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Mark and Steve talk about the future of oil and other types of energy.
Mark: Hi everyone, Mark here for another installment of EnglishLingQ.
Steve: And Steve.
Mark: Hi Steve.
Steve: Hi Mark.
Mark: Oh, yeah, you’re here, too.
Steve: I am.
Mark: I thought today was going to be a monologue.
Steve: Well, we can both do a monologue.
Mark: Okay. Now I know today we thought we’d…
Steve: Let’s talk about energy.
Mark: …talk about energy, yeah.
It’s obviously a very topical subject between oil and oil supply and the demands for oil and then, of course, the whole global warming climate change, green energy side, so it’s probably quite a interesting thing to talk about.
I have a vested interest because I’m involved in a sawmill and we have a lot of forest industry waste.
We use a very small part of it, just for our own dry kilns where we dry our lumber.
We also heat the mill, I mean the sawmill itself.
I mean it’s very cold up there in the winter.
It’s minus 30 degrees or whatever.
But, we use a…
Mark: Yeah. To be clear, you use the chips…
Steve: Not so much the chips.
I mean if you picture a log…
Mark: …or the sawdust. Yeah?
Again, the sawdust goes into it, it’s what’s known as hog fuel.
It includes bark, it includes broken branches or sometimes the logs come in and there are bits and pieces of dirty wood and stuff that all goes into this general category of what we call hog fuel.
So this is biomass when they talk about different sources of energy, biomass.
Now we leave a lot in the bush because when they bring in the logs they only bring in clean logs, so branches and the very small tops known as the rattails.
Because a tree, you know, starts, you know, three feet in diameter at the trunk, at the butt, and it’s tapered so that it ends up as a very small piece, which is the last shoot of the tree trying to go up to the sky kind of thing, right?
And the branches grow sideways.
You’ve seen a tree.
Mark: I understand how a tree works.
Steve: You’ve seen a tree.
So, anyway, all of the branches and the tops and all of this stuff is not used for anything.
Now we do ship our hog fuel to the pulp mill.
Mark: The stuff in the bush, though, that’s just left there?
Steve: It’s just left there.
Mark: Do you burn it or do you leave it?
Steve: In some cases they might burn it.
Because they burn and scarify and this tends to improve the performance of the forest land when we plant.
Steve: And I guess, to some extent, these are nutrients that are required in the forest.
Steve: We can’t strip it clean, but if you look at places like Sweden they pull a lot more out of the forest and biomass there is a huge part.
Like 25% of their energy comes from forest industry waste, so we could do more with our forest industry waste.
Steve: What is required is that the cost of energy increase so that we can justify making the investment because it’s not cheap and we have looked into it.
We went to Italy to see a very good bit of technology there where they use hot oil to drive the turbines, which means we don’t need a Steam Engineer.
For a small scale power station, as we would be look at building, we want to reduce our costs and a Power Engineer is an expensive person that has to be there 24 hours a day that we’d rather not have to have.
So we’ve looked into all of this, but the cost of doing it is much higher than the value of the energy.
Mark: As in most things the market forces tend to provide incentives of disincentives to provide for green energy, I guess.
Steve: Well, that’s true.
Mark: Unless the government steps in with incentives.
Steve: Well, if they have these green, you know, carbon credits.
In Europe, a lot of places, a lot of the coal-fired stations are mixing in wood, whether in pellet form or some other form.
So that if 15% of their energy source is biomass then they’ve reduced their CO2 emissions by that amount because wood is CO2 neutral.
This is all carbon dioxide that’s above the surface of the earth, so the tree grows absorbing CO2 and when it dies it decomposes or it burns and it gives off CO2.
Steve: But it’s all CO2 neutral, so therefore you’re reducing the amount of CO2 that, in effect, you’re pulling up out of the ground and basically belching out into the air, right?
So if the government says or either they legislate you must have 30% wood, we’d love that.
Steve: You know if they said you must have 30% wood then we could get rid of our wood and get paid for it.
Steve: Because it costs us money to bring it in, right?
Mark: The wood waste you mean.
Steve: The wood waste, yeah. So, anyway, I’m interested in this.
And, of course, we see the price of oil, which crashed to, whatever it was, $40 some odd and I think it’s up to $70 now.
Steve: But, on the other hand, I was reading a book about China.
The growth of their economy and across the scale of that country, 1.3 billion people is growing at 7-8-10%, the increase in the number of cars, their appetite for oil.
And they’re out now all over the world competing with the big multinationals, the Shell and the BP and the Total out of France and now the Chinese are out there competing, so there’s this tremendous competition for oil.
They are finding new sources off the coast of Africa or they’re looking at the Antarctica, but by the same token if a country like China and India increase then there’s going to be tremendously increased demand.
What’s also happening is China, in order to get at the oil and as a newcomer, they’re going into places like Africa and they have made a major contribution to improving the economic situation in Africa building roads and infrastructure and railways and dams.
And, of course, Africa now finds that they have a lot of oil, so they’re starting to do better so they have more cars.
I can’t see that the price is oil is going to stay low.
Mark: Well, I mean I guess this argument or hypothesis and I guess you’re angling toward the peak oil hypothesis or that we’re going to run out or the price is going to go through the roof.
Steve: So we can get paid for our wood waste. You understand my…
Mark: Well I guess that’s your angle, but… I mean people have been talking about this for a long time, I mean since, I don’t know, the ‘70s at least.
We’re going to hit peak oil, which is the most oil we’ll ever have before our reserves start to be depleted forever…
Mark: …or just the fact that we’re running out, the price is going to be $150 a barrel.
But, in fact, the more the demand increases the more supply we seem to be finding, like there’s more oil today than ever before.
Mark: So there is that certain amount of scare mongering in that.
I mean people believe that, yes, we’re running out, but in fact that hasn’t proven to be the case, yet.
Steve: Right. But…
Mark: …what’s more, if, in fact, we did start to run out, which would then drive the price up, then your wood waste energy source starts to make sense.
Steve: Or other high-cost oil…
Mark: Or high-cost oil, right.
Steve: …or natural gas, shale gas, all these other things.
Mark: Or this, whatever, undersea methane or whatever it is.
Steve: Yeah, there are lots of different options out there.
However, I still believe that…someone said we all have a tendency to overestimate short-term change and underestimate long-term change, so that people would overestimate how quickly this peak oil is going to be achieved.
But it’s like the story, you know if you have a pond, a lily pond, and the lilies double every day and they’re covering the pond, right, these lilies…
Steve: …on what day is the pond half full of lilies?
If it takes 30 days to fill the pond with lilies on which day is the pond half full of lilies?
It’s the 29th day.
Steve: You understand my point.
Steve: So it gets back to this idea that we tend to get all excited, oh, it’s going to change, it’s going to change.
It doesn’t quite change as quickly and then we, basically, let our guard down.
But, in the long run, there is no question that the demand is going to outstrip the supply, but there are fixes, you know, energy conservation, better utilization and stuff.
But the big change, in terms of the need for oil, is that up until I would say the ‘80s, economic growth really only took place in Europe and North America and Japan.
I’ve had a long involvement with China when I was learning Chinese and read a lot about their history and stuff.
If you look at China since 1949, from 1949 to 1979, if you take those 30 years, nothing happened in China in terms of economic growth, nothing.
In the last 20 years there has been phenomenal economic growth.
Steve: And they are now taking that capability where they, as a low-wage call it third world country, found the secret to rapid economic development.
They are very good at construction.
They build things fast, they’re good at production and stuff like that and they’re now fanning out and taking these lessons to other countries.
And I don’t know as much about India, but India is also developing.
So if we see development now starting to happen outside of North America, Western Europe, Japan, across 5/6th of the population of the world, then I think we’re going to start to see some very dramatic increases in demand for oil.
That’s my point, I rest my case, now move on to another subject.
I think I’ve squashed you pretty thoroughly on that subject.
Mark: You know I think to suggest that demand for oil is going to increase doesn’t take a Ph.D., but I’m not sure what your point is.
Okay, demand for oil is going to increase.
Mark: Are you worried that we’re going to run out of oil?
Are you worried that prices are going to become too high and that there will be riots because people can’t afford to drive their cars anymore?
I mean what’s your point, basically?
Steve: My point is, simply, that the price of oil is going to go up very high so that we can get paid for our wood waste.
I think that my truly altruistic and ecological…
Mark: Well, you made a statement earlier about supply or demand outstripping supply.
But I guess once the prices become…if that, of course, demand exceeds supply prices will go up and people will find alternative energy sources.
Steve: I agree with you there.
Mark: I mean I don’t think it’s anything we need to worry about, things will happen.
Steve: I agree with you there as well.
Mark: We need that, actually, to encourage development of alternatives.
Steve: Well, I mean I couldn’t agree with you more.
And I think, to some extent, one of the contributing factors to the economic crisis we’re in right now is the $150 oil.
However, we will get used to $150 a barrel oil because we used to have $5 a barrel oil.
Steve: And if someone had suggested when we had $5 a barrel oil that the economy of the world would continue to function at $50 a barrel people wouldn’t have believed them.
They’d say that would be a catastrophe and like half the people would be out of work, so I agree with you.
And if we have $1,000 a barrel oil people will find different ways and get by with less energy, so I firmly believe, I agree with you, that people will adapt.
Either they’ll find different sources or they’ll find ways of living that manage to do with less energy.
Mark: What bothers me are the artificial types of stimulus like carbon trading and carbon taxes…
Steve: Well, this depends on…
Mark: …and those kinds of things.
I just don’t think there’s a way to apply them evenly.
They’re artificial and so they provide artificial stimulus and encourage economic activity in areas that maybe there shouldn’t be economic activity.
Steve: Okay. But society is allowed to set certain…have certain values and if a majority of people….
For example, I’ve mentioned this before, in our forestry operation we have to invest $7 to $14 a cubic meter to renew the forest.
We plant, we scarify, we do a whole bunch of stuff.
There is no economic return on that stuff because our trees take 90 to 100 years to grow.
First of all, I’m not going to be here and, second of all, if I took that $7 a cubic meter and put it in the bank I’d be better off than trying to guess what those trees are going to be worth 90 years from now.
Steve: No economic case for it, except that the government says thou shalt reforest.
Steve: Because we like to see trees and, therefore, we look upon it not as an investment that’s going to be coming to maturity in 100 years, we look at it as a cost.
Steve: And so if the government says we think, the majority of people decide and, yes, there are scientists on one side and on the other side of the argument.
But if the government says we think that global warming is, you know, human-activity induced, global warming is a problem, (B) we are in a position to mitigate it and, therefore, we are going to force people to reduce their carbon emissions or encourage them to do so and one way is through these carbon credits.
I mean that’s a societal decision and then they can apply.
They can say, alright, you are a coal-fired or a gas-fired generating station, you have to use X amount of biomass or renewables that’s a law.
Yeah, they just put that in there.
Mark: A law I prefer more than some kind of a trading system.
Some kind of trading system is…
Steve: Well it depends what’s more effective, I have no idea.
I don’t understand this cap and trade, lots of stuff I don’t understand.
I mean I don’t thoroughly understand it either.
But they have some deal in the States now where they were going to auction off licenses — I can’t even remember — to major polluters.
And now they’re giving them away free and it’s all going to be based on which state you’re in, I’m sure.
Pretty soon any kind of a system like that is no longer going to be fair.
Steve: Is this brought to us by the same people who came up with all the derivatives and fancy financial instruments…
Mark: Maybe, maybe.
Steve: …clever people?
Mark: I mean I think initially they were hoping to raise money from auctioning off these pollution licenses or whatever they are.
Steve: And as with any other distortion of free trade it’s going to be used for other purposes.
And the Americans are already saying that they were going to discriminate against products that come from countries where they don’t feel that those countries are doing as much as the U.S.
in terms of reducing their carbon emissions or whatever, so there’s a whole protectionist thing that’s going to come into the picture, too.
M; Well there’s that and then, of course, this whole “Buy American” thing that’s been in the news here lately.
Steve: Well that’s a whole other issue, yeah.
Mark: They’ve said any money that’s targeted for infrastructure from their stimulus package has to source all their contracts through American businesses.
Steve: But, but, there was an article in the National Post, the Canadian newspaper, pointing out that the Americans…there’s several levels of public procurement, right?
There’s the federal, there’s the state and there’s the municipal.
Steve: And I think the federal level is open, it’s more the state and municipal level where they have this “Buy American.” Any country that has signed an agreement with the United States to open up the sort of secondary levels of public, you know, procurement to international competition, those countries are exempt from this provision.
Because Canada for all of our chest thumping and criticizing the U.S., the provinces and the municipalities, especially the provinces, have refused.
We have to have free trade agreements between the provinces because there are restrictions on trade between the provinces…
Mark: Right, right.
Steve: …and we don’t have free competition.
In other words, provincial procurement in Canada favors buy Canadian.
And because we wouldn’t sign those agreements we are now behind the eight ball vis-à-vis the Americans.
And we’re not the only ones; I mean all these different countries.
Everybody points to the other country as a bad actor and, yet, if you look around in the European market, Canada or any of these places, Japan, you name it, China, Korea, I can only imagine, is full of all kinds of these obstacles.
So the Americans aren’t the only ones.
Mark: No, I’m sure, I’m sure. Well, I think we…
Steve: …solved a few problems.
Mark: …solved a few problems there.
Hopefully that made things a little less clear for everybody.
Steve: We should have arguments on these things, Mark.
We end up agreeing too much, it’s not so much fun for people.
Mark: I know.
Mark: Anyway, we’ll talk to you again next time.
Steve: Thank you.