Sunday, November 25, 2012

RETHINKING MUSKRAT FALLS

A nation that controls its energy future, controls its economic future.

A statement that I have uttered a thousand times over the past thirty years. With cheap energy comes opportunity to add value to our exports. Energy attracts manufacturing. Manufacturing creates jobs. Jobs keep the economy humming.

The Chinese know it. Follow that nation's buying spree and investment patterns. The United States has long known it - hence the race to ratchet down its dependence on foreign oil and gas.

Exploiting our primary resources to gain the benefit of the employment and increased value has not been our strong suit. The development of the off-shore oil industry has seen a rise in manufacturing opportunities in that sector. As well, Roger Grimes shrewd negotiations with INCO cemented, and expanded by Danny Willams, ensured that there will be lots of value added at Vale's Nickel facility  in Long Harbour.

Let's face it, with the closure of two paper plants and dozens of fish plants, the need for non-service sector jobs in our province is at an all-time high. To ensure that more people benefit from the short term oil windfall, our leaders must be strategic.

What I know is that we are more dependent on non-renewable resources today than we have ever been. We are in a position, fiscally, to spread today's wealth to infrastructure that will ensure a strong economic future for generations to come, by being an energy giant in the future. If not a North American energy giant, a province that will be able to offer cheap energy to those that wish to be competitive.

Wages are certainly not the best way to be competitive. Lowering people's ability to purchase is a losing proposition. Offering very competitive energy prices for everything from mining, smelting, on-land aquaculture to agriculture would appear to be where our future may lay. Can we afford to build Muskrat purely for our own use?

One thing that appears to be getting clearer is that expensive mega project electricity is not going to compete with cheap natural gas driven electricity in the United States, at least not in the short term. The Lower Churchill project is not going to be cheap energy, nor is it going to be competitive for export south of the Canadian border. It is also not going to unlock "Labrador Power" so we can get around Quebec.

If America's abundance of natural gas leads to Hydro Quebec having reduced markets for their hydro exports, where is the market for Muskrat power? If Hydro Quebec has to reduce commercial rates on the spot market, why can we not purchase power from them for the mineral developments in Labrador? They will have a surplus.

I have said in the past, American natural gas changes everything. The technology for fracking will get better, the environmental concerns will not impede the stampede to make America great again. A nation that controls it's energy future, controls it's economic future.

The opportunities that existed pre- 2008 have evaporated.  The Emera component does not make a lot of sense for Nova Scotia or for our province. Nova Scotia would be much better off developing a natural gas infrastructure.

I am still not convinced by NALCOR and government's ring-fenced numbers that a transmission line to the Avalon from Muskrat at this point is the least cost option. From the projected increase in residential consumption to the dismissal of other energy sources, the in-feed option is suspect. There are too many good options to dismiss them all.

I believe that transferring rents from non-renewable resources to develop long term economic opportunities like renewable hydro makes a lot of sense. However, how long term are we looking at? Are we prepared to embark on a $10 Billion expenditure that will create short term jobs but take generations to produce wealth? 

Have we already missed the window of opportunity for the Lower Churchill Project?

If so, why do we continue to plow this thing through?
 

3 comments:

Anonymous said...

Peter. Very interesting read. But lets remember this is not cheap power which will fuel industry in Newfoundland. That is what the upper churchill potential is. Muskrat Falls power if sold 100% over the Maritime link would bring in ~170 million a year in revenues at the current rate of 35 $/MWhr. This is the present New England wholesale rate (4900 GWhr x 35$MWh). The equity the government is investing (some 2 Billion) would represent 100 million a year in interest charges alone. Not to mention the other 4.2 Billion which would have to be financed through loans. At the present New England market this project would never happen. Even if transmission was free. It is happening because the people o fthis province are paying the entire bill. There is no new wealth being created. It is a boondongle and the government have been negligent in not explaining the risks to the people of the province.

Peter L. Whittle said...

Which is why I asked the question.

I really though that the fracking issue was going to meet a stronger environmental lobby. Instead it is going gang busters. Natural gas may just fuel a new American age of prosperity! Cheap power means Americans can manufacture at home and compete with countries offering lower wages. It also means lessening a dependence on other nations for oil & gas..opening up a future challenge for the riches beneath the arctic ocean.

It sets the scene for some dramatic geopolitics.


Anonymous said...

Governments in this province have typically been very slow to do pretty anything....with the possible exception of Muskrat Falls. Why all of a sudden does government become an over acheiver?