Canada West Foundation Blog

By: Michael J. Ervin

This has been a fascinating year for followers of petroleum markets.  There has always been a level of confusion—if not distrust—over the ability of gasoline and diesel prices to change with no apparent connection to underlying crude oil prices. Lately, that disconnection seems greater than ever.  Fuel prices seem to be much higher than the underlying price of crude oil would suggest, at the very time of the year when they ought to be relatively low due to reduced seasonal demand, especially for gasoline.  What gives?

The single most important reason is the difference between the price of West Texas Intermediate crude oil (WTI), and the price of Brent crude: the former originating in the Texas oilpatch, the latter originating in the North Sea. The two are of similar quality and, all other things being equal, should trade more or less at parity to each other. Historically that has been the case, but more recently, the price “spread” between the two has been significant. Why?

The fundamental cause lies in the fact that WTI moves by pipeline within the US, with little ability to reach global markets, whereas Brent—and other “waterborne” crudes—can move by oil tanker to just about any crude receiving marine terminal in the world, including those in the US and Canada. Most of the time, supply and demand for each of these two benchmark crudes are in balance, thus resulting in their respective prices being similar.  What has changed is this: there has been far more crude supply going into the Cushing Oklahoma storage and trading “hub” for WTI than there has been demand for that product to leave Cushing.  High inventories equals depressed prices. Brent does not suffer from those conditions, hence the spread.

This unprecedented price spread has played havoc in North American refined products markets. Many large institutional buyers of fuel have historically bought WTI futures contracts as a hedge against any unexpected rise in fuel prices.  Fuel prices did go up, driven by higher Brent crude prices, but the underlying WTI futures contract lagged behind. Ouch!

For everyday consumers, rising fuel prices made no sense at all, given the apparent lack of upward movement in the price of crude oil as reported in the popular press, who generally refer to WTI, not Brent, as “the price of oil today”.  Brent and other waterborne crude prices did rise significantly however, are very much used as feedstocks at a multitude of North American refineries.

The relatively low WTI prices have also created some anomalies with respect to refinery margins, also known as “crack spreads”—the difference between the revenue from a barrel of gasoline (for example) leaving the refinery, and the cost of that barrel of crude oil going into the refinery. Crack spreads tend to be low when wholesale inventories of a fuel are plentiful and vice versa—exactly as one might expect. Lately, however, crack spreads appeared to be high, despite healthy gasoline inventories across North America and, until recently, high diesel inventories.

The key word is appeared.  Crack spreads, as measured by outside observers, historically used WTI as the crude basis in US markets, even in regions that in actuality rely on “waterborne” crudes such as Brent. Similarly, Canadian industry watchers often used a western Canada benchmark crude basis, one that bears more of a logistical resemblance to WTI than it does to Brent.  So, Brent and other relatively high priced waterborne crudes—the actual feedstocks used by coastal refineries logistically isolated from cheaper “landlocked” crudes such as WTI—have actually caused depressed crack spreads in those regions. So, while WTI served as a handy benchmark for crack spread analysis in the past, it now grossly overstates crack spreads in refining regions not able to gain access to WTI crude.  Many firms—mine included—have consequently re-visited their methodologies for calculating crack spreads.

It is important to note that the Brent/WTI spread has eased recently, from close to $30 a barrel in October to just over $10 today. In the long run, this spread will diminish to historical levels of near-parity.  For starters, the likely reversal of the Seaway pipeline between Cushing and the US Gulf Coast will improve the flow of crude oil out of Cushing, and that can happen in a matter of months, not years.  This will firm up WTI and western Canadian crude prices—good news for those producers, albeit at the likely expense of lower Midwest refiner margins. Future additions to pipeline infrastructure, the Keystone XL in particular, will further allow Midwest crudes to compete more directly on the global market.

Given the past and (to a reduced degree) current price divergence between Brent and WTI, one might expect to see fuels refined from the lower priced “landlocked” crude oils to sell at lower prices than those refined from pricier “waterborne” crudes.  This has not been the case however.

The reason for this is quite simple: products such as gasoline and diesel fuel are not priced on a “cost-plus” basis in their wholesale markets.  This is not an industry practice; this is simply how any commodity market works.  Because refined products can more easily flow out of western Canada than they can flow in (all of the trans-regional pipelines carry crude and refined product away from Edmonton, not into it), lower wholesale fuel prices in western Canada can quickly reach parity with those in eastern markets.  Unfortunately, when supplies of gasoline or diesel in western Canada are tight and prices rise, the west is less able to access less expensive eastern fuel markets—pipeline directions can’t be changed on a whim.

This means that in western Canada, while wholesale fuel prices can be significantly higher than in the east, they are seldom significantly lower. While westerners live in a region blessed with oil resources and an accompanying refining industry—both exporting the majority of what is produced to other regions—pipelines run in one direction only, a limitation that should be addressed in discussions about a Canadian energy strategy.

Mr. Ervin

Mr. Ervin is the Principal of MJ Ervin & Associates, a division of Ontario-based The Kent Group.  He has had a successful and varied career in the downstream petroleum industry spanning over thirty years. Management assignments have taken him to all regions of Canada, working with major integrated oil companies as well as regional refiners and marketers. In his subsequent petroleum consulting career of twenty years, he has worked with industry and government clients from across North America, Europe and Africa. Mr. Ervin’s functional specialties include petroleum marketing economics, downstream operations management and reviews, feasibility studies, and petroleum marketing strategy and planning.  Mr. Ervin is a well-known media commentator on matters relating to the petroleum industry, especially on the subject of retail fuel prices.

In addition to his consulting practice, Mr. Ervin is a serving officer in the Canadian Forces Reserve. He is a Commissioner on the Calgary Police Commission, and a director on the board of the Canadian Association of Police Boards. He is an avid runner, and has completed over 18 marathons, including the 2006 Boston Marathon. Mr. Ervin is a private pilot, and with his wife Martina, enjoys downhill and cross-country skiing, and summer hiking and backpacking.

One Comment

Bravo – very clear and accessible explanation!
Happy to read this type of column that is a nice complement to the opinion pieces (that are also interesting).
joseph

By: Larissa Sommerfeld

In Canada, we often think within our respective provincial/territorial bubbles, but it’s important to create public policy on a regional basis.

Take the case of the Northwest Territories (NWT) and its recently developed water stewardship strategy, Northern Voices, Northern Waters. Published in 2010, this strategy is lauded due to the fact that the NWT government engaged and collaborated with citizens, introduced an eco-system approach to governance and defined water as a human right.

One of the main obstacles to success of the strategy, however, is what neighbouring jurisdictions, such as British Columbia and Alberta, do or don’t do in terms of water policy.

The NWT is almost entirely enclosed with the Mackenzie River Basin—a massive watershed that contains 20% of Canada’s landmass and also includes parts of Yukon, British Columbia, Alberta and Saskatchewan. While borders separate governance, they do not separate the flow of water. What happens downstream will affect water quality or quantity upstream. And upstream in this case goes all the way north to the Beaufort Sea.

The real test for the NWT will come in implementing the strategy. And that’s where things get tricky.

For instance, take the obvious example of Alberta’s oil sands. Long criticized for affecting both water quality (pollution and altered water temperature) and quantity (altered in-stream flow needs), those in the NWT assert that Alberta needs to continue to work toward sustainable development to ensure that those who rely on a clean and stable water supply upstream aren’t unduly affected.

This isn’t to say that the NWT isn’t dealing with similar issues within its own borders. The point, however, is that activity outside of those borders requires intergovernmental discussion and coordination because governments have different goals, different solutions and different opinions.

Last week, the Canada West Foundation and the Forum for Leadership on Water (FLOW) co-hosted two events held in Edmonton and Calgary which were part of water expert Bob Sandford‘s 15 city cross-country speaking tour titled “Northern Voices, Southern Choices” on this very topic.

One of the key themes that emerged from both discussions was the need for a Canadian water strategy—a strategy that would get provincial and territorial governments on the same page so that strategies like “Northern Voices” would have a greater chance of being successfully implemented.

What do you think? Does Canada need a national water strategy? Should we be thinking about other provinces or territories when developing our water policies, or should we just focus on our own jurisdiction? Can southern choices truly silence northern voices?

These aren’t easy questions to answer. But, in the end, we’re all downstream from someone.

For more on Bob Sandford’s presentation and thought-pieces on this issue, check out FLOW’s website at www.flowcanada.org.

By: Casey Vander Ploeg, Senior Policy Analyst

Saskatchewan is getting a reputation these days.  In 2010, Saskatchewan posted the second highest economic growth in Canada, and the province also became a global newsmaker after goliath BHP Billiton tried a $40 billion take-over of Saskatoon-based Potash Corp.  In 2011 and 2012, Saskatchewan is expected to lead the country in economic growth, outstripping both BC and Alberta.  What’s more, Saskatchewan is the only province that managed to table a surplus budget for fiscal 2011/12.  That’s right. Surplus.

These days, the sky is indeed the limit in Canada’s “Land of Living Skies.” And this applies politically as well as economically.  Earlier this month, voters in Saskatchewan casted ballots in the province’s first-ever election occurring on a fixed date, and then saw fit to hand Premier Brad Wall’s Saskatchewan Party an unprecedented landslide.  Wall’s “warriors” not only earned a higher share of the popular vote, they also managed to grow their seat count—a rarity for any government winning their second term.

All of this has generated some pretty big headlines for Saskatchewan—and the bragging rights that go along with them.  Yet, slumbering away amidst all the noise is a “sleeper.”  It’s a “sleeper” because it concerns policy, and policy just doesn’t sizzle like the cut and thrust of politics or the dollars and drama of the economy.

What is this policy?  Well, the 2011 Saskatchewan budget fulfills a promise to share 1% point of the 5% provincial retail sales tax with municipalities in the province.  This is a jump from the 0.75% points that the province had been sharing.  Starting in 2011, municipalities in Saskatchewan will begin receiving grants equal to one-fifth of all provincial sales tax revenue.

Last year, Saskatchewan’s sales tax revenue sharing totaled $167 million.  This year, it will jump to $217 million.  By the next fiscal year, the municipal share could grow to $237 million.  In 2011/12, Saskatoon is expected to get $37.8 million and Regina $33.5 million.  In 2012/13, the pair should get $41.5 million and $37.0 million respectively.

Given the amounts in play, it’s not surprising that a lot of the commentary so far has focused almost exclusively on the cash.  While the new funding is no doubt good news, there’s a lot more here to consider than just the coin. The big story behind this policy “sleeper” is that the province has more firmly linked current and future municipal grants to a stream of provincial revenue.  This policy move affects more than the level of granting.  It also speaks to a new way of administering grants.

The purpose behind provincial grants to municipalities is not to simply “grease the squeaky wheel.”  Rather, grants are needed to ensure a measure of equity between municipalities, and to also provide a boost to the limited revenue generating capacity of the property tax.  Grants help municipalities match their limited revenue sources with their broader expenditure responsibilities, and also help municipalities to cover the costs of providing infrastructure and services to outsiders—commuters, shoppers, truckers, conventioneers, tourists—that need the infrastructure and services but pay their property taxes elsewhere.

Two of the bigger problems with grants—and there are more than just two—concerns a lack of predictability and stability over the long-term.  Grants have been variable, unpredictable, ad hoc, and even sporadic.  A second problem has been an insufficient level of granting—particularly given the growth of Canada’s large cities—and insufficient growth in grant levels over time relative to need.  None of this matches with the long planning horizons that infrastructure demands, not to mention the need of sustaining autonomy in local decision-making.

Explicitly tying grants to a specific stream or source of provincial revenue is one innovation that can resolve these long-standing problems.  First, a system of tax revenue sharing will make grants more predictable and stable.  As long as the tax revenue sharing formula is in place, municipalities have a good idea of the grants they can expect, and the revenues should remain stable over time.  The historical experience of municipalities in Manitoba with grants compared to that of municipalities elsewhere is very instructive.

Throughout the 1990s, provincial support for municipalities was scaled back dramatically as provinces sought to bring their fiscal houses into order.  But, municipalities in Manitoba were spared some of the huge cuts that occurred in most other provinces during the fiscal belt-tightening of the 1990s.

In Winnipeg, for example, operating grants in 1990 were $78.3 million, and that grew, year over year, reaching $115.8 million in 2000.  By 2007, Winnipeg’s operating grants reached $140.8 million. Winnipeg was the only “big” western city that did not have its total grant amounts slashed during the 1990s.  In fact, grants grew.  Why?  Because a good portion of Winnipeg’s grants were tied to provincial tax revenues.

Second, most federal and provincial tax sources are more responsive to growth.  This means that their tax revenues automatically grow right alongside the economy without having to increase the rate of tax.  When grants are tied to a responsive provincial tax source like the provincial sales tax, granting levels are almost guaranteed to grow over time.

This second advantage is critical.  As noted above, the Saskatchewan sales tax sharing system will generate $217 million in 2011/12 and $237 million in 2012/13.  That is a 9.2% rate of growth in one year.  In the 2011 budget, the province estimates that nominal provincial GDP will grow by 9.0% over the same time period.  Coincidence?  Hardly.  In tying grants to a responsive provincial tax source, the grants will grow as the economy grows.  And, that’s a good thing.

It’s a good thing because the great bulk of economic activity is generated in our cities and larger urban centres.  Yet, the great bulk of the tax revenue generated by that growth accrues not to the local city hall, but to federal and provincial coffers.  Tax revenue sharing ensures that a portion of local economic activity is injected back into our municipalities and helping them fund the infrastructure and services necessary to accommodate growth.

Laurent Mougeot is the CEO of the Saskatchewan Urban Municipalities Association (SUMA), and has worked with municipal governments for more than 30 years.  He is also a member of the Canadian Institute of Planners (CIP), a member of the Institute of public Administration of Canada (IPAC), and a member of the Saskatchewan Institute of Public Policy (SIPP).  Mougeot knows that this policy is more than just about the money.

“The beauty of the formula is that it is predictable,” says Mougeot.  “It’s also de facto tied to the economy.”[1]

There is another added benefit.  When municipal grants for operations and infrastructure are tied to the fiscal fortunes of the province, there is less need to continually “negotiate” future granting levels, develop new programs, and add to the “red tape” that already exists.  Tax revenue sharing helps keep a lid on all the bickering, complaining, finger-pointing, and blaming that has become so pronounced in provincial-municipal relations.  The “whining, wrestling, and wrangling” of two adversaries is replaced by an environment market by a stronger sense of partnership.  For more on that idea, turn to Rationale for Renewal:  The Imperatives Behind a New Big City-Provincial Partnership.

In Part II, we’ll take a brief tour through the major tax revenue sharing systems in place across western Canada, and see how the new Saskatchewan sales tax revenue sharing policy stacks up.

Click here to read Part II of “Saskatchewan-style Tax Sharing is no “Sleeper”.

References

1. Quote obtained from “Sask. municipalities set for influx of cash“, printed in the Saskatoon StarPhoenix and Regina LeaderPost, August 4, 2011

2 Responses to “Saskatchewan-style Tax Sharing is no “Sleeper” (Part I)”

By: John Dillon

Representatives of virtually every member of the United Nations will gather in Durban, South Africa, later this month in another attempt to fashion a binding international agreement on climate change.  The last great hope occurred in Copenhagen two years ago, but that meeting could only agree on a limited package of measures that even if implemented would still leave the world a considerable distance from the stated goal of limiting future temperature increases to two degrees Celsius.  Even the most enthusiastic backers of the current UN Framework Convention on Climate Change, and its offshoot of the Kyoto Protocol, are no longer looking for major breakthroughs in Durban.

The issues that confound consensus have been around, in one form or another, since the signing of the Framework Convention in Rio in 1992. Fundamentally, it is a debate about how to apportion the burden of major cuts in greenhouse gases (GHGs) among developed countries, which are responsible for most of the accumulation of GHGs in the atmosphere to date, and the emerging economies, which will be the source of most future emissions growth.  Many countries, including Canada, are not on track to meet their 1997 Kyoto commitments to reduce emissions, and a further extension of Kyoto would not be effective as it covers a dwindling proportion of world emissions.  What is needed is a comprehensive, long-term global agreement, but achieving that requires meaningful commitments from all major emitters, including the fast-growing economies of China, India, Brazil as well as the United States, which did not ratify Kyoto.

As in most UN discussions, the debate to a large extent concerns money.  In the climate change context, the issue is who will underwrite the cost of adapting to potentially disruptive changes in the world’s climate, as well as how to finance the development and deployment of the vast array of innovative new technologies that will be needed to arrest and eventually reverse the current upward trend in global GHG emissions.

Developed countries are likely to be the source of much of that new technology and funding—
$100 billion annually was the number first floated in Copenhagen—but they are reluctant to write blank cheques. They also favour some form of international oversight to ensure commitments are met and money is well spent.  The private sector, too, would have an important role to play as the engine of technological transformation. In Canada and elsewhere, companies are ready to make the necessary heavy investments, but only if market signals are clear and the investment climate is transparent and predictable.

If a further stalemate in Durban seems likely, the reasons are not hard to discern.  With the global economy in disarray and governments in Europe and elsewhere awash in debt, public support for expensive new environmental initiatives can hardly be taken for granted. Meanwhile, climate legislation has gone nowhere in the United States. Admittedly the economic slowdown of the past few years has at least lowered the trend line of GHG emissions in the advanced industrialized countries, but a prolonged downturn is hardly anyone’s answer to getting emissions under control.

All of this must be set against the reality of growing energy demand worldwide, which is likely to accelerate as the global economy picks up. A burgeoning middle class in key emerging economies will clamour for more automobiles and other energy-using devices.  On top of that, the increasing interest around the world in significant deposits of shale oil and shale gas raises serious questions about how quickly the world can actually transition away from fossil fuels. The International Energy Agency predicts that, even taking governments at their word with respect to the pledges they made in Copenhagen, carbon-based fuels will still account for 75 percent of global energy consumption in 2035—down only slightly from today’s level of 81 percent.

If a new global climate agreement appears, under the circumstances, a bridge too far at present, there are at least two positive developments that might help nudge the process forward. The first concerns a series of non-binding pledges in Copenhagen by both developed and developing countries to lower emissions or improve energy intensity, leading to a more flexible structure that might eventually attract broader participation and more meaningful action. Such agreements are easier to reach among smaller groups of countries, rather than a UN-style search for “the consensus of the 192”.Thankfully, there is evidence that at least some enlightened leaders in key emerging economies are prepared to look beyond the stale debates of the past. In bodies such as the G20 they are beginning to flex their new-found economic muscle, but with that comes the responsibility to seek effective solutions to the broader geopolitical issues.

A second point is that the failure to agree on the big political issues should not prevent the adoption of practical, cost-effective actions across a range of countries, sub-national authorities, industry sectors and communities.  We need a much stronger and more pervasive commitment to energy conservation and efficiency as the first line of attack in reducing the environmental footprint of carbon-based fuels.  And while the debate about targets and timetables drags on, businesses around the world should be getting on with the job of developing, demonstrating and deploying the advanced energy technologies that are the only sustainable solution that can satisfy growing energy demand with lower environmental impact.

Canada in particular should be doing more to improve its brand as a responsible energy producer—one that takes full advantage of our country’s vast and diverse energy resources. That means investing proactively and strategically in energy efficiency, low-carbon energy infrastructure and innovative new technologies that will ensure a more environmentally sustainable energy system going forward.

John Dillion

John Dillon is Vice President, Policy and Corporate Counsel, with the Canadian Council of Chief Executives.  Formed in 1976, the Council is a not-for-profit and non-partisan organization composed of 150 chief executives and entrepreneurs heading Canada’s leading enterprises.  CCCE member companies collectively administer $4.5 trillion in assets, employ more than 1.4 million men and women and are responsible for most of Canada’s private-sector exports, investment and training.

Mr. Dillon’s primary role is to support the Council’s policy work related to the environment and sustainable development, energy, regulatory issues and corporate and competition law.  He also contributes to the Council’s work in the areas of competitiveness and corporate governance.

Mr. Dillon is a frequent speaker and panellist on the subjects of climate change, energy, sustainable development, competition policy and regulatory issues.  He maintains an active network of contacts in the Canadian corporate community and works closely with other business organizations to promote sound public policy solutions. As part of his work on the environment and sustainable development, he currently chairs an informal industry coalition that aims to positively influence government policy related to climate change and air quality.

During some 20 years with the Council, Mr. Dillon has represented the interests of Canada’s business leaders on a wide range of major Canadian and international environmental issues and initiatives, including the Rio Earth Summit, the Kyoto Protocol, the Canadian Environmental Protection Act, and the environmental side agreement to the NAFTA.  For several years he served as a business representative on the Canadian delegation dealing with the United Nations Framework Convention on Climate Change.

Mr. Dillon holds a Bachelor of Arts degree (Carleton) and a Bachelor of Laws degree (Queen’s) and is a member of the Law Society of Upper Canada.

By: Casey Vander Ploeg, Senior Policy Analyst

In 2005, I was handed my biggest challenge as a Senior Policy Analyst with the Canada West Foundation.  That challenge was to travel the globe—via the Internet of course—and answer a relatively simple question.  How do world class cities finance, fund, and provide urban infrastructure?  My global travels took me to cities across the US, western Europe, southeast Asia, and Australia.

The purpose of the quest was to get a handle on innovative solutions to the infrastructure funding issue, and it ended with the publication of “New Tools for New Times.” That piece still stands as one of the Foundation’s largest research studies to date, and it ate up well over a year of my professional life.  Between its covers, you can find over 100 traditional and innovative tools for financing, funding, and delivering municipal infrastructure, complete with descriptions of how they work and where they have been put to work.

Across Canada, it’s estimated that our villages, towns, and cities have an infrastructure funding shortfall of some $123 billion.  And, that’s just the amount needed to repair, renew, rehabilitate, and replace existing infrastructure assets.  There could be up to another $115 billion needed to construct new infrastructure to accommodate growth. (See the study entitled “The Coming Collapse of Canada’s Municipal Infrastructure” by the Department of Civil Engineering at McGill University and the Federation of Canadian Municipalities).

Grand total?  A cool $240 billion.

That’s a lot of cabbage.  It amounts to about half of the federal net debt, or about $30,000 for each and every family of four in Canada.

Because the amount is so large—mammoth really—the search for workable solutions must go beyond the traditional approaches of the past.  The sheer size of the infrastructure funding challenge puts a premium on new, fresh, creative, and innovative ideas and approaches.  This “innovation imperative” is underscored by yet another sobering reality.  Given the recent economic upheavals and the state of most government budgets, tax dollars are in relatively short supply.  Budgets across the land remain in deficit.

Saskatoon City Manager Murray Totland is “right on the money” in a recent interview with the Insight Saskatchewan newsletter.  Totland argues that “It’s going to be difficult just to fund our way out of this.  The numbers are so staggering.  Innovation is going to play a role.”

When it comes to innovation, whether it is inventing new technologies locally or adapting and adopting innovative approaches developed elsewhere, one thing is very clear.  Innovation, as a process, does not occur in a vacuum.  Innovation comes as the result of information exchange—interaction.

That’s the purpose behind “Let’s TOC.”  Here, you will find not just a steadily building repository of innovative ideas and practical examples, but the opportunity to engage in constructive discussion and dialogue with a broad range of infrastructure practitioners on the latest and most promising innovative infrastructure ideas.

Resolving Canada’s municipal infrastructure challenge is going to take more than a new grant program.  It’s going to take more than “tinkering” or “fiddling” with the status quo.  It’s going to take more than “piddling” on the periphery.  It’s going to take fresh ideas, creativity, and the capacity to innovate.

If there is any good news behind the $240 billion challenge, it is that the innovation “menu” is both wide and long, and includes everything from tax incremental financing, revenue bonds, community bonds, and smart debt to rational pricing models, strategic capital asset mangment, local option taxes, trenchless technologies, small scale wastewater treatment, grey-water recycling, pooled purchasing, rainwater harvesting, and “on-farm” water purification. And, those are just the appetizers.

4 Responses to “The “Innovation Imperative””

1. 4
   Casey Vander Ploeg Says: 
   November 22nd, 2011 at 1:57 pm

   Her Worship Mayor Shari Decter Hirst echoes what is a continuous refrain in the municipal community when it comes to infrastructure — a certain lack of freedom to pursue various innovative options that we see employed elsewhere across the globe. For example, while Tax Increment Financing (TIF) has been standard fare in many US cities for decades, it was only recently that Manitoba passed legislation allowing for the use of this option in that province. I have had the privilege of presenting to the annual general meeting of the Association of Manitoba Municipalities on two occasions. Following the first presentation, I met with a small group of community leaders and the former Mayor of Brandon to talk about TIF, how it works, and how it might contribute to renewing downtown Brandon. At the time of that meeting, TIF was not really a workable policy option in the absence of enabling legislation at the provincial level. So yes, provinces do hold the reins on a lot of possible options. At Canada West, we have made the case why provinces should consider loosening those reins in an attempt to stimulate more innovative ideas and approaches.
   CASEY VDP.

2. 3
   Mayor Shari Decter Hirst Says: 
   November 20th, 2011 at 5:08 am

   Brandon is a small prairie city with $165 million of unfunded infrastructure obligation. It’s strangling our opportunities for growth and will have a major impact on our 2012 budget. The Association of Manitoba Municipalities meets in Brandon this week and on the agenda will be several opportunities for civic leaders to debate infrastructure funding options. Unfortunately, in MB, our options are limited because of limited legislative municipal authority.

3. 2
   Casey Vander Ploeg Says: 
   November 18th, 2011 at 10:56 am

   HI TODD:

   Good to hear from you. Many thanks for your encouragements. I always look forward to the latest edition of ReNew. I just wish I had more time to spend with it. I stopped in at the top 100 projects site that you mentioned above, and took a tour through the interactive map. That’s pretty cool stuff! It gives a really nice regional and national picture. For all out there, stop in and look around. Check out the option to submit your infrastructure project for the 2012 Top 100 list.

   CASEY VDP.

4. 1
   Todd Latham Says: 
   November 17th, 2011 at 12:55 pm

   Congrats on this new initiative and discussion group. As you know, ReNew Canada – the infrastructure magazine – has been talking about these issues and publishing the innovation and policy efforts surrounding sustainable infrastructure finance, maintenance and operation since 2005. We’ll mention your blog and tell our 40,000 readers about LetsTOC… and we’ll see you at the Infrastructure Summit next fall. In the meantime, if you want to see what $96 billion of infrastructure looks like, check outhttp://www.top100projects.ca … the 2012 version will be released in January. Thanks Casey!

By: Tim Egan and Mel Ydreos

“Events my dear boy, events,” was the comment of British Prime Minister, Harold McMillan, when asked what was the most difficult thing about running his country. That’s true for politics, but it’s also true for the energy industry and how it deals with the increasingly global commodity—natural gas.  Five years ago we would not have contemplated the events that have given us today’s gas market realities and neither can we anticipate what future events will be.  So what do we do?  Political success in the face of the unexpected requires clear objectives, an adaptability in how one executes a plan and strong leadership. So too in the energy industry.  Which brings us to a new initiative by the Canadian Gas Association called Energy Technology and Innovation Canada (ETIC).

ETIC is intended to mobilize investment in end-use energy innovation and technology.  It represents the collective interest and investment of CGA member natural gas utilities. It has a very explicit business objective: to help ensure that natural gas and gas-enabled technologies remain a significant part of Canada’s energy future.

ETIC is intended to function as a broker and industry advocate by:

1. Bringing utilities and other parties (in industry, government and academia) together in relationships that promise leveraging opportunities for all involved;
2. Working to define and assist in the realization of these opportunities;
3. Working to leverage funding for these opportunities; and
4. Assisting in the design, management and execution of deployment initiatives that arise from these opportunities.

ETIC will focus initially on four technology areas:

1. Integrated Community Energy Systems
2. Renewable Natural Gas
3. Transportation
4. Industrial Processes

ETIC’s primary focus will be on enabling demonstration projects, but its activities may also include technology transfer and cooperation with those focused on research and development.

Canada’s natural gas industry is strongly of the view that new supply has changed perceptions about declining resource availability. ETIC takes a prudent approach on that however—abundance isn’t a license for unchecked use, nor can we assume there may not be restrictions on use in the future. Prudent use also helps assure more long term flexibility in markets for unexpected events. The more we can work to find more efficient and more innovative uses of natural gas, the more we can continue to keep this key energy source readily available over the long-term for known and unanticipated energy demands, domestic or international.

ETIC speaks to one of the fundamentals of our marketplace: keeping energy as affordable as possible is key to our economic well-being. Finding new and better ways to use natural gas is part of an affordability strategy—ultimately that is good for consumers.  Moreover, innovation drives future economic growth.  Newer, more efficient, more creative applications for natural gas can create new economic opportunity and offset current costs.

It should also be noted that more efficient and innovative uses of natural gas will offer environmental benefits; not only will they reduce the emissions from use of the product, they will also offer a means to integrate currently unused resources—like renewable natural gas. And more importantly, they offer a means to help drive the better integration of other energy services—for instance, intermittent renewables—with a host of derivative environmental benefits in terms of better land use and lower energy consumption.

What if we could have micro-CHP units in people’s homes, generating electricity and heat with natural gas, offsetting the need for new electricity generation and transmission expansion, and utilizing the already-in-place natural gas distribution system that delivers energy services more efficiently?

What if we could create integrated community energy systems that bring together water, wastewater, heat recovery, multiple means of electricity generation and gas to deliver a more efficient and effective energy service package to consumers?

What if we could have natural gas fired vehicles offering vehicle operators choice in the market with all the consequent economic benefits that choice represents?

These are not straightforward future scenarios and will, if they happen, take time.  Energy infrastructure investments generally represent a 40 year cycle. ETIC is an effort to help drive the cycle more effectively.

Canada’s gas utilities are dealing every day with the energy service needs of 6.2 million customers in homes, businesses, hospitals, schools, industry and more.  By the industry’s estimation, this represents 20-25 million Canadians.  Those Canadians have extensive energy service requirements and meeting them is a constant challenge.  ETIC is part of the response to that challenge. The pooling of talent and capital it represents promises opportunity for more efficient, more innovative smarter energy use by Canadians going forward.

Is natural gas the answer to all of Canada’s energy needs?  Far from it.  Consumers need energy in four key ways: heating/cooling, plug load, industrial process and transportation.  Natural gas, while it does fuel 30 percent of Canada’s energy end use, is one of many fuels and the input for several technologies to meet that need.

ETIC’s focus on technology and innovation is an acknowledgement of the energy realities facing Canada, and part of the prescription for the future we all want to address.

Timothy Egan

Timothy Egan is President and Chief Executive Officer of the Canadian Gas Association.

Mr. Egan was most recently President of High Park Group (HPG), a public affairs consulting firm with offices in Toronto and Ottawa. Incorporated in 2001, the firm’s principal specialty areas include regulatory and policy matters affecting Canadian industry particularly in the natural resource and transportation sectors. Mr. Egan is well regarded among the energy industry and stakeholder community as a result of the extensive energy sector public policy and communications work that has long been a mainstay of HPG’s portfolio.

Mr. Egan has an undergraduate degree in history from the University of Ottawa, and common and civil law degrees from McGill University. After law school he spent 2 years consulting to Environment Canada, after which time he did his legal articles in Toronto, and was called to the Ontario bar in 1995. Mr. Egan began acting as an independent consultant for the private sector at that time, eventually establishing HPG.

He is married to Patricia (nee Armstrong) and they have five daughters.

Mr. Mel Ydreos

Mr. Mel Ydreos is vice president of marketing and customer care for Union Gas Limited.

In his current capacity, Mr. Ydreos has responsibility for Union’s marketing activities with its residential, commercial and industrial markets, Union’s Demand Side Management programs, and is accountable for the entire revenue cycle though Union’s Customer Care operation.

Through a career that spans over 31 years at Union Gas, Mr. Ydreos has gained extensive experience in engineering, field operations, marketing and energy conservation. Previous to his current role, Mr. Ydreos held the position of vice president, operations and vice president, engineering and gas supply operations.

Mr. Ydreos also served as Interim President and CEO of the Canadian Gas Association in the summer of 2010.

Mr. Ydreos joined Union Gas after graduating from the University of Waterloo with a civil engineering degree.

Mr. Ydreos has been very active in the natural gas industry through his participation with the International Gas Union, and currently serves as chair of the Special Task Force on Geopolitics and Natural Gas for the 2009-2012 Malaysian Triennium. In the previous 2006-2009 Argentinean Triennium he served as the vice chair of the Special Task Force on Research and Development and led the IGU’s Best Practices Initiative.
Previously, he was an active participant in the WOC-4 Distribution Committee and acted as chair of the Distribution Pipeline Integrity Working Group. He is also past chair of the Standing Committee on Operations for the Canadian Gas Association. He has served on the board of directors of Canadian Standards International and the Canadian Standards Association Group. Mr. Ydreos is also past chair of the Technical Standards and Safety Authority’s Natural Gas Advisory Council, and past chair of the Canadian Gas Association’s Eastern Workshop.

Mr. Ydreos is also the Founding Chair of the of Energy Technology and Innovation Canada, is a member of the Advisory Board of the University of Waterloo’s Sustainability Institute, is a member of the Advisory Board of the International Bio-fuels Institute at Brookhaven National Laboratory and a member of the Board of the Mowat Centre’s Energy Fellow.

Mr. Ydreos has also volunteered his services to organizations such as United Way and is a past member of a number of Rotary Clubs.

Union Gas Limited is a major Canadian natural gas storage, transmission and distribution company based in Ontario with nearly 100 years of experience and service to customers. The distribution business serves 1.3 million residential, commercial and industrial customers in more than 400 communities across northern, southwestern and eastern Ontario. Union Gas’s growing storage and transmission business offers premium storage and transportation services to customers at the Dawn Hub, the largest underground storage facility in Canada and one of the largest in North America. It offers customers an important link in the movement of natural gas from Western Canadian and U.S. supply basins to markets in central Canada and the northeast U.S.

By: Roslyn Kunin

It sounded really good when US President Barack Obama spoke in Hawaii after meeting with Canada’s Prime Minister Stephen Harper: his talk centered on an expanded trans-Pacific trade agreement which would significantly increase trade and, in turn, create jobs and generate economic growth.

Canadians should be delighted at this chance to expand trade. We are twice as dependent on international trade as the US.  But the greatest part of that trade is with the US. In western Canada, we have survived the recent economic uncertainties better than much of the rest of the continent, in part because our trade with the Asia Pacific region has been growing. For the first time ever, BC wood exports to Asia have exceeded those to the US.

So it would appear to be a no-brainer that Canada should be jumping at the chance to sell more to the fast growing markets in Asia and not have our foreign trade sector held hostage to the weak and wavering conditions in the US. But, according to Finance Minister, Jim Flaherty, we have to pay attention to details before we move ahead.

What are those details? They are the Canadian monopolies on things like eggs and dairy products that we call “marketing boards”. These boards were put in place to appease the relatively small number of producers of these products by guaranteeing them protected markets for milk and other basic foods. All other Canadians pay for this program dearly in the form of notably higher prices for these groceries. How much higher? Enough to make it worthwhile for those who live close to the US border to pick up their eggs, milk and other dairy products on the south side of the Canada-US border. In fact, Canadians in US border towns are called “cheeseheads” after one of their common purchases.

Not only do the marketing boards increase the cost of living for Canadians, they are also a serious trade barrier. They have been and remain a major deterrent to expanding Canada’s trade opportunities in Asia and elsewhere. So it should be a big win-win to get rid of them. At a time of rising food costs, we would all see the amount on our grocery bills drop while our markets for goods and services abroad would expand and jobs would increase.

Even the protected producers could benefit in the long-run. Once they have lost their monopoly, they are smart enough to figure out not only how to be sufficiently productive to survive in the Canadian market, but also how to compete in markets abroad. We saw this happen in New Zealand when their previously protected food producers were exposed to the winds of competition. The quantity and quality of the output went up, the prices went down and markets and profits expanded. Canadian producers will do, at least, as well.

By: Robert Roach and Barry Worbets

Chances are that you have watched a hockey game in which a ref has made a bad call. The coach rants from the bench and the fans boo, but it makes no difference.

This is similar to the situation faced by natural resource (including energy) companies in western Canada. They are out on the economic ice trying to provide the world with the resources and energy it needs, satisfy their shareholders, keep people employed and follow the rules set by government only to find themselves in the environmental penalty box* over and over again. Sometimes it is public opinion that makes the wrong call, sometimes it is special interest groups and sometimes it is foreign governments looking for any excuse to protect domestic industries.

Those who value the contribution of the natural resource sector to our prosperity have two choices. We can huff and puff about the bad calls until we are blue in the face or we can play smarter. Playing smarter means doing such a good job at environmental stewardship that even the most biased refs will find it hard to blow the whistle unfairly.

In addition to reducing the number of bad calls and, thereby, maintaining our license to operate, being the world’s best environmental stewards will result in improved environmental outcomes.

There are lots of things we can do to improve our environmental stewardship as it relates to our bounty of natural resources, but one piece of the puzzle stands out: the public policy decision-making process. How governments arrive at their decisions is an area with lots of room for improvement.

This is highlighted by how the public views the environmental assessment process attached to resource development. Over 8 in 10 western Canadians feel that the environmental sector process is biased in favour of the resource companies involved or the environmental groups that oppose them. Clearly, the public does not have confidence in the system. Whether this is a substantive problem (i.e., the assessments really are biased) or a public relations problem (i.e., the system is perceived to be unfair), public confidence has to be restored.

At least two other weaknesses are especially apparent in the current environmental decision-making process in Canada.

First, as with so many other areas of public policy, our governments do not work together as well as they could and should. Miscommunication, duplication and working at cross purposes occurs within governments when different departments operate in silos; between provincial governments when each charts its own idiosyncratic course; and between levels of government when some combination of the federal government, the provinces and municipalities get involved in the same natural resource sector issue without first coordinating their efforts.

If more than one government or part of a government are going to be involved, they have to get better at collaboration. The alternative is a confusing decision-making process that obscures accountability, muddies the policy waters, frustrates industry and produces bad policy that undermines environmental performance and adds to the perception that we don’t have our act together.

Second, the environmental decision-making process does not do a great job of integrating scientific evidence and public policy. Knowledge transfer and evidence-based decision-making are not new concepts, but decisions around how best to steward our environment in the face of natural resource development remain mired in short-term political thinking and emotional appeals. More scientific input will not provide everything we need to make good decisions, but it will certainly help.

Understanding the cumulative effects of multiple land uses, ensuring the full and meaningful participation of key stakeholders such as Aboriginal groups and farmers, linking land use decisions more closely with water policy and a host of other pieces of the decision-making puzzle need to be addressed. Nonetheless, the role of science, the need for better intergovernmental coordination and increased public confidence in the system stand out at as areas that, if improved, would help western Canada’s resource industries achieve the real and perceived level of stewardship needed to satisfy our many critics.

We need to find ways to improve our environmental policy process so we can stay in the game, put economic points on the board and steward our natural capital for future generations.

*This metaphor is borrowed from Calgary Herald columnist Deborah Yedlin.

By: Dr. Roslyn Kunin

Over the years, I have spoken with many people who were planning on starting their own business. They told me about the great product or service they would offer. They described how they would set up the business. They all told me how much money they hoped to be making once the business got rolling.

What they never mentioned, until they were prompted, were customers. That basic business need, someone willing and able to pay for the good or service provided was, if not totally missing from the mental image of the new business, certainly not in the foreground.

We should not be too hard on these aspiring entrepreneurs for not thinking about who was going to buy their output. For a very long time, governments, policymakers, planners and others interested in economic development did the same thing. Some still do so.

Take western Canada as an example. When we think about advancing our economy, we think about inputs. These include our resources and how we can access and develop them. They include infrastructure; transportation, communication, etc. They definitely include human capital—a workforce with both hard and soft skills and, ideally, some relevant experience.

We think about what we might produce. In the past, the focus has been around the question of how the West can move up the food chain beyond its traditional, resource-based industries and into manufacturing and the newer technologies.

What we have not been thinking about is customers. Who is going to want whatever it is we are or might be producing? For too long, we have had an “if you build it, they will come” attitude. But that only happens in the movies.

Relative to much of the rest of the world, western Canada is blessed with various essential resources, an educated labour force, decent infrastructure and political stability. But we are seriously limited by our lack of customers. We have been, and still are, far too dependent on one customer—the United States.

If you have only one customer, the US is a good one to have. It is close, big, speaks English and has similar laws and customs. But it exposes you to the risk of having all your eggs in one basket. We learned this to our sorrow in the last downturn.

To advance western Canada, we need more customers, and those potential customers are sitting across the Pacific and beginning to creep into our awareness. They want, need and can afford the resources and high level services that we can provide.

So let us adjust our focus to look west as well as south. Let us develop the pipelines and other infrastructure needed to serve new markets. Let us develop and add to our customer base. That is how businesses and economies grow.

By: Dr. Roger Gibbins

From October 21-23, I had the privilege to attend the Ditchley Foundation conference on the future of hydrocarbons as a global energy source. Like the best of conferences, the event offered a stimulating flood of new insights and the chance to reflect on previous thoughts and beliefs.

The conference began by looking at the supply outlook for hydrocarbons, and the conclusion was both clear and troubling: the supply constraints to come are far more likely to be found above rather than beneath the ground. Hydrocarbons are not scarce, but the problems of extraction, transportation and public acceptance are growing. Certainly the Alberta situation confirms this impression, where a huge asset base faces growing market access problems.

Conference participants spoke frequently and passionately about the need to engage the public in discussions about the transformation of the global energy system, and in discussions about the place of hydrocarbons within our energy future. However, it is difficult to figure out how to bring the public to the table. Furthermore, and as current pipeline debates demonstrate, there is no guarantee that greater public engagement will bring greater consensus in its wake.

Nonetheless, the overall tone of the discussions was positive, and particularly with respect to energy conservation and the growing role of cities in terms of energy innovation and conservation. There was also considerable optimism about what Canada might be able to achieve in terms of energy and climate policy given a highly stable political environment. At the same time, participants were not optimistic about the chances for an international climate framework in the near future, although some argued that its absence may not be all that problematic. There were warnings that some of the policy tools used in the past to encourage energy conservation and the development of alternative energy sources may not be available in the face of increasingly constrained public finances. Finally, there was a deep sense of pessimism about significant progress in the United States on any front.

The conference discussion also laid bare a critically important challenge that pipeline proposals face, and will face in the years to come. Although some opposition is based on unavoidable concerns about aquifers, disruption of the surface terrain and levels of compensation for land owners, a significant amount of opposition reflects a deeply held ideological belief that carbon should be kept in the ground. Period.

For these opponents, compromise is impossible, and evidence that aquifers are safe is irrelevant. The only argument to be made is that the economic costs will be high, but this argument can only be directed towards the broader public; it is irrelevant to those who are committed to a carbon-free future.

Although much of the discussion was highly technical, there was a general understanding that visions are more likely to move the public debate on our energy future rather than empirical evidence, or, for that matter, a persistent repetition of the problems associated with climate change or energy production. As was pointed out, Martin Luther King Jr. captured the public’s imagination by declaring “I have a dream” and not by declaring “I have a problem.”

What we need first is a vision of our energy future, and then we can knuckle down to do the tough policy work on how to get there. Hence the importance of Sheila O’Brien and Shawna Ritchie’s recent Canada West Foundation publication, Catching a Rising Tide: A Western Energy Vision for Canada. This book drew on the thoughts and reflections of 50 energy leaders from across the West to articulate an energy vision. If we can agree on an energy vision, if we can agree on the end, then debates over the appropriate policy to get there are more easily resolved.