blog2008

Palin's Pipeline at Risk as Economy Slows

By RUSSELL GOLD
Wall Street Journal
November 19, 2008

The troubled economy that helped sink Alaska Gov. Sarah Palin's hopes of becoming U.S. vice president now is undermining prospects for building the $30 billion natural-gas pipeline she touts as her administration's signal achievement.

The state faces an increasingly gloomy future if construction is delayed, since the majority of the state's unrestricted revenue comes from energy-production taxes and royalties -- a situation unlike any other state. Without a gas pipeline, the annual dividend checks Alaskans get would eventually dwindle and residents could face their first income tax.

As Gov. Palin returns from the campaign trail, she is finding a very different landscape than when she left Juneau in August. Shortly before she was selected as Sen. John McCain's running mate, the Alaska legislature passed a bill to jump-start preliminary work on the pipeline. Not long afterward, the state began handing out record-high annual checks to every Alaskan, sharing the state's windfall from high oil prices.

Today, the global economic slowdown is making it harder to maintain momentum behind the project. At the same time, the combination of falling oil production and falling oil prices has left state officials wondering if they can balance their budgets in the current or coming fiscal years.

There is growing pessimism in Alaska that the pipeline will be built anytime soon. Mike Chenault, the incoming Republican speaker of the state House of Representatives, said he believes the odds of it moving forward in the next couple of years are less than 50-50. "In the end, it is going to be economics that drive this process and not how much we want it to happen," he said.

The economics of building a pipeline are deteriorating as demand for cleaner-burning natural gas slows and prices fall. "Current economic conditions are not good for the Alaska gas line, and I expect considerable delays in the initiation of its construction," predicts Pedro van Meurs, an energy consultant who worked on the project under previous Alaska governors.

Still, for the time being, preliminary work on two rival pipeline projects is moving ahead. ConocoPhillips and BP PLC have committed $600 million for a detailed assessment of building a pipeline. And in August, the state gave $500 million of incentives to TransCanada Corp. to do similar work on a competing plan. The projects have begun hiring employees and signing engineering contracts. But this work could end abruptly in 2010 if energy producers decide there isn't enough demand for gas to justify the investment.

One big hurdle is the growing success of gas producers in the continental U.S. Either pipeline would bring more than four billion cubic feet of the fuel from northern Alaska down to Chicago to feed an under-supplied market. But booming natural-gas production in the U.S. is outpacing demand. In August, wells produced 5.4 billion cubic feet a day more than a year earlier, according to federal data.

For Alaskans, a pipeline would bring a financial bonanza -- and help replenish dwindling revenue from oil production.

Gov. Palin focused on passing the $500 million incentive package and selecting Calgary-based TransCanada to develop the 1,700-mile pipeline. But TransCanada needs commitments from the three big producers controlling the gas on Alaska's North Slope before it can secure financing for the project. And those companies are balking. Exxon Mobil Corp. has so far refused to participate. BP and ConocoPhillips are backing their own pipeline and have expressed reservations about joining the state-backed pipeline.

If West Coast oil prices average about $60 a barrel from today through the end of the fiscal year in June -- which would require Alaskan North Slope oil to rise above the current $49.89 -- the state would end its budget cycle with a small surplus. But another year of $60 prices would mean a $1 billion deficit, says David Teal, head of Alaska's legislative finance division.

Write to Russell Gold at russell.gold@wsj.com

Obama: A new chapter

President-elect Obama promises “new chapter” on climate change

Change.gov
Tuesday, November 18, 2008

More than 600 climate change leaders from across the country and around the world convened in Los Angeles today for the opening sessions of the Global Climate Summit, a 2-day event arranged by California Governor Arnold Schwarzenegger to break gridlock on the issue ahead of next month's United Nations Climate Change Conference in Poznan, Poland.

In a short video addressed to the Summit's attendees, President-elect Obama emphasized his enthusiasm for the Poznan Conference and promised that his administration would mark a "new chapter in American leadership on climate change."

"Few challenges facing America -- and the world -- are more urgent than combating climate change," he said. "Many of you are working to confront this challenge....but too often, Washington has failed to show the same kind of leadership. That will change when I take office."

President-elect Obama is committed to engaging vigorously with the international community to find solutions and help lead the world toward a new era of global cooperation on climate change.

"Let me also say a special word to the delegates from around the world who will gather in Poland next month: your work is vital to the planet," he said. "While I won’t be President at the time of your meeting and while the United States has only one President at a time, I’ve asked Members of Congress who are attending the conference as observers to report back to me on what they learn there."

Watch the full video of Barack's remarks below, or visit the Global Climate Summit home page to learn more.

Click here for video

COMMENT: The Los Angeles Governors' Summit includes representatives from other national and regional governments around the world. It's an international conference. Canada appears to have sent no-one. British Columbia has sent ... Barry Penner.

Governors' Global Climate Summit, 18-19 Nov 2008
Summit Overview
Summit Agenda

Wall Street Journal Editors Put Brakes on BP Story

Corporate Crime Reporter
November 15, 2008

The editors of the Wall Street Journal last week slammed the brakes on a story detailing how the Justice Department shut down a major environmental crimes investigation of BP Alaska.

That's according to Scott West, the now retired lead criminal investigator on the case.

West was leading an 15-month investigation into the March 2006 oil spill on the North Slope when in August 2007 he was told that BP would be allowed to plead to a misdemeanor.

In October 2007, BP did in fact plead guilty to a misdemeanor and was fined $20 million.

West was with the Environmental Protection Agency's Criminal Investigation Division (CID) until he resigned on October 29, 2008.

West says that on October 30, he had a detailed interview with the Journal's Jim Carlton about how the BP investigation was abruptly shut down.

"The agreement I had with Jim Carlton was that the Wall Street Journal was going to publish an article about this case on Monday, November 3, the day before the election," West told Corporate Crime Reporter last week. "I had also spoken with KING5 News, the NBC affiliate here in Seattle. They had me on camera. But I had them under embargo until Monday morning. Then late on Sunday, I was told that the Wall Street Journal editors decided not to go with the story, that they were going to push it off. The Wall Street Journal reneged its promise to me. But KING5 ran it."

Why did Wall Street Journal not run the story?

"I don't know," West said. "I have my suspicions. I understand that the Justice Department was putting a lot of pressure on the Journal. And the Wall Street Journal attorneys were concerned."

During a phone interview with Corporate Crime Reporter last week, West again reiterated that he was told by Karen Loeffler, the lead criminal prosecutor at the U.S. Attorney's office in Alaska, that the prosecutors in Alaska were "just following orders" from Washington to shut down the investigation into BP and to accept the plea to a misdemeanor.

"I hate dragging Karen Loeffler into this," West said. "She is a career prosecutor. A very decent person. Nevertheless, this occurred. Karen took me aside. We were in the hallway at the U.S. Attorney's office. And she directed me into an office off the hallway and she shut the door. And she said look, I'm sympathetic to how you are feeling. And she said you need to know, the decision was made by Ron Tenpas back at Main Justice. And we here are just following orders. I think she said this to try to calm me down. I had no reason to disbelieve Karen. When she told me it was Ron Tenpas, I didn't ask how she knew it was Ron Tenpas. But that's what the woman told me."

Tenpas is the Acting Assistant Attorney General for the Environment and Natural Resources Division at Main Justice.

When West was told last year that his case was being settled for a mere misdemeanor and a $20 million fine, he asked the prosecutors why the rush to settlement?

"Why are we doing this?" he asked. "Look at all of the investment we have in this case. I kept getting back from the senior prosecutors at the Justice Department well, BP wants to wrap this up. We don't want to waste our resources any more. They are willing to plead now. That could save us the expense of a lengthy trial."

"I was screaming bloody murder," West said. "I said I have at least a year to go give me one more year. No, Scott, we are done. Give me six more months. No we are done. Give me three more months, to at least chip away at some of the stuff. No, Scott, BP wants to wrap up this case, Texas City, and the propane trading investigation out of Chicago by October."

West says that BP's lead outside lawyer Vinson & Elkins partner Carol Dinkins tried to get the case dropped altogether, but she was rebuffed early in the negotiations.

When he learned that prosecutors would settle for a misdemeanor plea, West said he called for "an astronomical fine."

He then had a CID lawyer draw up a sentencing memo with three alternative fines topping out at $300 million. But prosecutors opened negotiations with the basement fine $20 million. BP accepted.

[For a complete transcript of the Interview with Scott West, see 22
Corporate Crime Reporter 44(10-16), print edition only
http://www.corporatecrimereporter.com/aboutccr.html

Auburn Dam may really be dead this time

By Nancy Vogel
LA Times
November 16, 2008

If California rescinds the water rights it granted to the federal government, the troubled project might never be revived.

The Auburn Dam may never be built at this site on the American River, 35 miles northeast of Sacramento. Construction has been a local issue since Congress authorized it in 1965. (Auburn Journal)

Reporting from Sacramento -- Use it or lose it is the rule of California water rights, and after 43 years, the would-be Auburn Dam -- subject of one of the state's bitterest water feuds -- is about to lose it.

The proposed plug on the gold-sprinkled American River northeast of Sacramento has been declared dead many times since Congress authorized it in 1965, and there may be no reviving it now. The state is poised to take back the legal right it granted to the federal government to store water behind the dam. Without that right, the federal government cannot build a reservoir, and the state has never been inclined to build one itself.

"Auburn Dam" are fighting words in Northern California, pitting river rafters and other nature lovers against those who say that California's thirst and the Sacramento area's vulnerability to floods demand the trapping and storing of more Sierra snowmelt.

Money is at the heart of the fight. Dam opponents argue that the multibillion-dollar price of an Auburn Dam would outweigh its benefits, while backers say a dam would eventually pay for itself and save untold lives. The struggle has played out for decades in Congress and in the halls of Sacramento and Placer County governments.

The nation's taxpayers have sunk $325 million into the project, with little to show beyond stacks of reports and a scarred canyon where construction was halted in 1975. So the state Water Resources Control Board is expected soon to finalize a draft decision to revoke the federal government's rights.

At the same time, the Auburn Dam's most powerful advocate prepares to retire from Congress. Republican Rep. John T. Doolittle of Roseville, who garnered tens of millions of federal dollars for study of a big dam at Auburn during his 18-year congressional career, decided this year not to run for reelection. He faces federal scrutiny of his ties to convicted lobbyist Jack Abramoff.

Doolittle will leave Congress in January. The race to replace him was so tight that elections officials aren't sure yet whether the winner is Republican state Sen. Tom McClintock, who vows to keep pushing for a dam, or Democrat and Air Force veteran Charlie Brown, who opposes it.

If McClintock wins, his quest for construction of an Auburn Dam would face steep odds that would be even higher after a revocation of water rights. The project would have to be reauthorized by Congress, because costs have grown tremendously since 1965, and the agencies most likely to buy water and power from the dam project have shown little interest in sharing construction costs. And the federal government would have to apply anew for state water rights.

"You'll never get the water rights back" once they are revoked, Doolittle said in a recent interview.

He predicted that an Auburn dam would be built some day, but not the kind he sought, with a big lake to provide water, electricity, recreation and flood control.

Sacramento will eventually require a dam to guard against floods, Doolittle said. But without water rights, the federal government would be limited to building a "dry" dam -- a concrete wall with a big hole in it to let the American River flow unimpeded most of the time and hold back water temporarily only in the event of a gigantic flood.

Dry dams were proposed by Sacramento flood-control officials twice in the 1990s but not funded by Congress.

"For heaven's sake, we ought to be storing water," said Doolittle. "We're the ones who supply Southern California with their water."

A dam at Auburn was long planned as part of the U.S. Bureau of Reclamation's Central Valley Project, an audacious network of dams and canals that provides subsidized water to farmers from Redding to Bakersfield. But construction at Auburn stalled after an earthquake made federal engineers rethink the seismic safety of a thin-arch concrete dam.

Work was not resumed amid concerns about cost and the submersion of nearly 50 miles of river canyon.

Various incarnations of the dam have been touted by federal dam builders, valley farmers and Sacramento flood control officials for decades, all of them attacked by local river enthusiasts and national environmental groups.

Doolittle faulted "conniving environmentalists" for persuading the State Water Resources Board last month to revoke the Auburn Dam water rights under a state law that requires rights holders to exercise "due diligence" in putting their water to good use.

Last month, in the draft revocation order, the water board noted that the federal government was supposed to finish the dam by 1975 and put all the water to "beneficial use" by 2000.

"Reclamation has failed to meet these deadlines and subsequently failed to diligently pursue a request for an extension of time," the board wrote. "Accordingly, cause for revocation exists."

The water board rejected the federal argument that California should let Washington keep the water rights out of deference to Congress, which has not undone its 1965 dam authorization.

Still, dam backers do not concede defeat.

Earlier this month, 18 persistent members of the Auburn Dam Council met, as they do the first Monday of every month, at a Coco's coffee shop in suburban Sacramento. Mostly white-haired retired engineers and water board directors, they resumed an ongoing discussion about winning over reluctant city and county officials to the merits of the dam.

"They should have this right on the wall in [Sacramento] City Hall," said Joe Sullivan, who held up a newspaper graphic showing where hundreds of people perished in the 2005 Hurricane Katrina flooding of New Orleans.

After the meeting, Sullivan, president of the Sacramento County Taxpayers League, called the expected water rights revocation "temporarily the end."

"They'll build Auburn Dam," he said, "right after Sacramento is flooded to 7 feet and people have died."

And defenders of the North Fork of the American River are not claiming victory. They figure the fight will continue as long as inundation threatens Sacramento and Southern California needs water.

Ron Stork has argued against the dam for 21 years at the nonprofit group Friends of the River. The controversy, he said, "will never go away."

Vogel is a Times staff writer.

Nancy.vogel@latimes.com

Has the sun set on clean tech?

ERIC REGULY
Globe and Mail
November 13, 2008

Once a booming industry thanks to sky-high oil prices, the feel-good trend, carbon reduction and subsidies, the financial crisis has pushed investors to give up on green energies, and like the dot-com bubble of 2000, some analysts say it's about to burst

ROME - The executives of Canadian solar-energy company Arise Technologies knew hours before yesterday's conference call that their shares were probably doomed. They could thank Germany's Solon, one of their two biggest customers, for the dark forewarning.

As they were preparing for the call, their Solon counterparts in Berlin - six hours ahead - shocked investors with the news that expected growth rates would fall by about half. The shares of Solon, the first solar-equipment company to list on the German stock market, closed down 18.3-per-cent, taking the decline to more than 75 per cent since January and not far above the 1998 initial public offering price.

In Toronto, Arise's already depressed shares slumped by 33 per cent, to close at 49 cents. The announcement of relatively minor technical problems at its new German photovoltaic (PV) factory, near Dresden, and lower-than-expected PV cell shipments in the second half of this year didn't help.

There is no longer any doubt: As far as investors are concerned, the sun has set on solar power, one of the hottest growth industries of the past decade.

"We are trading below book value even though we're quite pleased with what we've built," said Arise founder and vice-chairman Ian MacLellan. "This market is numbing."
Jim Buckee, the former CEO of Canada's Talisman Energy, thinks the clean-tech industry will revert to fringe status because it can't seem to thrive without government subsidies and because the wind doesn't always blow and the sun doesn't always shine, meaning the technologies can never fully replace coal, oil and nuclear plants.

"I think economic reality will kill the green industry," said Mr. Buckee, who now lives in Britain and lectures on climate change.

Solar energy isn't alone in its woes. Wind, biomass, biofuel and other "clean-tech" companies are getting pasted too as the financial crisis sends investors fleeing from technology names, dries up credit and freezes the IPO market. The moribund equity markets are especially bad news for the green-energy players, who depend on a steady stream of equity from growth-obsessed investors to keep moving.

"We are very fast growing companies and we need a lot of financings," said Therese Raatz, Solon's investor relations manager. "We can't turn to the capital markets now."

The price collapse has been so brutal that industry and corporate finance executives predict a shake-out as some of the weaker clean-tech companies burn through precious cash. "Bankruptcies are a real risk," said Brent Goldman, a corporate finance partner in London at BDO Stoy Hayward.

They have already started. Two weeks ago, VeraSun Energy, the second-biggest ethanol producer in the United States, filed for Chapter 11 bankruptcy protection. While no solar or wind company has gone under, failures are inevitable, Mr. Goldman and others said.

But the picture isn't entirely bleak. While the shredded share prices make comparisons to the bursting of the dot-com bubble in 2000 inevitable, some clean-tech newbies are still attracting venture-capital money, and the green agendas of president-elect Barack Obama and European Union governments offer some hope. But no one is willing to say the worst is over.

The clean-tech industry was propelled by soaring oil prices, the feel-good investment trend, Kyoto-inspired carbon-reduction efforts and a stream of government subsidies. Its growth has been phenomenal.

Take solar energy. The end product requires an expensive process that uses highly-refined silicon to make PV cells which, in turn, form part of the solar-module systems that generate electricity when the sun shines (Arise makes both silicon and PV cells; Solon buys Arise's cells to make the modules).

In the mid-1990s the solar industry was pretty much non-existent. But since 1996 or so, the compound annual industry growth has been 40 per cent. Last year PV cells collectively capable of generating 4 gigawatts (or 4 billion watts) of electricity were delivered. That's the equivalent of a couple of nuclear plants.

Solar-industry sales last year were about $30-billion (U.S.) globally, up from $2-billion in 2000, Mr. MacLellan said. Wind power experienced even greater growth rates, though solar growth is now outpacing it. When you drive along the highways in Germany, which has created 250,000 alternative-energy jobs, you're almost never out of sight of a wind turbine. Solar- and wind-power sales are still climbing, though the growth curve is going from the near vertical to the gently sloping. The fear that companies will be incapable of raising money while the financial crisis persists has accelerated the investor exodus.

There are other problems. Ms. Raatz, of Solon, said falling government subsidies are rattling investors. Germany had been cutting its "feed-in" tariff - the highly inflated price it pays to generators of clean energy - by about 5 per cent a year. But a new law lifts the phase-out rate to 8 to 10 per cent a year. Spain, whose feed-in tariffs were more generous than Germany's, is also taking the axe to subsidies. "Spain's support led to enormous developments and they had the best [clean-tech] returns in the world," she said.

Growth rates and project developments are now crumbling everywhere. Earlier this year, T. Boone Pickens, the Texas oilman turned green-energy guru, announced plans to build the world's biggest wind farm. He has since put the plans on hold because oil prices have declined by well more than half since their July peak of $147 a barrel.

Solon cut its growth forecast rate next year to about 25 per cent from 50 per cent. The prices of PV cells are expected to fall between 7 and 11 per cent next year and shares of almost all clean-tech companies are sinking. Vestas Wind Systems of Denmark is off two-thirds from its peak. The same is true of Gamesa, a Spanish wind turbine maker. The major solar companies have had similar declines, though Arise's fall - more than 80 per cent from its April high - has been harder than most.

Mr. Goldman, the BDO corporate finance partner, said the number of renewable energy initial public offerings on London's junior Alternative Investment Market (AIM) has fallen off a cliff. There has been exactly one - an Irish company called Kedco, in October - this year compared to 13 in 2007 and 21 the year before. The pace of mergers and acquisitions has also declined.

Mr. MacLellan and Mr. Goldman buy the doomsday scenario outlined by Mr. Buckee, the former Talisman chief. Mr. Obama has promised to "strategically invest" some $150-billion over 10 years to develop a clean-energy economy. The United Nations and governments in many developed countries are calling for "green deals" to reduce carbon dioxide output and create tech jobs. Germany's goal is to generate 20 per cent of its electricity from renewable energy sources by 2020 and it's already halfway there. "It's going through a hard time now, but clean tech will bounce back," Mr. Goldman said.

ARISE TECHNOLOGIES (APV)
Close: 49 cents, down 24 cents

*****

Clean energy

ARISE TECHNOLOGIES (APV-TSX)
Company based in Waterloo, Ont., makes photovoltaic cells, which produce solar energy. Recently opened a plant in Bischofswerda, Germany. Stock has fallen 84 per cent from its 52-week high in April.

VESTAS WIND SYSTEMS (VWS-Copenhagen)
Wind turbine maker, based in Randers, Denmark, is the world's No. 1 manufacturer of wind power systems. Operates in a dozen countries and has annual revenue of more than $5-billion. Stock has fallen 62 per cent from its 52-week high.

GAMESA (GAM-MADRID)
Spanish wind-energy firm, based in Vitoria-Gasteiz, is the second-largest company in the sector. Also involved in the construction of photovoltaic power stations. Stock has fallen 33 per cent from its 52-week high.

WATERFURNACE RENEWABLE ENERGY (WFI-TORONTO)
Makes heating systems using geothermal energy, based in Fort Wayne, Ind. Stock has fallen 14 per cent from its 52-week high in September.

Nuclear deal would allow AECL to renew Indian business ties

SHAWN MCCARTHY
Globe and Mail
November 14, 2008

OTTAWA — Federally owned AECL Ltd. is looking to re-enter the Indian market some 35 years after the south Asian giant shocked the world and brought about its own nuclear isolation by using Candu technology to build a bomb.

The federal government is currently negotiating a nuclear co-operation agreement with India that would allow AECL to re-establish business ties, despite concerns that India has not signed the international nuclear Non-Proliferation Treaty.

The negotiations come after Canada backed a decision by the international Nuclear Suppliers Group to provide an exemption for India that would allow it to develop civilian nuclear power even as it maintains its right to develop weapons without international scrutiny.

The United States lobbied hard to exempt India from the kinds of sanctions it imposes on Iran and North Korea, and has concluded its own nuclear co-operation agreement with India. France has also completed a nuclear co-operation agreement, and both countries are now openly competing with Russia to sell reactors there.

Critics complain that the West's special treatment of India will spark a new arms race with Pakistan and undermine the Non-Proliferation Treaty, and argue Canada should hold out for stringent conditions in any bilateral accord.

In an interview from India, AECL chief executive Hugh MacDiarmid said the Crown-owned company is hopeful of getting major service work on the country's aging fleet of heavy-water reactors, and potentially even the sale of a new reactor.

The AECL group met with senior officials from India's Department of Atomic Energy, and from the Nuclear Power Corporation of India Ltd., which has said it intends to build or buy up to 20 reactors over the next 12 years.

"We've been greeted very warmly," Mr. MacDiarmid said, concluding a six-day visit to India and China. He said Indian heavy-water reactor technology has not kept pace with Western companies, and AECL - one of the few companies that also deal in heavy-water reactors - could help modernize it.

"They feel there is a mutual benefit to be had. We do believe there is potential for us to be marketing our reactor technology in this country," he said.

AECL's own future remains very much in doubt as the federal government is reviewing its ownership and considering selling off the 60-year-old Crown corporation, either entirely or to a minority partner. Yesterday, Finance Minister Jim Flaherty said the government is looking at selling some Crown corporations - without mentioning names - in order to balance the federal books.

Whether it sells AECL or keeps it, Ottawa is keen to put the company on a stronger commercial footing, and that means ensuring it has access to growing emerging markets such as India's.

In addition to AECL's interest, Canada's broader nuclear industry is eager to see the Indian market open up to them, as is Cameco Corp., the Saskatchewan-based uranium producer that has been prevented from selling fuel to India.

Activist Ernie Regehr of Project Ploughshares said the Indian exemptions undermine the international Non-Proliferation Treaty by sending the message that countries can flout the rules and still co-operate on civilian nuclear uses. He worries the decision by the Nuclear Suppliers Group in September may reignite an arms race with Pakistan, which has reacted angrily to the move.

A spokeswoman for Foreign Affairs confirmed the two sides had "informal" discussions last month and expect to schedule formal sessions soon. She said Canada signalled its support for India's re-engagement with the broader nuclear-energy community when it backed the suppliers' group decision.

"India is a responsible democracy that shares with Canada the fundamental values of freedom, democracy, human rights and respect for the rule of law," government spokesman Lisa Monette said. "India has made substantial non-proliferation and disarmament commitments to achieve the trust of the Nuclear Suppliers Group, which were reiterated in a political statement on Sept. 5."

Mr. Regehr said India has made political commitments, such as agreeing not to test nuclear weapons, but has refused to sign the Comprehensive Nuclear Test Ban Treaty. It has also insisted on the right to stockpile uranium, which Mr. Regehr says would provide it with an assured fuel supply should it again run afoul of the international suppliers group.

Australia, which along with Canada is one of the world's major uranium miners, is refusing to sell the fuel to India unless it signs the Non-Proliferation Treaty. Mr. Regehr said Canada should do likewise.

BURIED SECRETS -
is natural gas drilling endangering US water supplies

by Abrahm Lustgarten
Pro Publica
November 13, 2008

A drill rig near the town of Pinedale, Wyo. (Credit: Abrahm Lustgarten/ProPublica)

In July, a hydrologist dropped a plastic sampling pipe 300 feet down a water well in rural Sublette County, Wyo., and pulled up a load of brown oily water with a foul smell. Tests showed it contained benzene, a chemical believed to cause aplastic anemia and leukemia, in a concentration 1,500 times the level safe for people.

The results sent shockwaves through the energy industry and state and federal regulatory agencies.

Sublette County is the home of one of the nation's largest natural gas fields, and many of its 6,000 wells have undergone a process pioneered by Halliburton called hydraulic fracturing, which shoots vast amounts of water, sand and chemicals several miles underground to break apart rock and release the gas. The process has been considered safe since a 2004 study (PDF) by the Environmental Protection Agency found that it posed no risk to drinking water. After that study, Congress even exempted hydraulic fracturing from the Safe Drinking Water Act. Today fracturing is used in nine out of 10 natural gas wells in the United States.

Over the last few years, however, a series of contamination incidents have raised questions about that EPA study and ignited a debate over whether the chemicals used in hydraulic fracturing may threaten the nation's increasingly precious drinking water supply.

An investigation by ProPublica, which visited Sublette County and six other contamination sites, found that water contamination in drilling areas around the country is far more prevalent than the EPA asserts. Our investigation also found that the 2004 EPA study was not as conclusive as it claimed to be. A close review shows that the body of the study contains damaging information that wasn't mentioned in the conclusion. In fact, the study foreshadowed many of the problems now being reported across the country.

The contamination in Sublette County is significant because it is the first to be documented by a federal agency, the U.S. Bureau of Land Management. But more than 1,000 other cases of contamination have been documented by courts and state and local governments in Colorado, New Mexico, Alabama, Ohio and Pennsylvania. In one case, a house exploded after hydraulic fracturing created underground passageways and methane seeped into the residential water supply. In other cases, the contamination occurred not from actual drilling below ground, but on the surface, where accidental spills and leaky tanks, trucks and waste pits allowed benzene and other chemicals to leach into streams, springs and water wells

It is difficult to pinpoint the exact cause of each contamination, or measure its spread across the environment accurately, because the precise nature and concentrations of the chemicals used by industry are considered trade secrets. Not even the EPA knows exactly what's in the drilling fluids. And that, EPA scientists say, makes it impossible to vouch for the safety of the drilling process or precisely track its effects.

"I am looking more and more at water quality issues…because of a growing concern," said Joyel Dhieux, a drilling field inspector who handles environmental review at the EPA’s regional offices in Denver. “But if you don't know what's in it I don't think it’s possible."

Of the 300-odd compounds that private researchers and the Bureau of Land Management suspect are being used, 65 are listed as hazardous by the federal government. Many of the rest are unstudied and unregulated, leaving a gaping hole in the nation's scientific understanding of how widespread drilling might affect water resources.

Abrahm Lustgarten/ProPublica

Industry representatives maintain that the drilling fluids are mostly made up of non-toxic, even edible substances, and that when chemicals are used, they are just a tiny fraction of the overall mix. They say that some information is already available, and that releasing specific details would only frighten and confuse the public, and would come at great expense to the industry's competitive business.

"Halliburton's proprietary fluids are the result of years of extensive research, development testing," said Diana Gabriel, a company spokeswoman, in an e-mail response. "We have gone to great lengths to ensure that we are able to protect the fruits of the company's research…. We could lose our competitive advantage."

"It is like Coke protecting its syrup formula for many of these service companies," said Scott Rotruck, vice president of corporate development at Chesapeake Energy, the nation’s largest gas driller, which has been asked by New York State regulators to disclose the chemicals it uses.

Thanks in large part to hydraulic fracturing, natural gas drilling has vastly expanded across the United States. In 2007, there were 449,000 gas wells in 32 states, thirty percent more than in 2000. By 2012 the nation could be drilling 32,000 new wells a year, including some in the watershed that provides drinking water to New York City and Philadelphia, some five percent of the nation's population.

The rush to drill comes in part because newly identified gas reserves offer the nation an opportunity to wean itself from oil.

Natural gas, as T. Boone Pickens said recently, is "cleaner, cheaper… abundant, and ours." Burning gas, used primarily to heat homes and make electricity, emits 23 percent less carbon dioxide than burning oil. Gas is the country's second-largest domestic energy resource, after coal.

The debate over water arises at a critical time. In his last days in office President George W. Bush has pushed through lease sales and permits for new drilling on thousands of acres of federal land. President-elect Barak Obama has identified the leasing rush as one of his first pressing matters and is already examining whether to try to reverse Bush's expansion of drilling in Utah.

State regulators and environmentalists have also begun pressing the gas industry to disclose the chemicals they use and urging Congress to revisit the environmental exemptions hydraulic fracturing currently enjoys.

But in the meantime, the drilling continues.

In September, the Bureau of Land Management approved plans for 4,400 new wells in Sublette County, despite the unresolved water issues. Tests there showed contamination in 88 of the 220 wells examined, and the plume stretched over 28 miles. When researchers returned to take more samples, they couldn’t even open the water wells; monitors showed they contained so much flammable gas that they were likely to explode.

'Big Wyoming'

News that water in Sublette County was contaminated was especially shocking because the area is so rural that until a few years ago cattle were still run down Main Street in Pinedale, the nearest town to the gas field. The county is roughly the size of the state of Connecticut but has fewer people than many New York City blocks. With so little industry, there was little besides drilling that people could blame for the contamination.

"When you just look at the data…the aerial extent of the benzene contamination, you just say...This is huge,” says Oberley, who is charged with water study in the area. “You’ve got benzene in a usable aquifer and nobody is able to verbalize well, using factual information, how the benzene got there.”

Sublette County, Wyo. (Credit: Abrahm Lustgarten/ProPublica)

Other signs of contamination were also worrying residents. Independent tests in several private drinking wells adjacent to the anticline drilling showed fluoride -- which is listed in Halliburton’s hydraulic fracturing patent applications and can cause bone damage at high levels -- at almost three times the EPA’s maximum limit.

"We need the gas now more than ever," says Fred Sanchez, whose water well is among those with high levels of fluoride. But gazing off his deck at the prized trout waters of the New Fork River, he wonders whether drilling has gone too far. "You just can't helter skelter go drilling just because you have the right to do it. It's not morally right to do it. There should be some checks and balances."

Further east, in the town of Clark, the Wyoming Department of Environmental Quality found benzene in a residential well after an underground well casing cracked. In Pavilion, another small town, a series of drinking water wells began running with dark, smelly water, a problem a state official speculated might be linked to drilling nearby.

"There is no direct evidence that the gas drilling has impacted it," says Mark Thiesse, a groundwater supervisor for the Wyoming DEQ. "But it sure makes you wonder. It just seems pretty circumstantial that it’s happening."

On federal land, which is where most of the Sublette County wells are located, the BLM governs leasing and permitting for gas development, with secondary oversight from the state and only advisory input from the EPA. When the contaminated water results were first reported, both the BLM and the state downplayed their significance.

The EPA’s regional office in Denver sharply disagreed. But because it has only an advisory role in the federal review process, and hydraulic fracturing is exempted from the Safe Drinking Water Act, there was little the EPA could do. It rebuked the BLM in a strongly worded letter and gave the development plans in Sublette County a rare "unsatisfactory" rating. It also recommended that the project be stopped until further scientific study could be done.

The BLM, backed by a powerful business lobby, ignored that recommendation. Why do a study if you can’t prove something is wrong, industry argued.

Drilling operators said the benzene came from leaky equipment on the trucks that haul water and waste to and from the drill sites -- and in one or two cases, EPA scientists say that was likely. One theory put forth by the BLM blamed the benzene contamination on malicious environmentalists "hostile to gas production," an accusation the agency later said it had no evidence of.

Thiesse, the DEQ supervisor, recounted a meeting where the debate dwindled down to semantics: "I called it contamination, and somebody said is it really contamination? What if it's naturally occurring?"

Leaky equipment on trucks was one reason put forth by drilling operators for benzene contamination. Above, trucks are seen hauling water and waste to and from drilling sites. (Credit: Abrahm Lustgarten/ProPublica)

The industry insisted, as it has for years, that hydraulic fracturing itself had never contaminated a well, pointing to an anecdotal survey done a decade ago by the Interstate Oil and Gas Compact Commission, a coalition of state regulatory bodies and, again, to the 2004 study by the EPA (PDF).

"You have intervening rock in between the area that you are fracturing and the areas that provide water supplies. The notion that fractures are going to migrate up to those shallow formations -- there is just no evidence of that happening," says Ken Wonstolen, an attorney representing the Colorado Oil and Gas Association who has worked with the petroleum industry for two decades. "I think fracturing has been given a clean bill of health."

A flurry of mail from industry representatives to the BLM said the sort of study the EPA wanted would needlessly slow production. "BLM's restrictions on drilling in the Intermountain west have seriously reduced the supply of natural gas reaching consumers," wrote the American Gas Association.

Washington leaned down on Pinedale too. The message, according to Chuck Otto, field manager for the BLM: Make this happen by November. The 4,400 new wells were approved in September without any deadline for cleaning up the contamination or further research. State regulators told ProPublica that hydraulic fracturing was not even considered as a possible cause.

"The BLM looks at it more as a business-driven process," Otto said. "It's not like I have Vice President Cheney calling me up and saying you need to get this done. But there definitely is that unspoken pressure…mostly from the companies, to develop their resources as they'd like to see fit…to get things done and get them done pretty fast."

A Compromised Study

The 2004 EPA study (PDF) is routinely used to dismiss complaints that hydraulic fracturing fluids might be responsible for the water problems in places like Pinedale. The study concluded that hydraulic fracturing posed "no threat" to underground drinking water because fracturing fluids aren't necessarily hazardous, can’t travel far underground, and that there is "no unequivocal evidence" of a health risk.

But documents obtained by ProPublica show that the EPA negotiated directly with the gas industry before finalizing those conclusions, and then ignored evidence that fracking might cause exactly the kinds of water problems now being recorded in drilling states.

Buried deep within the 424-page report are statements explaining that fluids migrated unpredictably -- through different rock layers, and to greater distances than previously thought -- in as many as half the cases studied in the United States. The EPA identified some of the chemicals as biocides and lubricants that “can cause kidney, liver, heart, blood, and brain damage through prolonged or repeated exposure." It found that as much as a third of injected fluids, benzene in particular, remains in the ground after drilling and is “likely to be transported by groundwater."

The EPA began preparing its report on hydraulic fracturing in 2000, after an Alabama court forced the agency to investigate fracturing-related water contamination there under the Safe Drinking Water Act. Political pressures were also mounting for the agency to clarify its position on fracturing. The 2001 Energy Policy, drafted in part by the office of Vice President Dick Cheney, a former Halliburton CEO, noted that “the gas flow rate may be increased as much as 20-fold by hydraulic fracturing.” While the EPA was still working on its report, legislation was being crafted to exempt hydraulic fracturing from the Safe Drinking Water Act.

Before that happened, however, the EPA sought an agreement with the three largest hydraulic fracturing companies, including Halliburton, to stop using diesel fuel in fracturing fluids. Diesel fuel contains benzene, and such a move would help justify the report’s conclusion that no further studies were needed.

Signs put in all directions to drilling sites in Wyoming. (Credit: Abrahm Lustgarten)

"Our draft is pending release," a senior EPA official wrote to Halliburton’s counsel in an August 2003 e-mail. "It would certainly strengthen our preliminary position not to continue studying the issue…if the service companies were able to remove diesel all together, or even move in that direction."

In a subsequent meeting, an EPA official’s handwritten notes show that a Halliburton attorney asked federal officials, "Are we willing to entertain regulatory relief in other areas; eg: fewer inspections?"

"Willing…," was the reply from Tracy Mehan, then the EPA’s assistant administrator for water.

A Halliburton spokesperson declined to comment on this exchange.

The diesel agreement (PDF) was signed. But according to the EPA, it isn't legally enforceable and the agency hasn't checked to see if diesel is still being used. Furthermore, the agreement applies only to fluids used in a specific kind of gas drilling, not all drilling across the United States.

Mehan did not return calls for comment about his negotiations. Roy Simon, associate chief of the Drinking Water Protection Division's Prevention Branch at EPA headquarters in Washington says the "EPA still stands by the findings outlined in the (2004) report."

But one of the report’s three main authors, Jeffrey Jollie, an EPA hydrogeologist, now cautions that the research has been misconstrued by industry. The study focused solely on the effect hydraulic fracturing has on drinking water in coal bed methane deposits, typically shallow formations where gas is embedded in coal. It didn’t consider the impact of above-ground drilling or of drilling in geologic formations deep underground, where many of the large new gas reserves are being developed today.

"It was never intended to be a broad, sweeping study," Jollie says. "I don’t think we ever characterized it that way."

Nevertheless, a few months after the report’s release, the sweeping 2005 Energy Policy Act was passed. Almost no attention was paid to the three paragraphs that stripped the federal government of most of its authority to monitor and regulate hydraulic fracturing’s impact on the environment. By default, that responsibility would now fall to the states.

“That pretty much closed the door,” said Greg Oberley, an EPA groundwater specialist working in the western drilling states. “So we absolutely do not look at fracking...under the Safe Drinking Water Act. It’s not done.”

Waste Hazards

On April 30, 2001 a small drilling company now owned by the Canadian gas company Encana fractured a well at the top of Dry Hollow, a burgeoning field in western Colorado that has seen one of the fastest rates of energy development in the nation.

The well sat at the end of a dirt drive among pinion pines and juniper at the crest of a small mesa overlooking the Colorado River. It was also less than 1,000 feet from the log farmhouse where Larry and Laura Amos lived.

As usual that day, water trucks lined up like toy soldiers on the three acre dirt pad cleared for drilling just across the Amos’ property line. They pumped 82,000 gallons of fluids at 3,600 pounds of pressure thousands of feet into the drill hole.

Suddenly the Amos' drinking water well exploded like a Yellowstone geyser, firing its lid into the air and spewing mud and gray fizzing water high into the sky. State inspectors tested the Amos well for methane and found lots of it. They did not find benzene or gasoline derivatives and they did not test fracking fluids, state records show, because they didn't know what to test for.

The Amoses were told that methane occurs naturally and is harmless. Inspectors warned them to keep the windows open and vent the basement, but they were never advised to protect themselves or their infant daughter from the water. It wasn't until three years later, when Laura Amos was diagnosed with a rare adrenal tumor, that she started challenging the state about the mysterious chemicals that might have been in her well.

Misted waste fluid rises from waste pits at a Wyoming well site. (Credit: Abrahm Lustgarten/ProPublica)

Much of what is known about the makeup of drilling fluids comes from the personal investigations of Theo Colborn, an independent Colorado-based scientist who specializes in low-dose effects of chemicals on human health and has testified before Congress (PDF) on drilling issues. Although she opposes drilling, her research is referenced by scientists at the EPA, at the United States Geological Survey and at state-level regulatory agencies and is widely believed to be the most comprehensive information available.

Spurred by reports of water contamination in Colorado, Colborn painstakingly gathered the names of chemicals from shipping manifests that trucks must carry when they haul hazardous materials for oil and gas servicing companies. Whenever an accident occurred -- a well spill in Colorado, or an explosion at a drilling site in Wyoming – she took water and soil samples and tested them for contaminants, adding the results to her list.

Industry officials say they use such tiny amounts of chemicals in the drilling – of the million or so gallons of liquid pumped into a well, only a fraction of one percent are chemicals – that they are diluted beyond harmful levels. But on some fracturing sites that tiny percentage translates to more than 10,000 gallons of chemicals, and Colborn believes even very low doses of some of the compounds can damage kidney and immune systems and affect reproductive development.

In Garfield County, there were signs this was already happening. Animals that had produced offspring like clockwork each spring stopped delivering healthy calves, according to Liz Chandler, a veterinarian in Rifle, Co. A bull went sterile, and a herd of beef cows stopped going into heat, as did pigs. In the most striking case, sheep bred on an organic dairy farm had a rash of inexplicable still births -- all in close proximity to drilling waste pits, where wastewater that includes fracturing fluids is misted into the air for evaporation.

Among Colborn’s list of nearly 300 chemicals -- some known to be cancer-causing -- is a clear, odorless surfactant called 2-BE, used in foaming agents to lubricate the flow of fracking fluids down in the well. Colborn told Congress in 2007 that it can cause adrenal tumors.

Laura Amos, who suffered from such a tumor, pressed Encana on whether the compound had been used to fracture the well near her house. For months the company denied 2-BE had been used. But Amos persisted, arguing her case on TV and radio. In January 2005, her lawyers obtained documents from Encana showing that 2-BE had, in fact, been used in at least one adjacent well.

"Our daughter was only six months old when fracturing blew up our water well," Amos wrote in a letter to the Oil and Gas Accountability Project, an anti-drilling group. "I bathed her in that water every day. I also continued breast-feeding her for 18 more months...If there was a chemical in my body causing my tumor, she was exposed to it as well."

In 2006, Amos stopped talking to the media after she accepted a reported multi-million settlement from Encana. The company was fined $266,000 for "failure to protect water-bearing formations and…to contain a release of (gas production) waste." Yet investigators also concluded, without further explanation, that hydraulic fracturing was not to blame.

Asked about the Amos case and the rash of complaints in the area, an Encana spokesman said the company disagreed with the state's judgment on the Amos case and emphasized that there was no proof that fracturing had caused the explosion. Environmentalists had created a climate of fear in the community, he added.

"The concerns residents have expressed -- and some of them are legitimate and heartfelt concerns -- a lot of them are out of misinformation," said Doug Hock. "Just because chemicals are used at a site does not create risk. We have a proven process that helps us ensure that there are no pathways."

'The Tipping Point'

In the past 12 months a flurry of documented incidents has made such reports harder to dismiss.

"We've kind of reached the tipping point," says Dhieux, the EPA inspector in Denver. "The impacts are there."

In December 2007, a house in Bainbridge, Ohio exploded in a fiery ball. Investigators discovered that the neighborhood’s tap water contained so much methane that the house ignited. A study released this month concluded that pressure caused by hydraulic fracturing pushed the gas, which is found naturally thousands of feet below, through a system of cracks into the groundwater aquifer.

The raised platform used by Encana at some of its drill sites helps to protect the underlying landscape. (Credit: Abrahm Lustgarten/ProPublica)

In February a frozen 200-foot waterfall was discovered on the side of a massive cliff near Parachute, Colo. According to the state, 1.6 million gallons of fracturing fluids had leaked from a waste pit and been transported by groundwater, where it seeped out of the cliff. In a separate incident nearby in June, benzene was discovered in a place called Rock Spring. Three weeks later a rancher was hospitalized after he drank well water out of his own tap. Tests showed benzene in his water, and the Colorado Oil and Gas Conservation Commission cited four gas operators, not knowing which one was responsible for the spill. Colorado state records show more than 1,500 spills since 2003, in which time the rate of drilling increased 50 percent. In 2008 alone, records show more than 206 spills, 48 relating to water contamination.

As more contamination cases are documented, state governments and Washington are being pressured to toughen oversight. One aim is to institutionalize the precautionary measures some companies are already experimenting with.

When ProPublica visited an Encana drilling operation in Pinedale, for example, the company was placing its drill rigs on raised platforms to protect the underlying landscape and using rubber pools to catch spilled fluids before they could seep into the soil. Drilling companies in New Mexico have begun storing waste in enclosed steel tanks rather than open pits.

Such efforts can add 10 percent to drilling costs, but they also dramatically lessen the environmental risks, an Encana employee said.

State regulators and Washington lawmakers though are increasingly impatient with voluntary measures and are seeking to toughen their oversight. In September, U.S. Congresswoman Diana DeGette and Congressman John Salazar, from Colorado, and Congressman Maurice Hinchey, from New York, introduced a bill that would undo the exemptions in the 2005 Energy Policy Act. Wyoming, widely known for supporting energy development, has begun updating its regulations at a local level, as have parts of Texas.

New Mexico has placed a one-year moratorium on drilling around Santa Fe, after a survey found hundreds of cases of water contamination from unlined pits where fracking fluids and other drilling wastes are stored. "Every rule that we have improved...industry has taken us to court on," said Joanna Prukop, New Mexico’s cabinet secretary for Energy Minerals and Natural Resources. "It’s industry that is fighting us on every front as we try to improve our government enforcement, protection, and compliance…We wear Kevlar these days.”

The most stringent reforms are being pursued in Colorado. Last year it began a top-to-bottom re-write of its regulations, including a proposal to require companies to disclose the exact makeup of their fracking fluids -- the toughest such rule in the nation.

Cathy Behr (Credit: Abrahm Lustgarten/ProPublica)

In mid-August, the Colorado debate intensified when news broke that Cathy Behr, an emergency room nurse in Durango, Colo., had almost died after treating a wildcatter who had been splashed in a fracking fluid spill at a BP natural gas rig. Behr stripped the man and stuffed his clothes into plastic bags while the hospital sounded alarms and locked down the ER. The worker was released. But a few days later Behr lay in critical condition facing multiple organ failure.

Her doctors searched for details that could save their patient. The substance was a drill stimulation fluid called ZetaFlow, but the only information the rig workers provided was a vague Material Safety Data Sheet, a form required by OSHA. Doctors wanted to know precisely what chemicals make up ZetaFlow and in what concentration. But the MSDS listed that information as proprietary. Behr’s doctor learned, weeks later, after Behr had begun to recuperate, what ZetaFlow was made of, but he was sworn to secrecy by the chemical’s manufacturer and couldn’t even share the information with his patient.

News of Behr’s case spread to New York and Pennsylvania, amplifying the cry for disclosure of drilling fluids. The energy industry braced for a fight.

"A disclosure to members of the public of detailed information…would result in an unconstitutional taking of [Halliburton’s] property," the company told Colorado’s Oil and Gas Conservation Commission. "A number of studies have concluded there are no confirmed incidents of contamination of drinking water aquifers due to stimulation operations…EPA reached precisely this conclusion after undertaking an extensive study."

Then Halliburton fired a major salvo: If lawmakers forced the company to disclose its recipes, the letter stated, it "will have little choice but to pull its proprietary products out of Colorado." The company’s attorneys warned that if the three big fracking companies left, they would take some $29 billion in future gas-related tax and royalty revenue with them over the next decade.

In August, the industry struck a compromise by agreeing to reveal the chemicals in fracturing fluids to health officials and regulators -- but the agreement applies only to chemicals stored in 50 gallon drums or larger. As a practical matter, drilling workers in Colorado and Wyoming said in interviews that the fluids are often kept in smaller quantities. That means at least some of the ingredients won’t be disclosed.

"They’ll never get it," says Bruce Baizel, a Colorado attorney with the Oil and Gas Accountability Project, about the states’ quest for information. "Not unless they are willing to go through a lawsuit. When push comes to shove, Halliburton is there with its attorneys."

Asked for comment, Halliburton would only say that its business depended on protecting such information. Schlumberger and BJ Services, the two other largest fracturing companies, did not return calls for comment.

Lee Fuller, vice-president for government relations at The Independent Petroleum Association of America, said the oil and gas industry’s reluctance to release information about drilling chemicals is to be expected. "These operations are ones where companies have spent millions of dollars," he says. "They are not going to want to give up that competitive advantage. So I would fully expect that they will try to protect that right as long as they possibly can."

Allison Battey, Kristin Jones and Jonathan Sidhu contributed to this report.

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A version of this story first appeared on Business Week's Web site and is included in the magazine's print edition.

Investigation: Natural Gas Rush

Fractured Relations -- New York City Sees Drilling as Threat to Its Water Supply
by Abrahm Lustgarten - Aug. 6, 2008 8:30 am

Despite New York's Order for Environmental Review, Gas Drilling May Proceed
by Abrahm Lustgarten - July 24, 2008 11:02 am

Governor Signs Drilling Bill But Orders Environmental Update
by Abrahm Lustgarten - July 23, 2008 5:57 pm

New York's Gas Rush Poses Environmental Threat
by Abrahm Lustgarten - July 22, 2008 2:42 pm

Graphics

Graphic: What is Hydraulic Fracturing?

Other Gas Drilling Coverage

"A Toxic Spew? Officials Worry About Impact of 'Fracking' of Oil and Gas"
by Jim Moscou, Newsweek, Aug. 20, 2008

"Natural Gas Could Transform Sullivan County"
by Ilya Marritz, WNYC, April 9, 2008

Chemical Used in Natural Gas Development and Delivery, The Endocrine Disruption Exchange

Document Dive

Halliburton Celebrates 50-Year Anniversary of Process That 'Energized' Oil and Gas Industry (PDF)
Halliburton's Web site, June 21, 1999

Elimination of Diesel Fuel in Hydraulic Fracturing Fluids Injected into Underground Sources of Drinking Water During Hydraulic Fracturing of Coalbed Methane Wells (PDF),
A Memorandum of Agreement Between the United States Environmental Protection Agency and BJ Services Company, Halliburton Energy Services, Inc., and Schlumberger Technology Corporation, Dec. 12, 2003

A White Paper Describing Produced Water from Production of Crude Oil, Natural Gas, and Coal Bed Methane (PDF),
prepared by the Argonne National Laboratory, January 2004

Evaluation of Impacts to Underground Sources of Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs (PDF),
Environmental Protection Agency, June 2004

New Mexico Gas Pit Sampling Results (PDF),
May 23, 2007

Written Testimony by Theo Colburn, Ph.D. (PDF),
before the House Committee on Oversight and Government Reform, Oct. 25, 2007

Report on the Investigation of the Natural Gas Invasion of Aquifers in Bainbridge Township of Geauga County, Ohio (PDF),
Ohio Department of Natural Resources, Division of Mineral Resources Management, Sept. 1, 2008

© Copyright 2008 Pro Publica Inc. The original content on this site is licensed under
a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

From credit crunch to energy crisis?

SHAWN MCCARTHY
Globe and Mail
November 12, 2008

OTTAWA — Global oil companies are sowing the seeds of a new supply crisis and a return to record-high prices by cutting back on current investments in response to the global slowdown, the International Energy Agency warns.

Four months ago, economists warned of “demand destruction” as record prices and a slumping economy slowed the growth of global crude consumption. But now, the IEA is worried about “supply destruction” as producers delay expensive projects, including some in Canada's oil sands, that would bring much-needed supplies to market.

“We think that the investment decisions that are being made now are of crucial importance, not only to meet future growth in demand, but to compensate for the decline in existing fields,” the agency's chief economist, Fatih Birol, said in an interview.

“If the investments are postponed, which is happening now, [then] when the demand rebounds we will see a supply crunch which may exceed the situation we saw this summer.”

Mr. Birol noted that producers across the globe – from multinationals tapping Canada's oil sands to national oil companies operating in the Middle East – have been cutting back their capital budgets as oil prices slumped from record highs this summer to a 20-month low Tuesday of $59.33 (U.S.) a barrel.

In a report released Wednesday, the Paris-based agency – which advises rich countries on energy policies – warned that the world's energy system is on an unsustainable path that could lead to both oil shortages and, eventually, in “catastrophic and irreversible damage” to the planet's climate.

To meet rising energy demand over the next 22 years, the industry would have to invest a minimum of $26-trillion – half of which is needed just to maintain current levels by replacing declining oil fields and aging power plants.

The IEA projects oil demand will climb to 106 million barrels a day in 2030, from 85 million barrels today. Despite concerns raised by some economists that the world has reached peak oil production, the agency said there is plenty of oil available to meet that rising demand, so long as the investments are made to boost productive capacity.

It expects prices to rebound from their current level of about $60 a barrel to average more than $100 between 2008 and 2015, rising to $200 by 2030.

That longer-term bullish outlook is widely shared in the industry. In Calgary yesterday, an executive at Canadian Natural Resources Ltd. agreed that prices will rebound once the economy turns around. “I'm quite optimistic that once we get over the current financial crisis we will get back to having healthy demand,” said Réal Cusson, the company's senior vice-president for marketing.

Still, Canadian Natural has slashed its investment budget by nearly half in response to slumping crude prices, notably by delaying planned expansions in the oil sands.

“There's definitely capital expenditure cutbacks happening among oil and gas companies of all sizes,” said Peter Tertzakian, chief energy economist at ARC Financial Corp. in Calgary. Mr. Tertzakian said companies are proceeding with projects that are near completion, but are postponing any new developments.

“We may take comfort in the low prices we are seeing today but the lower the prices go, the less expenditure you are going to see. And then two years from now, when we're out of this [economic] mess, that is when you'll see the problems on the supply side.”

Virtually all the growth in oil consumption will occur outside the leading industrialized countries of the 30-member Organization for Economic Co-operation and Development.

With files from reporter Norval Scott in Calgary

AGENCY CALLS FOR ‘ENERGY REVOLUTION'

The world is hurtling down an energy path that will lead to “catastrophic and irreversible” damage to the planet's climate unless the United States and China lead in a “major de-carbonization” of global energy supplies, the International Energy Agency says.

In a report to be released today, the IEA says that under a “business as usual” scenario, greenhouse gas emissions will rise 35 per cent between 2005 and 2030, a track that would lead to a 6 degree Celsius increase in average global temperatures by the end of the century.

“What is needed is nothing short of an energy revolution,” said the agency, which advises rich nations on energy policy.

The United States and China are the leading emitters of greenhouse gases in the world – with the U.S. as the largest source per capita and China representing the fastest growth in emissions. As a result, both will have to show a leadership role when countries meet in Copenhagen a year from now to negotiate a climate change deal for the post-2012 period. (The Kyoto Protocol contained no commitments beyond that year.) The IEA said the world will need to spend some $4-trillion (U.S.) over the next 22 years for conservation and energy-efficient technologies, such as low-carbon sources of energy and carbon capture and storage. But the resulting reduction in energy use could actually save $7-trillion, it added.

Shawn McCarthy

Clean Coal - The Devil Lies in the Details

GLOBE-Net
06-Nov-2008

GLOBE-Net (November 6, 2008) - There was a lot of talk about "Clean coal technology" during the election campaign in the United States. Both the Democratic and Republican nominees wanted to place it at the forefront of their energy independence strategy. John McCain pledged to speed up its development with a $2 billion a year investment until 2024. Barack Obama wanted to build "five ’first-of-a-kind’ commercial scale coal-fired plants with carbon capture and sequestration."

Essentially, McCain and Obama want power station smokestacks to grab the carbon dioxide (CO2) they emit when they burn coal. The CO2 would be transported to a storage site via pipelines, ships, rail or trucks. There it would be injected into rock formations deep below the Earth’s surface. Since the U.S. is the world’s second largest emitter of CO2 emissions after China, the technology would reduce air pollution substantially.

Yet both candidates slid over the details that make their proposals more complicated than meets the eye. First, there is question of cost. The technology exists to capture and store CO2 - the oil industry has been doing it for years -- but it has never been applied in a large-scale commercial project.

"There’s no such thing as clean coal. It’s non-existent."

Former U.S. Vice-President Al Gore

In 2003 President George W. Bush hailed a public-private partnership to build a near-zero emission coal plant - FutureGen -- by 2012. But the plant never left the development stage and astronomical cost overruns convinced the federal government to pull the plug in January 2008.

Second, the pumping of carbon gas into the ground has cause for concern for both the industry and environmentalists. What worries plant owners is the risk that lawyers pose to their investment. "Without clear rules and guidelines on the question of liability at the state and federal level,
the industry would probably be reluctant to deploy this technology," says Michael Catanzaro of energy firm PPL Corp. during an interview with the Wall Street Journal.

Environmentalists wonder if the underground deposits of carbon dioxide will stay leak proof. The gas could migrate sideways into groundwater or upwards to the surface. "Undetected fractures in cap rocks or those created by injecting CO2 at too high a pressure can provide another avenue for CO2 to escape. Improper design and construction of wells can also create opportunities for leakage," explains a Greenpeace report on carbon capture.

There is also a concern that the technology will not get to the market until too late. The industry’s own predictions do not foresee carbon capture and storage becoming viable before 2020 at the earliest. But to avoid the worst excesses of climate change, global greenhouse gas emissions must peak by 2015 and start falling to at least 50 percent by 2050.

Finally, there needs to be a huge processing and transportation infrastructure in place to make a meaningful dent in climate change. According to the Union of Concerned Scientists, the infrastructure would have to handle a volume of liquefied carbon dioxide rivaling that of the oil consumed by the United States. The annual storage space needed for the emissions of a typical 600-megawatt plant would be about four times the volume of the Empire State Building.

"Even if carbon capture and storage works on a commercial scale, coal will still be dirty," says Steve Clemmer UCS Clean Energy Program research director and co-author of the report Coal Power in a Warming World. "The technology doesn’t address the environmental threat posed by mining, transporting and disposing of coal."

The Union of Concerned Scientists thinks the U.S. federal government should first fund five to 10 full-scale demonstration projects. These would allow experts to determine if carbon dioxide can be stored indefinitely and in what type of underground geological formations.

One solution may come from India and China. These two countries, according to the The Wall Street Journal, have been at the forefront of new research into underground coal gasification. This technology, pioneered by the Soviet Union during the 1930s, involves drilling a borehole into a coal seam which is then ignited. The gases produced by the combustion are forced to the surface through a second borehole where they are harnessed to feed turbines. The Wall Street Journal says 30 such projects - at various stages of preparation -- currently exist in China.

Regardless, coal will remain an essential part of the world economy for years to come. The International Energy Agency predicts that there will be a 73 percent increase in global demand for coal by 2030. Clean coal technology might provide a solution to climate change, but even with massive governmental support, it is not likely to make a significant difference in the near future.

For more information:
Carbon capture and storage - Reality or illusion (GLOBE-Net)

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Carbon capture and storage - Reality or illusion

GLOBE-Net
23-Mar-2008

VANCOUVER, March 23, 2008 (GLOBE-Net) -Carbon capture and storage has become a hot topic in the business press recently, touted by some as the emission reducing key to continued use of fossil fuels, and panned by others as a great green scam perpetrated by the oil and gas industry. The truth is carbon capture and storage is anything but an illusion; but making it a commercial scale reality - at least in Canada - will require a great deal more than what has been put on the table so far.

Many countries are relying on CCS as one of the main technological fixes to the seemingly intractable problem of meeting their emission reduction commitments while continuing to source their energy needs from fossil fuels.

CCS is at the core of the recently announced federal strategy to reduce greenhouse gas emissions. The proposed regulatory regime will require that carbon capture and storage (CCS) be built into all new coal-fired power plants and oil sands facilities beginning in 2012, and be fully operating by 2018.

The Government of Alberta has committed to a 14-per-cent cut in emissions over 2005 levels by 2050 and has struck an industry-government council to develop a "made-in-Alberta plan" for the immediate advancement of carbon capture and storage technology.

Leaving aside the vagueness of both the Alberta and federal government strategy statements, the hard reality is that the technologies upon which CCS is based are still in their early stages and the likely costs for their full deployment on a scale that would actually make a difference in reducing CO2 emissions are astronomical.

Conceptually, there is nothing particularly new in capturing and storing carbon. The technology to capture CO2 and to pump it underground is commercially available and fairly well developed. Although CO2 has been injected into geological formations for various purposes such as enhancing oil recovery from near depleted oil reservoirs, the long term storage of CO2 is a relatively untried concept. No large scale power plant in the world operates with a full carbon capture and storage system.

Click for larger image

Canada is among the world’s leaders in terms of research in this area. EnCana Corporation, one of North America’s leading natural gas producers, manages the world’s largest greenhouse gas sequestration project at its Weyburn Saskatchewan oilfield operation.

EnCana purchases CO2 from a coal gasification plant in North Dakota and ships it to Weyburn via pipeline. Apart from giving new life to an old field, the Weyburn sequestration project, a world-scale research initiative operated under the auspices of the International Energy Agency, has confirmed that Weyburn is a suitable reservoir for the long-term geological storage of CO2.

As noted by Rhona DelFrari, EnCana’s Media Relations Advisor, the first phase of the IEA research project is already complete and the results suggest that more than 99% of the CO2 sequestered at Weyburn will safely remain in the ground for at least 5,000 years.

CCS in geological formations involves injecting CO2 into rock layers, usually depleted or near-depleted oil or gas fields, deep saline aquifers (porous rock layers containing salty water deep underground, or coal seams that cannot be mined.

A joint Alberta - Federal Government Task Force Report (Canada’s Fossil Energy Future: The Way Forward on Carbon Capture and Storage) released in January 2008, cites the stable sedimentary rock formations of the Western Canadian Sedimentary Basin (WCSB) as Canada’s biggest advantage for CO2 storage.

"The reservoirs that securely held Canada’s vast oil and gas reserves for hundreds of millions of years can be used to store CO2, and the deep saline aquifers underlying these rock units hold several magnitudes more storage potential," cites the report, which also notes that the co-location of large industrial GHG sources with this storage opportunity makes the WCSB a world-class location for CCS.

The Task Force report optimistically posits that CCS is unique in that it can be built on the technical and institutional base of the existing fossil energy infrastructure and can be implemented quickly (within a decade) using existing technology as the world develops next-generation, longer-term energy solutions.

The report’s observation with respect to the time line for CCS deployment is roughly consistent with other estimates. According to the Office of Technology Assessment at the German Parliament (TAB), CO2 capture will become available for large scale use in 2020 at the earliest.

Where the problem arises, as pointed out by Bruce Cox, executive director of Greenpeace Canada in a March 18, 2008 Globe and mail commentary (Why Carbon Capture is an Illusion), even if CCS works it will kick in too late to avoid the worst excesses of climate change. Cox notes the international consensus is that global greenhouse gas emissions must peak by 2015 then start falling to at least 50 per cent by 2050.

Industry’s own predictions don’t foresee carbon capture and storage becoming commercially viable before 2020 or 2030, and that will miss the critical threshold for turning things around, notes Cox.

He may be right, but that does not obviate the need to start the ball rolling now.

"By opposing CCS, environmental groups are gambling that we can make the huge cuts in CO2 emissions we need simply by improving our energy efficiency and using renewables like solar and wind power. They may be right. But if they’re wrong, they could cripple action against climate change - the greatest environmental threat of our age. It’s a dangerous, and seriously imprudent, gamble." - Thomas Homer-Dixon.

Canada’s efforts to date are promising, but not nearly enough. The recent federal budget provided $240 million in trust for a full-scale commercial demonstration of carbon capture and storage in the coal-fired electricity sector. This is based on the premise that reducing carbon emissions from coal-fired power plants will make a significant contribution to achieving Canada’s greenhouse gas emission reduction objectives.

Budget 2008 also provided $5 million to the Institute for Sustainable Energy, Environment and Economy at the University of Calgary to work with a broad range of stakeholders to resolve "a number of regulatory, economic, and technological issues that need to be resolved to accelerate deployment of carbon capture and storage technologies."

As noted in a recent GLOBE-Net editorial (Budget 2008 - More Blue than Green), the jury is still out as to how effective the measures announced in Budget 2008 will be in terms of stimulating the development and commercialization of the technologies needed to cope with the inevitable impacts of climate change. But with respect to carbon capture and storage, a great deal more that $240 million will be required.

Alberta’s plan for reducing greenhouse gas emissions involves fines for companies that exceed per-barrel emissions limits. Such fines are expected to put upwards of $177 million a year into the government’s Climate Change and Emissions Management Fund, proceeds from which will help pay for projects that reduce the cost of separating carbon dioxide from other emissions or support carbon capture and storage.

It still won’t be enough to make serious inroads into changing industry behaviour or to bring on line a network of carbon capture pipelines and sequestration facilities.

The European Union is well aware of this fact. In January 2008 the EU Commission set out a Directive to enable environmentally-safe capture and geological storage of carbon dioxide in the EU as part of a major legislative package designed to balance the need for urgent action to tackle climate change with the need to ensure security of energy supply. The plan calls for a suite of technologies that would ensure the carbon dioxide emitted by industrial processes can be captured and stored underground and financial aid to enable member governments to support CCS demonstration plants.

Canadian governments, Canadian industry and Canadian consumers will have to spend a great deal more than what is already on the table to finance proving the technological and commercial feasibility of CCS and to deploy that technology on a scale sufficient to make a real difference.

It is the prospect of big money and big profits that has caused some environmental groups to pan CCS as "a public relations smokescreen for the tar sands and coal-fired electricity generation" industries.

As noted by David Keith at the University of Calgary and Thomas Homer-Dixon at the University of Toronto CCS will be a big-industry technology that will require huge outlays of capital, armies of scientists, engineers and construction workers, and will also generate huge profits.

"So when environmental groups saw that industry representatives dominated the blue-ribbon panel, they assumed that the energy industry was once again positioning itself to line its pockets, and attacked its recommendations", the two note in a recent Globe and Mail article entitled A Win-Win-Win Situation.

They point out that "It’s time that Canada’s environmental groups freed themselves of this ideological straitjacket. They need to acknowledge that modern capitalism is the most dynamic, innovative and adaptive economic system human beings have ever invented."

They note also that while capitalism has fuelled our climate problem and that many big businesses have lobbied hard to block serious action, the world is not going to solve the problem without capitalism’s help, "albeit capitalism that’s ultimately guided by strong government imposed constraints."

This point was made very clear during the recently concluded GLOBE 2008 Conference in a Special Session on Carbon Capture and Storage. The assembled group of experts noted that CCS is proven, safe and Canada’s best option for reducing greenhouse gas emissions, but the technology will not become commercially viable without government assistance.

The unanimous opinion of each panelist was that CCS technology was ready for further development and deployment, but without proper climate change regulation and a realistic price on carbon, large scale projects were too risky and potentially uneconomical. (See GLOBE-Net article GLOBE 2008 Session Update: Carbon Capture and Storage)

The same point was made in a recent report from the Massachusetts Institute of Technology (MIT) that stressed CCS was the critical enabling technology that would help reduce CO2 emissions significantly while also allowing coal to meet the world’s pressing energy needs. The two key factors needed to ensure its deployment were a significant charge for GHG emissions (a ‘carbon price’), and "large-scale demonstration projects of the technical, economic and environmental performance of CCS", said the expert panel behind the report. (See GLOBE-Net article: Is ’Clean’ Coal Possible?)

Carbon capture and storage is definitely not an illusion; but making it a commercial scale reality - at least in Canada - will require a great deal more than what has been put on the table to date. The Weyburn Saskatchewan project is a start; but much, much more will be required.

Information Sources

IPCC Special Report Carbon Dioxide Capture and Storage

Canada’s Fossil Energy Future: The Way Forward on Carbon Capture and Storage

IEA GHG Weyburn-Midale CO2 Monitoring and Storage Project

The Canadian CO2 Capture and Storage Technology Network

Publication Date: 3/25/2008

For More Information: GLOBE-Net

Teck plumbs depths on black day for coal

Peter Koven,
Financial Post
Tuesday, November 11, 2008

A Teck Cominco coal mine in British Columbia. Courtesy of Teck Cominco

Faced with tumbling commodity prices, a free-falling stock price and an over-levered balance sheet, Teck Cominco Ltd. unveiled a wide-ranging plan Tuesday to conserve capital and pay back debt amid a rapidly-deteriorating metals sector.

Without providing details, the Vancouver-based company said it is taking steps to slash capital spending, contain costs, defer projects and pursue asset sales. They are measures that many of its larger and smaller rivals are also forced to take.

"It's quite a disciplined, comprehensive plan we're working on and things will be announced in due course," chief executive Don Lindsay said in an interview.

The announcement came on a day when Teck's stock price plummeted 20% to $8.75 on concerns that coal prices will drop next year, and false speculation that it was planning an equity offering. The stock is now down 83% from its peak in the late spring, a gut-wrenching drop for one of the country's premier miners.

While the entire mining industry is struggling due to weak commodity prices and credit conditions, Teck's position is especially tenuous because it just took on US$9.8-billion in debt to buy the assets of Fording Canadian Coal Trust, its former partner on the Elk Valley coal projects. Teck's total market value is now just $4.2-billion.

"It wasn't too long ago that the biggest investor criticism of Teck is that they had too much cash," said Rick de los Reyes, an investment analyst with T. Rowe Price. "They couldn't have picked a worse time to lever up."

Teck's debt load includes a US$5.8-billion bridge loan that expires in less than a year. Despite falling metal prices, Mr. Lindsay said Teck will slash that debt over the next two quarters through its fixed coal revenues, copper hedges, and tax refunds. That means the amount it will have to refinance will be much smaller than US$5.8-billion, and he noted that the bond market is starting to open up.

When the Fording deal was announced in the summer, it was celebrated as a big win for Teck because of record-high metallurgical coal prices for 2008. They were settled at around US$300 a tonne, triple last year's levels, and the outlook for 2009 was excellent as well.

But that changed rapidly in recent weeks, as many of the world's biggest steelmakers unveiled huge production cuts in response to a slowing global economy. That means that they are using less coal to fire their blast furnaces, and they will push for much lower prices next year.

The fragile coal market received more bad news this week, as reports surfaced that major Indian steel companies are asking suppliers to renegotiate contracts back to 2007 pricing levels of around US$100 a tonne, rather than wait for the 12-month agreements to expire in March.

"I can't see the suppliers willing to renegotiate, but nevertheless it does not bode well for pricing next year," said one industry insider, who asked not to be named. "Obviously the demand situation has changed considerably in the last couple of months."

John Hughes, an analyst at Desjardins Securities, is forecasting metallurgical coal prices of US$175 a tonne for next year, which would allow Teck to reduce its debt load to a "much more comfortable level." But if prices fall all the way back to 2007 levels, the company would likely have to take more serious action such as asset sales to shore up its balance sheet, he said.

Mr. Lindsay said he has no regrets about the price paid for the Fording assets, and noted that Teck's long-term price assumptions for metallurgical coal are well below current levels. He also pointed out that if prices fall too much, supply will be cut back.

"These products are going to be needed. And they're relatively scarce," he said.

Caribbean now known for oil as well as beaches

David Pett
Financial Post
Wednesday, November 12, 2008

The Next Big Thing?

Canadian Superior Energy's well off the shore of Trinidad in the Caribbean Sea. Handout photo

The Caribbean Basin could well be the next big thing in the world of oil and gas, but investors should be warned; the opportunity to cash in on the area's new and exciting potential discoveries comes with a host of uncertainties and will require a great deal of patience.

The area of the Caribbean garnering the lion's share of interest by oil and gas explorers is off the northeast coast of South America. Not only is this part of the tropical island region well known for its oil and gas assets, with discoveries dating back more than 100 years, it is also within close proximity to Venezuala and Colombia, two of the most successful oil and gas nations.

According to a recent Canaccord Adams report authored by analyst Frederick Kozak, "up and coming players" are concentrating much of their efforts near Trindad and Tobago and further south, near Guyana and Suriname.

Included in the list of those vying for a piece of the pie on and offshore from these countries are several Canadian-listed companies including Canadian Superior Energy Inc. (SNG/TSX), Challenger Energy Inc. (CHA/TSX-V) and CGX Energy Inc. (OYL/TSX-V).

Canadian Superior Energy has production operations in Western Canada, offshore Nova Scotia and Libya, but the company's future value is linked predominantly to its gross undeveloped holdings of 135,041 acres in Trinidad and Tobago. Its offshore operations, at a site 86 kilometres off the east coast of Trinidad, have determined three large separate potential hydrocarbon structures named the Victory, Bounty and Endeavour prospects. According to Mr. Kozak, these could contain as much as 3.7 trillion cubic feet of natural gas.

The company is a joint venture partner with the Petroleum Company of Trinidad and Tobago in the Mayaro/Guayaguayare Block, which claims reserve estimates of 10 billion to 30 billion barrels of oil. Mr. Kozak's estimated value for the Trinidad assets equals $3.65 per share, based on the recoverable resources from the offshore operations in question.

When combined with the value of Canadian Superior's Canadian assets, he derives a 12-month price target of $4.50. The analyst has a "speculative buy" rating on the stock, however, telling clients that capital requirements and liquidity risks associated with development and production of the property remain high, including the problem of bringing the gas onstream.

The first option being contemplated by Canadian Superior and its partners is to build a pipeline from the site to the mainland and construct a new fifth liquid natural gas (LNG) train to accommodate the new gas. The second option is to liquefy the gas offshore and then transport the LNG to a sales point.

"Management has stated that both options have roughly the same economics and the decision depends on agreement from other stakeholders [including government] and joint venture partners, as well as the success of the Endeavour well," the analsyt wrote.

Mr. Kozak also slapped Challenger Energy with a "speculative buy" rating, pricing the company's 12-month share value at $5.25. CGX is one of Canadian Superior's partners in the area off the Trinidad coast, but, unlike Canadian Superior, Challenger is a pure play on Trinidad exploration and does not have other operations to fall back on.

CGX Energy Inc., meanwhile, was initiated with a "speculative buy" and $1.80 price target. CGX is focusd on oil exploration in the "unproved, high-risk" Guyana-Suriname Basin, with offshore holdings that amount to 7.2 million acres. Mr. Kozak's target price is based on CGX being able to develop successfully a 50-million-barrel offshore discovery.

According to the U. S. Geological Survey, Guyana-Suriname has one of the largest unexplored oil basins in the world, with estimated recoverable oil reserves of 15.2 billion barrels and gas reserves of 42 trillion cubic feet. However, a dry hole drilled recently off Suriname raises questions about the commercial viability of the basin.

"While a success would have been favourable for companies such as CGX, that dry hole does not mean the basin is uneconomic, as the targeted play type was different than what CGX is focusing on," the Canaccord Adams analyst said.

dpett@nationalpost.com

Misunderstood oil sands

Editorial
Globe and Mail
November 12, 2008

Alberta Premier Ed Stelmach's $25-million provincial rebranding campaign is well under way; the Premier himself is in Europe right now explaining why the environmentalists have got it wrong about Alberta's oil sands. While his strategy - to turn the massive environmental impact into a misunderstanding - is well chosen, the question remains whether a mere fraction of a billion dollars is going to be enough.

Canada has recently enjoyed some rebranding success. The Canadian Tourism Commission spent $10-million for a new slogan ("Canada: Keep exploring") and a media campaign to dispel the misconception that this country is beautiful but boring. According to a recent annual survey of a few thousand business travellers, Canada's brand is now second only to Australia's, having in the past two years climbed from 12th to second place on the Country Brand Index.

Still, Canada simply had to emphasize the sexy red parts of the flag, overcoming its wholesome snowy white background. Alberta, meanwhile, has to make black the new green.

How to turn 29.5 megatonnes of carbon emissions into a positive global contribution? What about "Nature to burn"?

What should the province do about the death of hundreds of migrating birds who land on toxic tailings ponds? How about a bird-offset program?

Then there are the Fort Chipewyan cancer cluster concerns that may be immune to the persuasive powers of a provincially commissioned peer-reviewed study. How about a cancer centre, with a Canadian Association of Petroleum Producers wing?

Maude Barlow compares the oil sands to J.R.R. Tolkien's Mordor; perhaps Mr. Stelmach could lure Hollywood producers to Alberta. Surely there will be many more projects requiring desolate landscapes.

In the meantime, a poll commissioned by the province found that only 16 per cent of Albertans and just 3 per cent of all Canadians believe Alberta's government is a good environmental steward. Though 69 per cent of Albertans believe that the province is leading Canada to a positive future, only 40 per cent of all Canadians agree. And yet the oil sands enjoy the support of almost half the 1,249 Canadians polled. It seems that many Canadians see progress in Alberta's oil production, while they know it will take a toll on the environment.

Unless Mr. Stelmach is willing to settle for the limited support that currently exists - those who favour development of the oil sands despite the environmental degradation it will cause - he will have to spend much, much more.

"Fisherma'am" Proposes 28th Amendment:
Separation Of Corporation And State

from Chelsea Green
Huffington Post
November 10, 2008

Every so often an idea comes along that rings with such clarity and purpose that it ignites the imaginations of millions of people. That spark of excitement becomes hope, hope becomes action, action becomes community, and that community grows to become a movement. Marine biologist, author, fisherma'am, and Exxon Valdez survivor, Dr. Riki Ott has such an idea.

Exxon's recently reported record profits marks a new height of American corporate corruption and influence over our federal government--corporations find more protection under the law than American citizens, health and safety regulations are stripped away to serve profits ahead of people, politicians serve only their corporate backers, and our environment is falling victim to the lustful greed of this disaster capitalism. How did it come to this?

Click for video

Dr. Riki Ott is launching the movement for the 28th Amendment to the Constitution: Separation of Corporation and State. In the video above, she explains what a 28th Amendment will accomplish, how it is possible, why it is necessary for our democracy.

In Riki's own words:

In my book, Not One Drop, I answer the question I frequently heard on the streets in Cordova. (It's a small town where people often visit in groups on Main Street or at the post office.) How did corporations get so big where they could manipulate our legal system?

As survivors of the Exxon Valdez spill and 20-year lawsuit, practically everyone in town has first-hand experience with a legal system that failed to deliver justice and Exxon's promise to make us whole.

In researching our nation's legal history, I found the answer. In this 4-minute video, I explain the solution--passing the 28th amendment to the U.S. Constitution: separation of corporation and state.

Please listen. Then ask others to listen. In Not One Drop, I explain this idea more fully. Together we can build a movement to restore government of, for, and by the people.

There's even a Facebook group dedicated to the movement.

TRANSCRIPT OF VIDEO:

I am a survivor and witness of the Exxon Valdez oil spill. It happened in my backyard, Prince William Sound, Alaska.

We have been in a lawsuit now for nearly two decades, and Exxon has managed to drag this out while it has managed to increase its profits to, basically, obscene levels: over $40 billion in net profits now. How did things get this bad?

The conclusion that I came to in Not One Drop is that we need the 28th Amendment to the United States Constitution: the separation of corporation and state.

Starting in 1886, judges started recognizing corporations had rights accorded to people. The first one was the 14th Amendment. And nowhere in the Constitution, nowhere in the Bill of Rights, do we find the word "corporation." This is totally judicial fiat. What this has done is allow a consolidation of wealth and power to the corporations that now threatens to destroy the republic. We want separated church and state—we now need to separate corporation and state.

On March 24, 1989—which is when [the] Exxon [Valdez] grounded and spilled 11–38 million gallons of oil in Prince William Sound, I was commercial fishing. I held a commercial fishing permit, and I fished salmon. I also held a Masters and a PhD in marine toxicology. Exxon came to Cordova, Alaska, stood in our high school gym, and promised us, "We will make you whole." Instead, Exxon worked behind the scenes to eliminate thousands of business claims. Exxon threw an army of attorneys at this case. And it's not just the Exxons of the world, it's any of these big transnational corporations have the ability, because of their wealth and power, to completely overwhelm small communities that get in their way.

If we had had the 28th Amendment to the Constitution, Exxon would not have been able to use the 5th Amendment and the 7th Amendment.

The 7th Amendment is that facts tried by a jury cannot be undermined or revisited by higher courts. So in this case, a jury of peers, ordinary people, determined that the price that Exxon had to pay was one year's net profit. Exxon challenged the amount, and also that punitive damages should be held at all.

Exxon also used, in a related lawsuit, the 5th Amendment. The 5th Amendment is a takings—takings of property. After the Exxon Valdez oil spill, there was a federal law passed (the Oil Pollution Act of 1990) that essentially banned the Exxon Valdez from Prince William Sound. It banned any tanker that has spilled over a million gallons from transporting oil in Prince William Sound. Exxon said, that is a takings of our future profit: that's illegal under the 5th Amendment. If Exxon was not a person, Exxon would not have been able to apply the 5th Amendment.

Five years after the Exxon Valdez ran aground, we had our hearing, and the jury awarded us—the fishermen, the natives—$5 billion in punitive damages and $287 million in compensatory damages. Exxon appealed that $5 billion for over fourteen years, and ultimately, the Ninth Circuit Court of Appeals finally threw its hands in the air and cut the 5 billion in half. The Supreme Court, in June of 2008, slashed the $2.5 billion to $507 million.

If we're planning on passing a livable planet onto future generations, the democracy debate needs to be entwined with the sustainable future debate, and I believe now that the best way to do that is to pass the 28th Amendment to the Constitution—separation of corporation and state—and strip corporations of their personhood.

Huffington Post, 10-Nov-2008

Shell halts Canadian sands development

COMMENT: When Royal Dutch Shell absorbed Shell Canada into the mother ship in 2007, it was acquiring a tremendous set of assets, but many observers believed the pearl in the shell was Shell's interest in the tar sands. Whoops. When oil gets down in the $65 a barrel range, the paradigm shifts again. $40 billion in tar sands projects have been put on hold in October alone. A lot of pipeline proposals may also shrivel up, notably the most speculative of them - Enbridge's Gateway to the west coast - and the plethora of them to the continental US. It may not bode well for renewables, either, where high oil prices drive some energy investment money.

Robin Pagnamenta
Energy and Environment Editor
The Times, London
October 31, 2008

Royal Dutch Shell has become the latest oil company to halt development of Canada's formerly booming tar sands industry, amid soaring costs and plunging oil prices.

The Anglo-Dutch oil group said that it was deferring indefinitely an investment decision on the second expansion of its oil sands project near Fort McMurray, in Northern Alberta.

The announcement was made as Shell unveiled a 22 per cent surge in third-quarter profits to $8.45 billion (£5.13 billion), despite a fall in production, thanks to record oil prices during the three months to September 30.

Extracting crude from the bitumen-rich Athabasca sands of northern Canada is an energy-hungry, costly and environmentally controversial process that pays off only with high crude oil prices. Environmentalists welcomed the delays. Charlie Kronick, of Greenpeace, said the industry was risky not only because it requires high oil prices but because of a risk of international regulation of carbon emissions, which could undermine its rationale.

Although Shell said that it remains committed to the industry and continues to build operations able to produce 250,000 barrels of crude a day by 2010, it has chosen to delay a secondary expansion that would increase the total to 350,000 barrels per day.

Shell would not comment on the expansion's projected total cost, but Justin Bouchard, of the Raymond James brokerage in Calgary, estimated that it would cost C$13 billion to C$16 billion (up to £8 billion), to build new pipelines, new extraction plants and an enlarged bitumen upgrader in Scotford.

Jeroen van der Veer, Shell's chief executive, said that the decision had been taken because of “significant industry inflation and a tight labour market” in the Alberta region. “This final investment decision was originally planned for 2009, but we wait for costs to cool down before any new investment decision is made,” he said.

Shell's earlier, 100,000 barrels-a-day expansion phase was expected to cost at least £6.2 billion. Last year, the group spent £1.2 billion on oil sands projects. Shell has a 60 per cent stake in the project. Its partners, Marathon Oil and Chevron, have 20 per cent each.

Compounding concern about investment in the industry, Total, the French oil giant, said this week that its Surmont and Joslyn projects were economically attractive only with oil above $90 a barrel. Although Total insists that it remains committed to current projects, its spokesman would not rule out future delays.

Richard Savage, of Mirabaud, the Swiss bank, said: “It's a dilemma for the whole industry. People are having to re-evaluate their investments. The move in the oil price is creating a big cost squeeze.”

Banks were increasingly reluctant to lend to projects whose profitability relied on high oil prices, adding to debt-market pressure, Mr Savage said.

At an estimated 173 billion barrels, Alberta's oil sands are the world's second-largest oil reserve, behind Saudi Arabia, but producing oil from them requires complex production facilities and vast amounts of energy.

As oil plunged this week to a 17-month low of $61.30 a barrel, from a record high of $147.27 in July, mainly because of slumping demand as the global economy weakens, the industry's economics are looking strained.

Shell's bumper results were aided by one-off gains of $2.06 billion, mostly from sale of operations, but production figures were weaker than expected. Total production fell to 2.93 million barrels of oil and equivalents per day, from 3.14 million barrels a year earlier.

Shell's results were beaten by ExxonMobil, the world's biggest oil group, which unveiled a 58 per cent surge in third-quarter profits on soaring oil prices. Net income hit a quarterly record of $14.8 billion, but Exxon's oil production had its biggest fall in at least a decade. Liquids production was 2.29 million barrels a day, down 5 per cent from the same period last year.

Shifting sands

— Canada's oil sands industry is under pressure as high costs, plunging oil prices and turmoil in global financial markets trigger a wave of project delays

— This month alone, projects worth more than C$40 billion (£20 billion) have been postponed

— Petro-Canada, one of the largest players, is deferring a C$10 billion investment decision on a new bitumen processing plant

— Suncor Energy, another big player, is postponing by one year the construction of a C$20 billion upgrader plant, which turns bitumen into a more easily refinable, synthetic crude