Trump’s radical new foreign policy portends much worse to come

Trump Blows Off the Rest of the World

Trump Climate Change Speech More About Political Power Than Climate Change

Donald Trump and Philippine President Rodrigo Duterte

Fareed Zakaria has pointed out this week in the Washington Post and on CNN GPS, that we now have a Trump foreign policy doctrine, and it is not reassuring for the World. It is openly declaring its intent to destroy the World as we know it. New York Times Conservative columnist David Brooks reached the same conclusion. Obviously heavily influenced by Bannon, who many had thought had been relegated to backseat status by McMaster, we have been fooled again. As Trump demonstrates his Henry Kissinger RealPolitik admiration for authoritarians like Putin, Xi Jinping, Erdogan, and Duterte, more sinister scenarios begin to crystallize.  Trump’s speech justifying the withdrawal of the United States from the COP21 Paris Climate Change Agreement is a frightening exposition of this new Trump Doctrine. It is Trump thumbing his nose at the World. It is the United States against the World, led by a coterie of plutocrats and their money.  It was moved along by a campaign carefully crafted by fossil fuel industry players, most notably Charles D. Koch and David H. Koch, the Kansas-based billionaires who run a chain of refineries (which can process 600,000 barrels of crude oil per day) as well as a subsidiary that owns or operates 4,000 miles of pipelines that move crude oil. The reality is that the evidence points to an ongoing seizure of executive power by Trump that destroys our Constitution in the name of our national security.  The big rhetorical question is what we can do about it?

Read more: Gary Cohn and H.R. McMaster Wall Street Journal editorial: The New Trump Foreign Policy Doctrine

Read more: Fareed Zakaria Washington Post editorial: Trump’s radical departure from postwar foreign policy – The Washington Post

Read more: David Brooks New York Times editorial:

Read more:

 

Leonardo DiCaprio’s “Before The Flood” Documentary Free Everywhere

The Urgency of Climate Change Action Made Vividly Real

Leonardo DiCaprio‘s extraordinary two-hour National Geographic documentary is now available for viewing free everywhere, including on this page, YouTube, The National Geographic website, and the National Geographic Channel. Everyone should watch it.  Equally worthwhile is the series The Year of Living Dangerously on National Geographic.  The 2-minute trailer and the full documentary film are below here.

The Years of Living Dangerously on National Geographic:

What the Paris Climate Meeting Must Do

Le Bourget airport just north of Paris is the place where Charles Lindbergh landed the Spirit of St. Louis. That event 88 years ago could now be interpreted as foreshadowing the era of globalization. Tomorrow, the world’s nations will meet there under the banner of the UN Framework on Climate Change (UNFCCC).  COP21, also known as the 2015 Paris Climate Conference, will, for the first time in over 20 years of UN negotiations, aim to achieve a legally binding and universal agreement on climate, with the aim of keeping global warming below 2°C.

Read More: COP21: What’s It All About?

THE NEW YORK TIMES

By THE EDITORIAL BOARD NOV. 28, 2015

In 1992, more than 150 nations agreed at a meeting in Rio de Janeiro to take steps to stabilize greenhouse gases at a level that would “prevent dangerous anthropogenic interference with the climate system” — United Nations-speak for global warming.

Many follow-up meetings have been held since then, with little to show for them. Emissions of greenhouse gases have steadily risen, as have atmospheric temperatures, while the consequences of unchecked warming — persistent droughts, melting glaciers and ice caps, dying corals, a slow but inexorable sea level rise — have become ever more pronounced.

On Monday, in Paris, the signatories to the Rio treaty (now 196), will try once again to fashion an international climate change agreement that might actually slow, then reduce, emissions and prevent the world from tipping over into full-scale catastrophe late in this century. As with other climate meetings, notably Kyoto in 1997 and Copenhagen in 2009, Paris is being advertised as a watershed event — “our last hope,” in the words of Fatih Birol, the new director of the International Energy Agency. As President François Hollande of France put it recently, “We are duty-bound to succeed.”

Paris will almost certainly not produce an ironclad, planet-saving agreement in two weeks. But it can succeed in an important way that earlier meetings have not — by fostering collective responsibility, a strong sense among countries large and small, rich and poor, that all must play a part in finding a global solution to a global problem.

Kyoto failed because it imposed emissions reduction targets only on developed countries, giving developing nations like China, India and Brazil a free pass. That doomed it in the United States Senate. Copenhagen attracted wider participation, but it broke up in disarray, in part because of continuing frictions between the industrialized nations and the developing countries.

The organizers of the Paris conference have learned a lot from past mistakes. Instead of pursuing a top-down agreement with mandated targets, they have asked every country to submit a national plan that lays out how and by how much they plan to reduce emissions in the years ahead. So far, more than 170 countries, accounting for over 90 percent of global greenhouse emissions, have submitted pledges, and more may emerge in Paris.

Will these pledges be enough to ward off the worst consequences of global warming? No. Scientists generally agree that global warming must not exceed 2 degrees Celsius, or 3.6 degrees Fahrenheit, from preindustrial levels. Various studies say that even if countries that have made pledges were to follow through on them, the world will heat up by 6.3 degrees Fahrenheit by the end of this century. That would still be much too high, and it would be guaranteed to make life miserable for future generations, especially in poor low-lying countries. But it would at least put the world on a safer trajectory; under most business-as-usual models, temperature increases could reach 8.1 degrees or higher.

Eventually, of course, all nations will have to improve on their pledges, especially big emitters like China, India and the United States. If the Paris meeting is to be a genuine turning point, negotiators must make sure that the national pledges are the floor, not the ceiling of ambition, by establishing a framework requiring stronger climate commitments at regular intervals — say, every five years. This should be accompanied by a plan for monitoring and reporting each country’s performance. Earlier meetings have done poorly on this score.

Other important items dot the agenda. One is how rich nations can help poorer ones achieve their targets. Another is stopping the destruction of tropical forests, which play a huge role in storing carbon and absorbing emissions. The meeting also seeks to enlist investors, corporations, states and cities in the cause. Michael Bloomberg, who made reducing emissions a priority as mayor of New York, will join the mayor of Paris in co-hosting a gathering of local officials from around the world.

The test of success for this much-anticipated summit meeting is whether it produces not only stronger commitments but also a shared sense of urgency at all levels to meet them.

Iraq About To Flood Oil Market: More Grief Ahead For Canada

Underscoring Goldman Sachs forecast last week of oil prices at or below $50 per bbl until at least 2020, Bloomberg News is today reporting that Iraq is preparing to unleash a flood of new oil within the next few months.  This is very bad news for the price of Western Canadian Select bitumen, and Alberta oil sands producers.  Saudi Arabia’s strategy, together with OPEC, to squeeze high-cost oil producers of oil sands and shale seems to be working.  More pessimistic forecasts of WCS at $25 for an extended period now appear more plausible.  The complex interplay of oil and global economies could also have a reverberating effect on regions on the sharp edge of full-scale recession, including Canada, Europe, Russia and China.

Iraq About to Flood Oil Market in New Front of OPEC Price War
If shipping schedules are correct, a tidal wave of oil is coming.

BLOOMBERG NEWS by Grant SmithJulian Lee
7:37 AM PDT
May 26, 2015

(Bloomberg) — Iraq is taking OPEC’s strategy to defend its share of the global oil market to a new level.
The nation plans to boost crude exports by about 26 percent to a record 3.75 million barrels a day next month, according to shipping programs, signaling an escalation of OPEC strategy to undercut U.S. shale drillers in the current market rout. The additional Iraqi oil is equal to about 800,000 barrels a day, or more than comes from OPEC member Qatar. The rest of the Organization of Petroleum Exporting Countries is expected to rubber stamp its policy to maintain output levels at a meeting on June 5. While shipping schedules aren’t a promise of future production, they are indicative of what may come. The following chart graphs planned tanker loadings (in red) against exports.

As in previous months, Iraq might not hit its June target – export capacity is currently capped at 3.1 million barrels a day, Deputy Oil Minister Fayyad al-Nimaa said on May 18. Still, any extra Iraqi supplies inevitably mean OPEC strays even further above its collective output target of 30 million barrels a day, Morgan Stanley says. The following chart shows OPEC increasing output in recent months against its current target.

Defying the threat from Islamic State militants, Iraq has been ramping up exports from both the Shiite south – where companies like BP Plc and Royal Dutch Shell Plc operate – and the Kurdish region in the north, which last year reached a temporary compromise with the federal government on its right to sell crude independently.

Norway Sovereign Wealth Fund Drops Coal and Tar Sands Investments

World’s biggest sovereign wealth fund dumps dozens of coal companies

Norway’s giant fund removes investments made risky by climate change and other environmental concerns, including coal, oil sands, cement and gold mining

The world’s richest sovereign wealth fund removed 32 coal mining companies from its portfolio in 2014, citing the risk they face from regulatory action on climate change.

Norway’s Government Pension Fund Global (GPFG), worth $850bn (£556bn) and founded on the nation’s oil and gas wealth, revealed a total of 114 companies had been dumped on environmental and climate grounds in its first report on responsible investing, released on Thursday. The companies divested also include tar sands producers, cement makers and gold miners.

As part of a fast-growing campaign, over $50bn in fossil fuel company stocks have been divested by 180 organisations on the basis that their business models are incompatible with the pledge by the world’s governments to tackle global warming. But the GPFG is the highest profile institution to divest to date.

A series of analyses have shown that only a quarter of known and exploitable fossil fuels can be burned if temperatures are to be kept below 2C, the internationally agreed danger limit. Bank of England governor Mark Carney, World Bank president Jim Yong Kim and others have warned investors that action on climate change would leave many current fossil fuel assets worthless.

“Our risk-based approach means that we exit sectors and areas where we see elevated levels of risk to our investments in the long term,” said Marthe Skaar, spokeswoman for GPFG, which has $40bn invested in fossil fuel companies. “Companies with particularly high greenhouse gas emissions may be exposed to risk from regulatory or other changes leading to a fall in demand.”

She said GPFG had divested from 22 companies because of their high carbon emissions: 14 coal miners, five tar sand producers, two cement companies and one coal-based electricity generator. In addition, 16 coal miners linked to deforestation in Indonesia and India were dumped, as were two US coal companies involved in mountain-top removal. The GPFG did not reveal the names of the companies or the value of the divestments.

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“One of the largest global investment institutions is winding down its coal interests, as it is clear the business model for coal no longer works with western markets already in a death spiral, and signs of Chinese demand peaking,” said James Leaton, research director at the Carbon Tracker Initiative, which analyses the risk of fossil fuel assets being stranded.

A report by Goldman Sachs in January also called time on the use of coal for electricity generation: “Just as a worker celebrating their 65th birthday can settle into a more sedate lifestyle while they look back on past achievements, we argue that thermal coal has reached its retirement age.” Goldman Sachs downgraded its long term price forecast for coal by 18%.

On Wednesday, a group of medical organisations called for the health sector to divest from fossil fuels as it had from tobacco. The £18bn Wellcome Trust, one of the world’s biggest funders of medical research , said “climate change is one of the greatest challenges to global health” but rejected the call to divest or reveal its total fossil fuel holdings.

In January, Axa Investment Managers warned the reputation of fossil fuel companies were at immediate risk from the divestment campaign and Shell unexpectedly backed a shareholder demand to assess whether the company’s business model is compatible with global goals to tackle climate change.

Note: The first line originally said 40 coal mining companies had been dropped, instead of the correct number of 32. A further eight companies were dropped due to their greenhouse gas emissions: five tar sand producers, two cement companies and one coal-based electricity generator.

Neil Young Confronts Canada’s “Natural Resource Curse” Head On

Canadian Neil Young Stands Up For Canada

Years ago, when Nixon ordered the invasion of Cambodia, on May 1, 1970, four unarmed students demonstrating against the war were essentially murdered by the Ohio National Guard.  David Crosby, Graham Nash, Steven Stills and Canadian Neil Young were driven to record the song “Ohio,” in a rushed recording session. The song went viral before “viral” was even a concept. The Internet did not exist. In less than 24 hours “Ohio” was being played on FM radio stations all across the United States.  That CSNY song, IMHO played a crucial role in Nixon’s demise, and accelerated the end of the Vietnam War. I see Yogi Berra’s “deja vu happening all over again” with Neil Young and the tar sands.

Neil Young has essentially done it again, with his extraordinary stand  this week against the Alberta tar sands, and in support of the First Nations Court action against Shell Oil’s plan to expand the destruction to the boreal forest. He has attracted criticism like Manitoba mosquitos in August. I doubt Neil cares much.

Like in the previous Vietnam War instance, Young is being criticized in the establishment Canadian press. But as with the Vietnam War, I believe the turning point may have been reached with the Alberta tar sands.  Two separate polls in Alberta, one by the Edmonton Journal, and the other by the Huffington Post, have come out overwhelming in support of Neil Young’s opposition to the tar sands. What? How could that be in Alberta? These people depend on tar sands jobs?  An amazing 63% of Albertans polled by both journals approved Neil Young’s actions this week. This may explain the virulent attacks on him in the press, a la the Vietnam War. Corporations and Harper hate losing.

Read more: Alberta Bitumen Bubble and the Canadian Economy

Neil Young is normally a very low key person. I have been fortunate to have met him once, and to have lived in a community he frequented on the coast just south of San Francisco. He has lived there for nearly 40 years with his family.  Since the recording of “Ohio” I cannot recall a time when he has stood up publicly on an issue, and risked his reputation.  Despite all the attacks on him this week, I think Young has gotten it dead right, and time will prove him right.

Stanford B School Guest Lecturer Tony Seba, October 10th, 2:30PM EME 2181

Stanford Graduate School of Business Lecturer in Entrepreneurship, Tony Seba, will be our MGMT 450 Guest Lecturer, Thursday, October 10th, at 2:30PM in EME 2181, speaking on “Entrepreneurship Opportunities in Clean Tech.”   Tony Seba is also an entrepreneur, author, speaker, executive, management consultant and business architect.  Tony will be appearing via live video conference from Stanford University to the MGMT 450 classroom.

Tony Seba: Clean Energy, Economics and Entrepreneurship

May 24th, 2013

Tony Seba is the author of “Solar Trillions – 7 Market and Investment Opportunities in the Emerging Clean-Energy Economy” and “Winner Takes All – 9 Fundamental Rules of High Tech Strategy“. He is a lecturer in entrepreneurship at Stanford University where he teaches entrepreneurship, disruption, and clean energy. He has created and taught the following courses: “Understanding and Leading Market Disruption”,  “Clean Energy – Market and Investment Opportunities“, “Strategic Marketing of High Tech and Cleantech“, “Finance for Marketing, Engineers, and Entrepreneurs“. and “Business and Revenue Models Innovation“, He teaches at top business school around the world such as The Auckland University (New Zealand) Business School. and in-company at some of the world’s top high tech companies such as Google, Inc..

Tony Seba brings 20+ years of solid operating experience in fast-growth high tech and clean tech companies. He was Vice President, Corporate Development at “Utility Scale Solar, Inc.” where he helped the company grow from the garage-stage through growth strategy, fundraising, business development with plant developers and partners. He was previously founder and CEO of PrintNation.com a B2B ecommerce site which he established as the undisputed leader in its market segment, winning such top industry awards as the Upside Hot 100 and the Forbes.com B2B ‘Best of the Web’. Seba led two venture capital rounds raising more than $31 million in funding from well-known venture funds, hired a complete management team, 100+ employees, and managed the development of strategic partnerships with some of the world’s top companies.

Prior to PrintNation, Mr. Seba worked in business development and strategic planning at Cisco Systems and RSA Data Security. Seba has been responsible for the architecture, development, and commercialization of more than two dozen products including Java security, electronic payment technology, sales force automation, computer-aided software engineering and ecommerce infrastructure.

Seba speaks frequently at clean energy, clean tech, entrepreneurship and high tech conferences and company events. He has been featured inComputerWorld, Business Week, Investors Business Daily, Forbes, Fast Company, Success and other media and holds entrepreneurship awards such as BridgeGate’s Top 20 Difference-makers.

Seba is a Global Cleantech Advisor  at Global Technology and Innovation Partners, and is on the advisory boards of Medifirst Systems, and Stanford Society for Entrepreneurship in Latin America. He has recently been on the Board of Directors of the Stanford Alumni Consulting Team and the San Francisco Jazz Organization. He has worked on ACT projects for organizations such as Stanford Office of Technology Licensing, Yerba Buena Center for The Arts and Girls Scouts USA.

Tony Seba holds an M.B.A. from Stanford University Graduate School of Business and a B.S. in Computer Science and Engineering from the Massachusetts Institute of Technology.

Investment Strategist Warns About Climate Change, Food Supplies, and Natural Resources

• WSJ.MONEY
• September 20, 2013, 10:31 a.m. ET

QUESTIONS, QUESTIONS

WSJ Interview With Jeremy Grantham

He called the Internet bubble, then the housing bubble. What alarm bell is Jeremy Grantham, the chief investment strategist at GMO, ringing about now?

By
• IAN SALISBURY

Photograph by Erik Madigan HeckJeremy Grantham

JEREMY GRANTHAM’S GOT A TRACK RECORD that’s impossible to ignore—he called the Internet bubble, then the housing bubble. While moves like those have earned the famed forecaster the nickname “perma-bear,” in early 2009 he also told clients at GMO, his $100 billion, Boston-based money-management firm, to jump back into the market. It was the same week that stocks hit their post-Lehman low.

Now, however, the outspoken Yorkshireman, who is chief investment strategist at GMO, is making headlines with a new prediction: Dire, Malthusian warnings about environmental catastrophe. To hear him tell it, the world is running out of food. Resources will only keep getting more expensive. And climate change looms over it all. Indeed, at times he sounds like someone Greenpeace would send door-to-door with a clipboard. (He’s not above likening the coal-industry spin to the handiwork of Goebbels.) If it were anyone else, Wall Street would probably laugh him off. But because it’s Jeremy Grantham, they just might listen.

Q: You’ve been ringing alarm bells about commodity prices. Why all the worry?

A: They came down for a hundred years by an average of 70 percent, and then starting around 2002, they shot up and basically everything tripled—and I mean, everything. I think tobacco was the only one that went down. They’ve given back a hundred years of price decline and they gave it back between ’02 and ’08, in six years. The game has changed. I suspect the game changed because of the ridiculous growth rates in China—such a large country, with 1.3 billion people using 45 percent of the coal used in the world, 50 percent of all the cement and 40 percent of all the copper. I mean these are numbers that you can’t keep on rolling along without expecting something to go tilt.

Q: This led to some surprising conclusions, like your concerns about natural resources most of us have barely heard of.

A: We went through one by one, and we decided the most important, the most valuable and the most critical was phosphate or phosphorous. Phosphorous cannot be made, only placed. It is necessary for all living things. And we are mining it, and it’s depleting. And I like to say, if that doesn’t give you goosebumps, then you’re tougher than me. That is a terrible equation. So I went to the professors, and I said, what’s going to happen, and they said, ‘Oh, there’s plenty of phosphorous.’ But what’s going to happen when it runs out? ‘Oh, there is plenty.’ It’s a really weak argument. We do have a lot, but 85 percent of the low-cost, high-quality phosphorous is in Morocco…and belongs to the King of Morocco. I mean, this is an odd situation. Much, much more constrained than oil in the Middle East ever was—and much more important in the end. And the rest of the world has maybe 50 years of reserve if we don’t grow too fast.

Q: What are investors supposed to do?

A: The investment implications are, of course, own stock in the ground, own great resources, reserves of phosphorous, potash, oil, copper, tin, zinc—you name it. I’d be less enthusiastic about aluminum and iron ore just because there is so much. And I wouldn’t own coal, and I wouldn’t own tar sands. It’s hugely expensive to build coal utilities, and the plants they have to build for tar sands are massive, and before they get their money back I suspect that the price of solar and wind will have come down so much.

So I wouldn’t use that, but I think oil, the metals and particularly the fertilizers, I would own—and the most important of all is food. The pressures on food are worse than anything else, and therefore, what is the solution? Very good farming, which can be done. The emphasis from an investor’s point of view is on very good farmland. It’s had a big run. You can never afford to ignore price and value, but from time to time you can get good investments in farmland, and if you’re prepared to go abroad, you can do it today. I wouldn’t be too risky. I would stay with distinctly stable countries—Australia, New Zealand, Uruguay, Brazil, Canada, of course, and the U.S. But I would look around, in what I call the nooks and crannies. And forestry is the same. Forestry is not a bad bargain, a little overpriced maybe, but it’s in a world where everything is overpriced today, once again, courtesy of incredibly low interest rates that push people into investing. A wicked plot of the Federal Reserve.

Rising Commodities

Total return over 10 years (2003-2013)

Source: S&P Dow Jones Indices

Q: Why is this problem so hard for us to deal with? You’ve railed against short-termism.

A: A career politician has a very short horizon. They’re not really interested in problems that go out five or 10 years. Secondly, you have what they call the discount-rate effect, which is a dollar in 10 years has a much lower value to a corporation than a dollar today. So they’re only interested, at the corporate level, in the short term. And politicians, in the very short term. And you have a vested-interest effect. In other words, it’s very hard to get change when the people who are benefitting very nicely, thank you, from the current situation don’t want it. If the oil industry is making a bundle, which they are, they don’t want to change to a system that recognizes climate change and the need to have a tax on carbon. And they can fund right-wing think tanks, and they do.

So you have vested interests fighting like mad to keep the situation the way it is. And that’s always the case. So change is difficult, and with our politicians with the short-term election problems, it’s nearly impossible. And when they depend so much on campaign contributions, and they find the campaign contributions come so much from the vested interests, the financial world, but more particularly the energy world, it’s a bloody miracle anything gets done.

More From WSJ.Money Fall 2013

 

Q: And that long-term perspective is important, not only to changing society, but also to investing. As an investor, you’re known for that.

A: I like to get what I consider the central idea, which in the stock market is patience and value and mean reversion. And in society, it is resources and climate damage. That’s plenty to go on, and that’s a pretty strong focus. We have a shockingly short horizon in the stock market, as witnessed in the Internet bubble. And we have a shockingly short horizon about social problems, where all we want to hear is how rapid the growth will be and how good everything is.

Q: How about a stock forecast. You called the market’s initial 2009 rally, but by 2010 you were predicting “seven lean years.” So far, however, the market’s soared.

A: And it can go a lot higher than this with the Fed pushing it. And we can have another real bubble. Based on the Fed’s history, that seems to be what they like. You know we had one in 2000 with Greenspan, and then we had a housing bubble and a financial bubble with Bernanke and Greenspan. And it looks like Bernanke is perfectly happy to keep the rates down and watch as stock prices rise. They do that because as the rising stock prices give you a little consumer kick, you feel richer—and then, when you least need it, the whole thing bites you, and the prices go back to fair price or lower, like they did in ’09, and the consumer reacts, and you have a recession and a bad stock market. But they’ve had two of these, and they seem bound and determined to do it a third time. As I’ve said, it’s a workable definition of madness to keep doing the same thing and expect a different result.

Q: Like many Englishmen, you seem to regard Americans as wildly, fool-heartedly optimistic.

A: America is a very, very optimistic-biased society, as I believe, incidentally, Australia is, for whatever that means. We’re the two great optimistic societies. You can have a conversation about a housing bubble in England, and they’ll say, ‘oh, is that right? Let me see the data.’ If you have one in Australia, you have World War III! They hate you. They hate you for years! [laughs] The idea that you could suggest that they were having a housing bubble. [laughs]

Q: So the stereotypes about us are true?

A: Absolutely. Now, it’s been very useful in enterprise, in venture capital…in start-ups. We have more failures here than probably every developed country added together, but in consequence, when the smoke clears, we tend to end up with the Amazons and the Googles. It’s not an accident. We just throw more darts at the dartboard. The Germans are very conservative about throwing darts. We have an admirable risk-taking attitude, and we’re very tolerant of failure.

Q: We benefit from it?

A: Absolutely, but the downside is you’re willing to throw darts because you think you’re going to win. American entrepreneurs all know they’re going to win. Only 10 percent survive, but they all think they’re going to win.

Article: Canada’s economic growth to remain weak: OECD

Canada’s economic growth to remain weak: OECD http://www.theglobeandmail.com/report-on-business/economy/canadas-economic-growth-to-remain-weak-oecd/article9587265/?_rob_utm_medium=twitter

Alberta Bitumen Bubble And The Canadian Economy: Industry Analysis Case Study

Alberta Tar Sands In Their Indigenous State 

The Canadian media (CBC, Globe & Mail, Canadian Business) have been buzzing with analyses of Alberta Premier Alison Redford’s  pronouncement last month that the “Bitumen Bubble,” is now crashing down on the Alberta economy, and potentially the entire Canadian economy. The Alberta budget released last Thursday, March 7, acknowledged a multi-Billion dollar deficit from this year, and “even larger declines in the next several years,” due to forecasts for significant price decreases for “Western Canada Select“ (WCS), the market term for the Alberta oil sands. This is contrasted with “West Texas Intermediate“ (WTI) which is also known as the standard for “light sweet crude,” which is much cheaper to refine.   Canadian Finance Minister Jim Flaherty echoed the impact of reduced oil sands revenue on the federal budget, by warning of significant cutbacks in federal spending as well.  The impact of this sudden change in the prospects for the Canadian petroleum industry and for government oil tax revenues, will likely also have serious implications for the BC economy, jobs growth, business investment, consumer spending: essentially the Canadian economy as a whole will suffer.

As an Industry Analysis case study for Management students, how did this happen, why was it not foreseen?  Why weren’t foresighted  policies put in place, and what are Alberta and Canada‘s strategic options now?

The June 25th, 2006, CBS News 60 Minutes report by senior CBS News Correspondent Bob Simon, can be taken as a convenient departure point for this analysis.

Video (1min 52 sec.) CBS 60 Minutes: 6/25/2006: The Oil Sands

The so-called “proven reserves” of oil in the Alberta oil sands are estimated to be 175 Billion barrels, second only to Saudi Arabia’s estimated 260 Billion barrel reserve. In the CBS video, Shell Canada CEO, Clive Mather estimates that the total may be as large as 2 Trillion barrels, or eight times that of Saudi Arabia. The CBS 60 Minutes report at the time in 2006, was considered so positive, that it was eventually shown in an endless loop in the foyer of Canada’s Embassy in Washington D.C., at Canada House in London, and elsewhere around the World.   The Alberta oil sands were seen as the harbinger of a great new era of Canadian economic progress and wealth.

Since that time a variety of external market factors, and long-standing failures of Canadian government policy have converged like Shakespeare’s stars, to turn this Pollyanna scenario into the national disaster it has become for Canadians.

Perhaps the single most important point in this discussion is that Canada has historically been a natural resource based economy, which has led to complacency and neglect of investment in innovation.  Innovation is the most important determinant of business competitiveness and economic prosperity in a world of global markets and rapid technological change.  Canada’s overall investment in R&D in science and technology has been below the OECD average for decades, and continues to decline year to year.  As a consequence, Canada has also fallen sharply behind the United States in productivity.  Essentially, there has been a “robbing Peter to pay Paul” mentality in Canada with regard to investment in the future of the Canadian economy. So long as we can simply dig a hole and ship the rocks or oil overseas we are doing just fine, thank you very much!

In a serendipitous coincidence, the current events in Venezuela have provided a parallel to the petroleum industry issues in Canada. Yesterday, the HBR Blog Network published a post by Sarah Green. Ms. Green interviewed Francisco Monaldi, Visiting Professor of Latin American Studies at the Harvard Kennedy School. Professor Monaldi is a leading authority on the politics and economics of the oil industry in Latin America.

During the HBR Blog interview, Professor Monaldi referred to the “resource curse” of Venezuela, also citing Canada and Saudi Arabia as suffering from the same malaise. Venezuela has done all the wrong things under Chavez, and consequently the Venezuelan economy is in shambles. Monaldi cited Chile, who also had a natural resource boom, but are creating a national stabilization fund by not putting all of the money back in the economy at once, a counter cyclical policy almost unheard of in Latin America. A similar scenario of reinvestment in innovation has occurred in New Zealand, whose government has sought to reduce its vulnerability to over-reliance on natural resource exploitation.

A Canadian Broadcasting Corporation interview March 7th on The Current with oil industry expert Robert Johnston, and CBC business columnist Deborah Yedlin, revealed that the Venezuelan Orinoco crude is actually very similar to Alberta WCS, but it does not require massive destruction of the land. Transportation routes to U.S. refineries designed to deal with extra heavy crude have been up and running for years.  The U.S., despite the political tensions with Venezuela, is currently the single largest customer for Venezuelan extra heavy crude.  In The Current interview yesterday, both Johnston and Yedlin admitted that the Alberta oil industry was ” very uneasy”  about their competitive situation vis-a-vis Venezuela.  Yedlin also underscored Canada’s “resource curse” and the failure to diversify Canada’s investment in innovation and technology.

Listen to the CBC interviews: http://www.cbc.ca/thecurrent/episode/2013/03/07/the-future-of-venezuelas-oil-industry-and-what-it-means-for-albertas-oil-patch/

Alberta oil sands, by contrast, are completely land locked, and the Alberta producers are in the midst of an unsavory political wrangle over two pipelines, which has brought undesired attention to the other problems with Canadian bitumen.  Without at least one pipeline, the Alberta oil sands industry is in a questionable state. Should the United States elect not to approve the Keystone XL pipeline to the Gulf of Mexico, Canada’s only viable remaining option would be to sell the oil to China.  Some Canadians are taking the position that Canada “should” sell the oil to China.  The Harper government is now hypersensitive to China’s interest in the oil sands. Others have suggested that we should refine the oil ourselves, but it is cheaper to send it to Texas than to build refineries in Canada. According to Yedlin, Canada is now locked into the urgent need for the pipelines, with no other options or strategy.

The argument can be made that Canada should have been implementing policies like those in Chile or New Zealand years ago, anticipating the boom and bust of the global petroleum market, and socking away money to deal with it.

The most recent 2012 OECD Economic Survey of Canada also serves to underscore the urgent need to change our national policies with regard to natural resource exploitation and investment in innovation to improve our performance in global productivity.

As the oil boom and high value of the loonie have pushed wealth westward, Canada’s productivity growth has been relatively flat in recent decades, and has actually dropped since 2002. Meanwhile, as the OECD observes, productivity growth south of the border has risen by about 30 per cent in the last 20 years — a gap that is causing Canada to lose competitive ground.

“Canada is blessed with abundant natural resources. But it needs to do more to develop other sectors of the economy if it is to maintain a high level of employment and an equitable distribution of the fruits of growth,” study author Peter Jarrett, head of the Canada division at the OECD Economics Department, said in a press release.

Meanwhile, yesterday, Friday, March 8th, the Globe & Mail published a scathing criticism of federal Natural Resources Minister Joe Oliver for characterizing the Alberta oil sands industry as the “environmentally responsible choice for the U.S. to meet its energy needs in oil for years to come.”  G&M Journalist Tzeporah Berman wrote, “At a time when climate change scientists are urgently telling us to significantly scale back the burning of fossil fuels, having a minister promote exactly the opposite really does feel like being told that two plus two equals five.”

Our most respected national journal simply reached the end of its patience with Canadian government “doublespeak.”  Every independent study, including one from the U.S. Department of Energy, has found that the oil sands are one of the World’s dirtiest forms of oil, producing three times more emissions per barrel produced and 22 per cent more greenhouse gas emissions than conventional oil (when their full life cycle of emissions, including burning them in a vehicle are included).  The problem is simple: the massive “energy in versus energy out” equation simply does not work for oil sands.  Large amounts of natural gas and water are required simply to prepare the bitumen for transport to refineries. Yet our government continues to wave its arms in a desperate attempt to divert attention from the facts, rather than to deal with the facts. One would think that our national government by now would have a reality-based strategy to deal with major economic and political issues of this scale.

This discussion has barely touched on the opposition to the two pipelines, Keystone XL and Enbridge Gateway, attempting to move the landlocked tar sands out of Alberta. This is a strategic market issue that should have been addressed years ago, but was not.  The thorny issues of both pipelines are now a rod for Alberta’s own back. Considering the market competitor Venezuela, with comparably unattractive “extra heavy crude,” but having existing transport, the prospects for Alberta are not favorable, and it has finally sunk in for Alberta oil executives.

The long awaited U.S. State Department Draft Environmental Impact Assessment (DEIA) on the Keystone XL pipeline, released early this month, was written by oil industry consultants which have raised significant concerns of a serious conflict of interest in their findings. The Executive Summary of the State Department DEIA took a decidedly neutral position, saying that the pipeline would have “no effect” on the development of the Alberta oil sands. But buried in the report were findings that argue against the need for the pipeline.  The recent developments in Venezuela and the increasing energy independence of the United States were not factored into their findings.

The DEIA specifically evaluated what would happen if President Obama said “no” and denied Keystone XL a permit. It concluded that not building the pipeline would have almost no impact on jobs; on US oil supply; on heavy oil supply for Gulf Coast refineries; or even on the amount of oil sands extracted in Alberta. If these findings are accurate, then one must ask why it is necessary to build the Keystone XL pipeline.

So in conclusion, how could the Canadian federal government not have foreseen this calamity, and prevented it?  Could it have been the giddy euphoria of the 2006 CBS 60 Minutes report?   The only best solution, investing government oil revenue into innovation and technology R&D, may no longer be a viable option.

In such a situation, what would you do to address this crisis for the Canadian economy?