, but as of three weeks ago, he still saw a one-in-five chance of recession in 2007.
“I’m more optimistic now,“ he says, because cheaper oil and gas will boost Canada’s industrial heartland and its all-important U.S. market without causing much damage to oil-producing regions in the west and Maritimes.
Of course, everything depends on the new price of petroleum being more than a temporary blip. But increasingly, analysts are confident that it is, and the lack of panic over the OPEC saber-rattling this week seems to confirm this.
Oil might still be vulnerable to some volatility, since mighty OPEC, which controls 40 per cent of world output, does have the ability to affect prices if more than a couple of its members decide to tighten supplies.
But with world oil inventories having swelled by more than 300 million barrels during the past six months and demand growth weakening, it would take a very big production cut to create a shortage, notes Bart Melek, a commodities analyst at BMO Nesbitt Burns.
OPEC’s moderate members, including giant producer Saudi Arabia, have little interest in squeezing the world economy when it’s already slowing. This would risk an economic slump that could bring a bigger, longer drop in oil prices. So a major output cut seems unlikely.
Melek is betting that oil will fall into the $50s, rising in price gradually when North America’s economy perks up late next year and averaging $61 for all of 2007.

Nigeria and Venezuela announced plans to cut oil production. (WN.com Photo)

The Canadian government plans to get tough with the oil and gas industry along with other large greenhouse-gas emitters when it unveils its long-awaited green plan next month, Environment Minister Rona Ambrose said Friday.
“It’s time for us stop politely asking industry to do the right thing and we need to move on with legislation,“ the Edmonton-Spruce Grove MP said in an interview. “That will provide us with not only the accountability through increased auditing, increased reporting, increased monitoring, it will allow us as a federal government to show progress both in the reduction of greenhouse gases, but also in addressing air pollution.“
Ambrose’s comments came one day after federal environment commissioner Johanne Gelinas severely criticized the former Liberal government for announcing billions of dollars worth of climate-change programs without a system to track results and performance. Greenhouse-gas emissions rose by 27 percent above 1990 levels when the federal Liberals were in power even though they committed to lowering Canada’s emissions when they ratified the international Kyoto Protocol on climate change, according to Canada.com.
While Prime Minister Stephen Harper has questioned whether scientists are accurate in their projections of serious environmental impact caused by greenhouse gases and global warming, Ambrose said her government was serious about setting mandatory targets on industries to reduce emissions.
“There are measures that you’ll see in our legislation that will enhance the authority of the federal government to put in place effective measures for a number of the key concerns that the environment commissioner raised and that I’ve been concerned about, and our government is concerned about,“ Ambrose said.
“The important thing to note is this will be the first time the federal government has acted within its constitutional authority in this area to put in place a national plan that will cover all industry sectors and deal with this issue.“
Ambrose and other key ministers were absent from Ottawa when Gelinas tabled her report on Thursday because they were meeting with oil and gas industry officials in Calgary to make it clear they were going to act, she explained.
“We have the intention of making the most environmental gains in the two areas where we know the greatest challenges are,“ she said, noting that air quality and health issues were a priority for Canadians.
“The environment commissioner pointed to those, which is the oil and gas sector, particularly the oilsands, and the automotive sector and the transportation sector.“
Emissions credits Last spring, she suggested the government could regulate industries by setting targets and allowing companies to buy credits on an emissions trading market to help them meet their commitments. The oilsands in Alberta represent one of the largest oil reserves in the world with an industry that could double its greenhouse-gas emissions over the next decade as it continues massive expansion.
Canadian Association of Petroleum Producers president Pierre Alvarez said no one made any commitments during their meeting with the government on Thursday, although he said his industry was prepared to accept targets as long as other sectors faced the same regulations.
Environmentalists have criticized the Conservative government for saying it can’t meet Canada’s Kyoto targets, but Ambrose said she’s not afraid to set new ones.
“We need new targets that are practical, that are achievable with the best available technology,“ Ambrose said. “We have to give industry the certainty they need over the long term to make the necessary investments so that we, as a government, can show Canadians that we are showing progress on this file.“
Sierra Club of Canada executive director Stephen Hazell said he was encouraged by Ambrose’s new message, but is urging her to act immediately using existing regulations that are already at her disposal.
“If she uses the Canadian Environmental Protection Act to regulate, this is a red-letter day,“ he said. “But if she’s using legislation that nobody has seen, and that will take years to pass Parliament, then I’m not sure we’re any further ahead.“

Indonesia has notified Japanese companies that it intends to halve exports of liquefied natural gas to Japan by as early as 2010, sources said Thursday.
The two sides have already entered into negotiations on the reduction plan, which will be implemented when current long-term export contracts expire, the sources said.
With the soaring price of crude oil, and growing concerns over environmental problems, countries including China, South Korea and the United States have started importing LNG. This increase in demand from other nations, and subsequent reduction in LNG imports from Indonesia, is likely to have a significant impact on Japan’s energy strategy, observers note.
LNG imports from the Bontang plant on Borneo Island, which account for more than 90 percent of overall LNG imports from Indonesia, will be reduced dramatically, according to the sources. Japanese companies such as Tokyo Gas Co. and Kansai Electric Power Co., which signed long-term deals to import a total of 14.54 million tons of LNG annually from the plant, will see contracts on about 12 million tons expire from 2010 through 2011, Yomiuri.co.jp said.
Negotiations to renew these contracts began in earnest last year, but despite Japanese efforts the imports likely will still be halved from 12 million to 6 million. Such a reduction would account for more than 10 percent of the country’s overall LNG imports, which totaled about 58 million tons last year.
Japan hopes to compensate for the reduced amount with imports from other locations such as the Sakhalin-2 project plant in Russia. However, with the Russian government recently canceling a permit for an oil and gas development project by an international joint venture, the prospects for domestic gas and electric company procurement have become increasingly gloomy.
Indonesia claims there are growing calls for greater domestic consumption of LNG, as production from gas fields near the Bontang plant has been declining and the country is short on energy supplies.
Indonesia signaled its new stance toward Japan earlier this year, indicating it would not renew some LNG business contracts set to expire in the next few years in order to reduce exports.
Japanese companies are currently negotiating with the Indonesian government on the assumption that imports will be cut by half in the renewed contracts. But with the Indonesian government suggesting it may call for further dramatic reductions, negotiations could become even more complicated, the sources said.
LNG imports from countries such as Indonesia, Malaysia and Australia largely went to Japan until the 1990s. In recent years, however, the United States, China and South Korea, among other nations, have sharply increased LNG imports as they seem excellent value in the wake of rising oil prices.
Indonesia plans to ramp up exports of LNG to China from 2009. “Cuts in [LNG] exports to Japan signal that global competitions over energy sources have been intensifying,“ an oil industry source said.

Western Australia will continue to play its part in a groundbreaking international hydrogen fuelcell bus trial.
Planning and Infrastructure Minister Alannah MacTiernan said the State Government’s participation in the two-year trial of the clean, green technology would be extended by a further 12 months to help bed down the technology.
“I am pleased to confirm that the State Government has committed an additional $1.75million to extend the hydrogen fuelcell bus trial,“ Ms MacTiernan said.
“This will bring the State’s investment in the project to approximately $10million.
“The trial will help bring about the commercial production of these buses-- hopefully by 2010.“
The Minister said the three hydrogen fuelcell buses, which had covered more than 160,000km and carried more than 200,000 passengers since the trial began in 2004, would continue to run on normal Transperth service routes.
The project was part of the Carpenter Government’s commitment to reduce the State’s oil dependence and deliver a green public transport system fuelled by renewable energy, fuelcellsworks.com reported.
“Hydrogen fuelcell buses emit no greenhouse gases or smog-creating emissions at the tail-pipe, and are predicted to be cheaper in the long-term to maintain and operate than internal combustion engines,“ Ms MacTiernan said.
“In only two years, these three buses have prevented 272 tons of greenhouse gas emissions.“
The Minister said the project had earned the State Government recognition as a national leader in renewable energy development.
The hydrogen fuelcell trial has won the following:
* 2005 Greenfleet Trophy;
* 2005 Banksia Environmental Award for Government Leading by Example for a Sustainable Future;
* 2004 Chartered Institute of Logistics and Transport Outstanding Achievement Award; and
* Sustainable Transport Coalition’s 2004 Government Innovation Award as part of the Sustainable Transport Energy Program (STEP).
Perth remains the only city in the southern hemisphere to participate in the international trial.
Eight other cities--Hamburg, Luxembourg, Stockholm, London, Barcelona, Amsterdam, Reykjavik and Madrid--are also continuing the trial, which Beijing has now joined.
Ms. MacTiernan said the Federal Government, through the Department of Environment and Heritage, had provided funding of $350,000 towards the trial extension, and negotiations were currently under way to increase this contribution to $700,000.

Xcel Energy’s experience with wind energy is whipping up support for alternative fuels. A new study says that energy consumers in Colorado will save more than $251 million over the next 20 years because of the utility’s current fleet of wind plants.
By today’s standards, wind is competitive with other forms of generation. But, even more compelling is the fact that its costs are more stable than natural gas. But if wind is to reach its full potential--the US Department of Energy has its eyes on 20 percent of the nation’s generation mix in a couple decades--then some critical barriers must be overcome. And those primarily include the extension of transmission lines into remote areas where wind resources are plentiful.
“Most utilities enter into a fixed and known price for wind or other renewables,“ says Ryan Wiser, a researcher and analyst at Lawrence Berkeley National Laboratory. “Wind contracts are offered at known prices that may escalate with inflation. Conversely, most of the natural gas generation is indexed to the price of natural gas. And that imposes some risk to utilities and their rate payers.“
Wiser, who has written extensively about wind as a hedging tool for utilities, goes on to add that while coal is relatively cheap at 5 cents per kilowatt hour, it may become subject to carbon caps that would increase its overall price. Natural gas, by comparison, is now about 6-8 cents a kilowatt hour, although it has sold for substantially more. Meanwhile wind energy is 4-7 cents per kilowatt hour, Solaraccess.com said.
Wind’s predictability is a selling point. While the fastest growing fuel form is natural gas, wind is the second largest source for new power generation in the country for two years running, according to the US Energy Information Administration. There are now 10,000 megawatts of installed wind capacity, representing about 0.6 percent of the nation’s generation mix.
In Xcel’s case, the savings comes from operating wind plants instead of using natural gas. Beyond the economic value, the study released by Interwest Energy Alliance in Denver, says that by adding wind generation to its option, carbon dioxide emissions tied to global warming would be cut by 14.7 million tons.
“Wind energy is providing new electricity supplies that work for our country’s economy, environment, and energy security,“ says Randall Swisher, executive director of the American Wind Energy Association. “With its current performance, wind energy is demonstrating that it could rapidly become an important part of the nation’s power portfolio.“
Swisher adds that wind’s growth can also be attributed to the renewal of the production tax credit, a federal incentive extended in the Energy Policy Act signed a year ago by President Bush. Previously, the credit had been allowed to expire three times in seven years, discouraging investment in wind turbine manufacturing. The association is calling for a long-term extension of the credit before it is scheduled to expire at the end of 2007.
Increasing wind’s role is possible. Europe, which has inferior wind resources compared to this country, is a pacesetter. Germany and Spain, for example, are on route to producing at least 10 percent of their power generation from wind while Denmark has passed the 20 percent threshold. In this country, the potential is in those states with the greatest wind speeds and in those places that are dependent on gas but where it is in short supply.
So what’s stopping development? At present, the demand for wind exceeds the supply of wind turbines and the various components that go into production. That’s why the price to generate wind has risen in the last few years. Manufacturers are cranking up production but it will take a few years to build up. At the same time--and more significantly--the transmission infrastructure is not adequate. That is, such places as North and South Dakota are rich with wind resources but are not able to harness the resource because would-be developers cannot connect to the grid.