Don Cayo
Sun

Most North Americans are oblivious, but a lifestyle-changing energy crunch is coming soon, according to a Calgary-based energy analyst.

“In the next five years, 10 at most, something has to give,” said Peter Tertzakian, chief economist at ARC Financial Corp. He’s also author of A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World, and he was in Vancouver on Tuesday for a breakfast lecture sponsored by ARC-owned Nexterra, a Vancouver-based high-tech energy company.

It’s not that the world is running out of oil. It’s that, as cheap conventional supplies dwindle, new oil tends to be locked underground in places that are geographically at the ends of the earth and geopolitically in the midst of seething hot spots.

And North America’s oil addiction, Tertzakian noted, hasn’t stabilized like Europe’s or Japan’s.

In fast-developing China and India today, oil consumption increases about 90 million barrels per day for each $1 billion of additional GDP.

Most developed countries used to be just as dependent on oil for growth, but since the oil crisis of the 1970s most have managed to break this link. Japan and most European countries now can expand their economies while using no more oil, sometimes even less, than they did in the 1970s.

The United States — by far the world’s largest energy consumer, using three times as much as second-place China — has managed only to reduce its dependency on oil to fuel its growth from about 90 million barrels to about 45 million per each additional $1 billion in GDP. Canada, which uses even more energy per capita than the U.S., has improved even less. We still use about 60 million extra barrels of oil for each additional $1 billion in GDP.

Why the difference between North America and other developed countries?

Because, unlike us, after the oil shocks of the 1970s those countries made permanent lifestyle adjustments — they drive far less than we do, or they’re much more judicious with their thermostats.

Not that the ’70s didn’t change anything in North America. Here, as in most of the world, it spurred a massive change away from burning oil to produce electricity, boosting both nuclear and coal industries to the point where oil now produces just two per cent of all electricity, down from 20 per cent 30 years ago.

And North American cars, like cars everywhere, got smaller and more fuel-efficient.

Tertzakian calls these things the “low-hanging fruit” — things that were affordable and fairly painless. But he warns that such successes can’t be repeated when the next crunch comes. Those magic bullets are spent.

Even more worrisome is that North Americans may grump a lot about energy prices, but they haven’t changed their spots. Today’s trend toward inefficient SUVs and pickups — the choice of 53 per cent of people who buy new passenger vehicles — is negating fuel savings obtained through technology, he said. And as suburbs sprawl and commutes lengthen, North Americans drive about 20 per cent farther every year than their parents or grandparents did in the 1970s.

Meanwhile, old fields continue to produce less and less each year as reservoirs run down.

So even if the world — the gluttonous North Americans and the thirsty up-and-comers in the developing world — could suddenly curb their insatiable appetite for more oil each year, two new oil fields the size and richness of Iraq’s would have to be brought into production every year just to maintain today’s flow, he said. And easy to find and exploit oil fields — like easy steps to reduce oil dependency — are already history.

Like every analyst, Tertzakian noted that it’s not the amount of oil that’s the limiting factor, it’s the amount of oil at a price that the world is willing to pay.

His short-term prediction is that oil will hover in the $60-$65 US per barrel range, but he sees it moving fairly quickly to a level where it’ll become what he calls a break point — a trigger to change human behaviour.

He’s optimistic that, despite the way fast-developing countries slurp up oil to fuel their growth, they may — like Europe and Japan — be able to lessen their dependency quickly and gracefully.

Countries like India and China are new enough to prosperity — and authoritarian enough — to be able to shape their growth and their people’s habits in energy-efficient ways.

In North America, where limitless cheap energy is seen as a birthright, he sees a tougher challenge, and ultimately a need for government intervention. It would take a market price in the region of $135 a barrel — nearly twice the level that gave Lower Mainland drivers the heebie-jeebies for a few weeks last summer — to prompt a permanent change from market forces alone, he said.

But higher taxes and/or tougher regulations are only second-best solutions, he said. Best would be moral suasion.

“People have to wake up and realize it’s just not cool to drive a six-wheel Hummer. It should be seen like smoking in a restaurant.”

© The Vancouver Sun 2006

 

‘Forestry sector contracting while others grow’

Gordon Hamilton
Sun

The shock wave caused by the bursting U.S. housing bubble is hitting British Columbia faster and harder than the rest of Canada, and is expected to drag down the total value of B.C. exports by three per cent in 2007, according to an outlook prepared by Export Development Canada.

Declining forest products revenues are already bogging down the province’s export economy as demand for building products shrinks in the U.S.

Forest products account for 40 per cent of the province’s total exports and the decline in that sector is darkening the export picture, according to EDC senior economist Stephen Poloz.

“We continue to see a significant split in the province’s performance, with the forestry sector contracting while almost all other sectors continue to grow,” Poloz said Tuesday.

He said declining forest revenues in 2006 are holding B.C. growth this year at two per cent. The three per cent decline next year will be largely caused by continued erosion of forest products prices, he said. The high-flying Canadian dollar is also a factor.

The EDC forecasts that the value of Canadian exports will decline one per cent in 2007. However, it also released an alternative downside scenario if the housing downturn brings on a recession in the U.S. In that case, provincial export revenues will drop deeper and Canadian exports overall would be expected to fall 3.4 per cent.

Poloz was skeptical that a recent upturn in lumber prices is indicative of the bottom being reached for the forestry sector.

“Show me the proof,” he said. “Right now there is no evidence that it is over.”

How far the economic ripples will spread into demand for metal, energy and manufactured goods is still an open question. Economists should get a glimpse into the mood of consumer spending — which will affect demand for other commodities and goods — over American Thanksgiving weekend, Poloz said in an interview.

Poloz was in Vancouver Tuesday advising business leaders of his forecast. He said the U.S. housing bubble fed an expansion in American consumer spending over the last four years.

“And now that channel of spending has been cut off.”

U.S. consumers account for 15 to 20 cents out of every dollar in the world, he said, and the shock wave caused by the collapse of housing will ripple through the global economy as American consumers start spending less. “Our judgment is that it is unlikely to pull the U.S. or world economy into a recession. But we have to be honest about this. We don’t really know.”

Poloz said other economic sectors in B.C. are expected to feel some impact of reduced economic activity in the U.S. The value of B.C. energy exports, which accounts for 23 per cent of export revenues, is expected to grow by two per cent this year and then decline by two per cent in 2007. Industrial goods, at 15 per cent of export revenues, will post a solid growth rate this year of 16 per cent before coming off five per cent in 2007.

The Export Development Council does not foresee a global recession as a result of the housing downturn in the U.S., but Poloz cautioned that the full impact has yet to be felt. The problem with bubbles, he said, is that they don’t deflate; they burst.

He likened the impact on the world economy to be similar to the condition of a person whose head is in an oven but whose feet are in a freezer.

“On the average, it’s alright. But it’s extremely uncomfortable for the head and the feet.

B.C.’s forest industry, he said, happens to be one of those extremes.

STAGED TO SELL

Other

Download Document

‘Perfect storm’ confronts trade centre expansion and budget shortfall likely

Jeff Lee
Sun

VANCOUVER – The massive $615-million Vancouver Convention Centre expansion, now halfway through its four-year construction plan, may need more money from the provincial government, Tourism, Sports and the Arts Minister Stan Hagen has acknowledged.

But he said the extent of any future cash infusion won’t be known until later this year or early next year.

Hagen said the government company handling the redevelopment of the Vancouver harbour west of Canada Place is working continuously at trying to keep project costs down, but is also being pushed around by price escalations in materials and labour.

“I don’t think they know whether they will need more money until later,” Hagen said Friday. “At this point they are trying to be mindful of the costs, and they are trying to keep them under control.”

He said the government has made no pledge to invest more money beyond the $272.5 million it has already committed.

But he said it also knows the project must be completed on time for the 2010 Winter Olympics, so Victoria may need to invest more if the costs can’t be contained within the current budget.

Hagen made the comments after Ken Dobell, chairman of the Vancouver Convention Centre Expansion Project company, told The Vancouver Sun he is unable to say whether it will be built on budget. He said the development continues to face extraoZrdinary pressures that make it hard to keep the project under control.

“It’s big, it’s complicated, it’s challenging and it’s being built at the worst possible time in the marketplace,” Dobell said. “It is in many ways going well, but it is being built at what the construction industry would call the time of the perfect storm.”

Dobell, Premier Gordon Campbell’s former deputy minister, said the convention centre project is “a little bit late” by perhaps two or three weeks, but he’s optimistic it will be finished by late 2008.

He repeatedly refused to answer whether the project is on budget, leaving open the possibility taxpayers will be asked for even more money.

Dobell said a report is being prepared for the Treasury Board for later this month or early next year that will clarify the project’s financial situation.

“We’re reporting back to the government where we stand on budget and on schedule, as part of the regular report to Treasury Board. At this point I am not going to speculate about where we will be or what we will be reporting to the government. That is something for the government to report after we’ve talked to them.”

Dobell said he’d “like to be able to [say] that the world is perfect; the world is never perfect and there are always issues to deal with. And I have to report those [to Treasury Board] first.”

One of those issues will likely be the flat refusal by the federal government in September to consider contributing more money to the project.

In September, Dobell approached Louis Ranger, head of Infrastructure Canada, to ask for more money. It was the second time in six months he’d approached the federal government, he said.

“I was looking for some opportunity for the federal government to participate in some of the cost increases,” he said. Before he could discuss how much money was needed, Ranger told him the answer was no.

Under the current funding agreement, Ottawa and the province each provided $222.5 million, with Tourism Vancouver contributing $90 million through a hotel tax, and $30 million to be generated through private management contracts. In September 2005, the province kicked in an additional $50 million, increasing the overall budget to $615 million.

But the project continues to be beset by a series of issues that have affected the entire construction industry in B.C.

They include rampant price increases for steel and concrete and a shortage of skilled labour. The project insulated itself somewhat from some increases by locking in some steel and concrete prices early on, said Russ Anthony, the convention centre expansion project’s president.

The sheer size of the development, and the place it is being built, present unique problems, Anthony said.

It is the equivalent of building a 400-house subdivision and is being built over both water and former industrial land filled with remnants of concrete, wood and steel.

Asked if the convention centre expansion would be reduced in scope to save costs, Dobell said that was no longer an option because the massive platform for the building has already been installed. The facility’s first official use will be as the media and broadcast centre for the Vancouver 2010 Winter Olympics.

New Democratic Party MLA Harry Bains said taxpayers should be surprised and angry if the project is planning to ask the province for more money.

He said the project should not cost taxpayers more and that he believes it is suffering from poor management.

“If they are over budget on the convention centre, it is because of mismanagement and incompetence,” he said.

The private sector is still able to build major projects despite market conditions, he said. “If this was the case in the private sector, then no one would be able to come within budget. But that’s not the case.”

Bains said that like the Olympics, which increased its construction budget by 23 per cent at taxpayers’ expense, the convention centre has become a major drain on the public purse.

“It isn’t any surprise to me if they are considering going back to Treasury Board asking for more money.”

The possibility that more tax dollars will be needed comes on the second anniversary of the start of construction on the project.

The convention centre will be the largest building of its kind in B.C., with costs exceeding even the Olympics’ $580-million venue construction budget.

Two years ago, workers began tearing down the old wharves next to Canada Place in preparation for the installation of more than 1,000 steel and wood piles that will support the 1.1-million square-foot convention centre.

The piledriving job fell five months behind schedule because of complications, including the discovery of massive boulders, discarded concrete and the shell of an old Customs house buried deep in the mud.

“There was just an incredible amount of material we had to contend with in this disturbed area,” Anthony said.

Piledriving was completed in May and the concrete foundation is now almost complete. That’s good news, as far as Anthony is concerned.

“Getting up out of the water is a major step. It now turns this into a regular building project,” he said.

Anthony said the project will quickly get back on schedule, as the entire project is being built in overlapping phases from east to west, he said. Workers are already erecting the steel structure at the east end of the platform as the concrete platform is being finished on the west side.

The project has had to cope with a severe shortage of equipment; two of the four cranes being used to build the platform and erect the steel had to be shipped in from Germany. Anthony said the reconstruction program in hurricane-devastated New Orleans created a shortage of large cranes.

Skilled labour is also in short supply; there are seven provinces represented in the 200 employees on site, and the project is having to pay a housing subsidy to many of them to prevent them from working elsewhere.

Anthony said his office struggles daily with trying to keep costs down, and has tried to lock in needed commodities where possible. For example, it ordered much of the 20,000 tonnes of steel needed directly from steel mills, and also bought concrete at fixed prices before a concrete installer was hired.

The project managers have also scaled construction to take place in overlapping waves in order to keep the project rolling along smoothly, Anthony said.

For example, steel fabrication of the building is already starting on the east side of the platform, while the concrete slab is still being laid at the extreme west end. The glass walls will be installed starting next spring on the east, as building fabrication moves west.

MASSIVE PROJECT

A look at some of the stats that indicate the scope of the convention centre expansion.

Site size: 9.2 hectares

Total floor area: 77,000 square metres (convention centre: 48,000 sq. m.; exhibition hall: 21,000 sq. m.; retail and services: 8,700 sq. m.)

Steel building piles: 898

Foundation deck concrete: 25,000 cu. m.

Foundation deck reinforcing steel: 6,200 tonnes

Structural steel: 20,000 tonnes

Labour force onsite: 200

Vancouver Convention Centre Expansion Project

© The Vancouver Sun 2006