Friday, March 12, 2010

The Coming Energy Shortage, Part 5: Peak Oil and Northern Ontario - Changing the Dynamic Between North and South

In a world where our economy has been humbled by rising energy prices, leading to global depression, we can expect a collapse of our interdependent global society. Whether the collapse occurs all at once or is spread out over time, the quality of life which most of us are currently experiencing here in Canada today is sure to be a thing of the past. While the richest amongst us may be relatively as well off as they are today, certainly the middle class and the least well-off amongst us are in for negative changes, brought on by crumbling social safety nets and the loss of other governmental resources.

In Northern Ontario, we can expect higher food prices, due to the long distances which our food must travel. We can expect greater levels of unemployment, as the forestry and mining sectors are particularly vulnerable to negative impacts from global economic downturns. And, because of higher unemployment, we can expect more people to lose their homes. Unemployment, homelessness and hunger are a very dangerous mix.

I’m not suggesting that we’re all going to find ourselves in these sorts of situations in the immediate future as a result of the coming energy shortage, nor am I suggesting that it’s going to happen to everyone all at once. As I’ve indicated in previous blogs, the next economic downturn will also drive energy prices back down, just as the recession of ‘08-09 did. These lower energy prices may assist in leading to a recovery of sorts after the next downturn. What will be different the next time, however, is that our governments will not be able to afford to inject stimulus money into the economy in the same way they did the last time, due to sky-high debts.

What we can expect, though, over the next decade or so, is a general trend towards higher unemployment, homelessness, and hunger. Even those who can hang on to employment will find that inflation driven up by higher energy prices has reduced their real spending power. Energy demands, however, due to global pressures, are likely to remain high, and eventually we’ll find ourselves in a downturn where energy prices do not plummet, because there simply isn’t enough oil to go around.

We can expect increasing pressures put on our governments to resolve these imminent economic issues, but it seems to me that our governments will be ill-equipped to respond. Indeed, our federal and provincial levels of government, ham-strung by debt and decreasing revenues generated during times of economic downturns, will have to make some stark choices regarding what services they provide to the public and where. This may result in the reduction or elimination of some public services which Canadians have come to expect, such as health care, or the upkeep of infrastructure.

In Ontario, we can expect the Province to look towards municipalities to provide even more local services, without the requisite transfer of resources to deliver those services. In Northern Ontario, this has already been a bone of contention between municipal and provincial levels of government, due in part to the way in which revenues are collected by the Provincial level of government from natural resources. Northerners have always seen resource revenues end up in Toronto’s coffers, to be redistributed (or not) from a senior to junior level of government. In the future, if the province opts out of service delivery to the North because it can no longer afford to pay the bills, and if it expects municipalities to step in, one of two things are going to have to happen. Either we will need to revisit how resource-driven revenues are shared (which will likely further impoverish the Province), or there will be an alternative political response.

Growing up in Southern Ontario, I didn’t have quite the appreciation for the Northern part of my province as those born here do. Neither did I possess and understand that there are at least two Ontarios which really should be considered when we discuss this provincial territory. If you think of Ontario as a unified whole, you’re not getting the entire picture of the way things actually work.

From a Southern Ontario perspective, Northern Ontario is an economic backwater, behind the times in so many areas. Population is small, and strung out. Primary industries rule, and the Northern economy is very vulnerable to even small fluctuations in the health of the natural resource sector. Further, from a Southern Ontario perspective, the North represents either an economic hinterland to be exploited, or a vast park to be protected; sometimes both.

From a Northern Ontario perspective, the North represents a major contributor to the economic health of the Province, with wealth leaving the North greatly disproportionate to investments made here by senior levels of government. The frontier spirit and joie de vivre are something to be celebrated, and Northern culture is deserving of respect and support from governments. The perception of disparity is very real. And it is that perception which will be exacerbated during the upcoming energy crisis.

Ontario’s North, unlike Quebec’s, has not been developed in any significant way to harness the abundant hydro-electric resources of our major rivers. This might have happened, however the Province has historically opted for a more balanced mix of energy production: coal, hydro, nuclear, natural gas. Lately, the Province has tried adding renewable energy (wind; solar; and, wood-burning) to the mix. In short, investment dollars often went elsewhere (such as nuclear), and Northern Ontario’s rivers remain largely free of the massive hydro-electric projects we see across the border in Northern Quebec.

Say what you want about the environmental issues associated with hydro-electric generation (and I know that there are many). When push comes to shove in the future, and we find ourselves in an energy crisis here in Ontario, particularly after we’ve shut down our coal burning plants (or have replaced coal with wood pellets), there may be little choice but to look at damming the Abitibi, the Moose, the Mattagami, the Albany, or some of the other great rivers which flow to James Bay. When push comes to shove, and cheaper energy is needed in order to maintain even a semblance of economic status quo, do you really think that the majority of Ontarians are going to care much about impacts on an environment far away from any population centre? If the past offers any guidance on this, the answer is no.

Already in the North, there is talk about the need for upgrading our electrical transmission grid, ostensibly for the delivery of wind and solar electricity generated here, in order to power the South’s industrial engines. For Northerners, this is but another example of the way in which the South exploits the resources of the North. Without a provincial or national energy plan in place, though, it seems to me that Northerners can expect these upgraded transmission lines to carry more than wind and solar energy to the south: they will also carry hydro-electric energy derived from massive new projects.

We here in Ontario know that we’re heading towards an energy crunch, even without having peak oil to worry about. Our coal fired generating plants are scheduled to shut down, and our nuclear plants never seem to be up and running at anything more than half capacity. There had been talk about building more nuclear, but that seems to be off-again, and although there may yet be more talk about nuclear, the longer we wait, the more of a problem our energy needs become. And while economic recession is sure to reduce our needs, pretty soon some provincial government is going to have to tackle the inevitable question of just where we’re going to find more energy for the province. If conservation isn’t the answer (and the Liberals and Progressive Conservatives who typically form governments here will tell you that conservation alone is not the answer, that additional capacity is needed), than what choices are left? Build more renewable energy projects, sure, but that’s expensive (and will remain expensive given the generous feed-in tariff); build nuclear (very expensive and takes a lot of time); build small regional natural gas centres (cheaper but problematic, because communities don’t want them...just look at what’s going on in Oakville right now); or dam up the North’s rivers where nobody lives and very few people care.

Energy exploitation, coupled with decreasing investments in public services from a provincial government focussed on its larger population centres, coupled with an already existent perception that the North has been marginalized, exploited, and not receiving its fair share, is almost certainly going to lead to a change to the Northern-Southern dynamic. That change will manifest itself either through the North’s demands being recognized and acted upon by the South, or, well, by not being acted upon.

I expect to see a growing political movement in the North, calling for separation from the South. At various times in the past, there have already been half-hearted movements started to do just that. Things haven’t been as bad here, though, as they are likely to get when recession and/or depression driven by rising energy costs washes over us again another one or two times. As our Federal and Provincial governments are forced to turn inward, we can expect to see regional and municipal governments move to fill some of the vacuum left behind.

In the face of rising energy costs, the centre can not hold. This is likely going to be a global phenomena and not just limited to Canada. The rise of localism in Northern Ontario, however, may lead to a redefinition of what Ontario really means as a political entity. Of course, we here in Northern Ontario might just simply find ourselves part of a national trend, wherein the very federal-provincial structures we’ve come to know in Canada undergo stress, and in some cases, may break apart. A general economic collapse will likely have that kind of impact right across Canada.

Think it can’t happen? Just because we’ve come to expect Canada to be Canada, whole and united? I don’t buy it. Our federation is already very regionalized in many respects. If the federal level of government appears to become unnecessary, as providing international security becomes less important due to strife here at home, and international diplomacy less important still, because our domestic situation will require those resources too, then what? Why send our taxes to Ottawa when there’s a more urgent need for them, and social benefit to be received in turn from them, when sent to Toronto? Or, for that matter, when they are sent to Sudbury or Timmins or Thunder Bay? If taxes are going to be paid, we’re going to want to see the results of their wise use. If Ottawa can’t deliver, what will be the point of Ottawa? If Toronto can’t deliver to Northern Ontario, what will be the point of Toronto?

I have to expect that, over the next decade, and due in part to the coming energy shortage, the relationship between Northern and Southern Ontario is going to have to change. The trick will be whether the change is planned for and agreed upon, or whether it is reactionary. While I remain optimistic that Northern Ontarians and our Southern Ontario government will be able to renegotiate in good faith, I remain concerned that the speed of events just might overtake us all.

Now, there’s one significant element to this discussion which I’ve not yet touched on, and it has the potential all on its own to be a complete game-changer. And that has to do with how First Nation communities in Northern Ontario react to the coming energy crisis. First Nations have really begun to exert their influence throughout Canada, and I expect that they will continue to do so. This evolving relationship between First Nations and Ontarians is likely to add to the stresses felt in the North during difficult economic times, and ultimately First Nations issues may have a significant impact on Northern autonomy. Those dams and hydro-lines will be located on the traditional territories of many First Nations. If First Nations perceive that they are being shut-out of deriving attendant benefits, there will be further difficulties.

Northern Ontario is not currently ready to meet the challenges presented by the coming energy shortage. There are many reasons for this state of unpreparedness. Due to our geography, economic base, and relationships with federal and provincial governments, the North may be more significantly impacted by the coming energy shortage than the South will be. Unless there is more consideration for the unique needs of the North, including the needs of First Nations, there will be additional and increasing tensions between North and South. What we can expect, however, is that the North will be called upon to meet the energy needs of the whole of Ontario. What should be expected in return, then, is greater autonomy and decision-making authority for Northern communities, along with economic benefit. The balance we have become used to is bound to change, and that should not be surprising given that the coming collapse will redefine so many of the things we have taken for granted over the past 60 or so years.

1 comment:

Anonymous said...

Any discussion about peak oil and oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
- Transition takes 30 years
- No peak in global production

In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the model for yourself using your own assumptions it can be found at Petrocapita Income Trust: