B4

STEPHEN CAMPBELL
Challenging Times

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Humans are actually quite predictable: most of us wait for a crisis before acting.

Governments are no different. But that shouldn't be a big surprise for they too are driven by human nature. Policy is motivated by the deadline of the next election, as opposed to sound long-term planning. In corporations, the pressure of delivering a positive quarterly or annual report often eclipses the strategic needs of the company.

A perfect example of this behaviour was when crude hit $147 a barrel last year. As the economic pain became acute, there was an outcry for more conservation, alternative fuels and better infrastructure. North American car manufactures, perfect examples of those that planned for the next quarter, suddenly found themselves producing vehicles nobody wanted, with no time or money to retool for changing consumer demands.

A lot of that thinking goes on in New Brunswick. The sharp drop in oil prices, brought on by a global recession and credit crunch, is a temporary condition. The evidence that we will see oil prices above $200 is almost a certainty, but for now we plod ahead as if current price levels will be the norm.

This province of ours is very vulnerable to rising energy costs. Nearly 90 per cent of our citizens commute to work in a car, and trucks move 90 per cent of consumer goods within the Atlantic region. We are the most export-dependant province in Canada, with 80 per cent of our GDP derived from goods and services we transport somewhere else. Our industries, particularly forestry, are massive consumers of electricity, yet our generation capacity remains far too dependent on fossil fuels.

The fact is, we have three serious problems that are going to bring about radical change in our lifestyles: the current financial crisis, the peaking of world oil production, and the eventual issue of global warming. In earlier columns, I dealt with the causes and ramifications of the global credit crunch, but it is the second issue that worries me far more: the end of cheap energy.

In a recent report, the International Energy Agency urged a global energy revolution if we are to prevent shortages and the resulting economic consequences. In the short term, project delays, rising U.S. taxation and low oil prices will mean sharply higher prices when demand resumes, and it will.

Despite all the talk of energy alternatives, the energy agency predicts that fossil fuels will continue to account for 80 per cent of the energy mix in 2030, barely down from where it is today. In addition the agency notes that if current government policies don't change, energy demand will increase by 45 per cent between now and 2030.

Driving this demand are countries like China and India, which will account for half the growth in demand, followed by the developing Middle East, which will account for another 11 per cent. That means that a large proportion of Middle East oil will reverse course, from exports to domestic consumption.

The debate about when we will actually reach peak oil is ongoing, however the consensus is it has already happened or is about to. World oil discovery rates peaked in 1965 and production has exceeded discovery every year since the mid 1980s. Even more disturbing, is the evidence that world reserves are widely overstated.

A former top executive of Saudi Aramco, Sadad Al-Husseini, recently stated, "Oil-producing countries are inflating the size of their oil reserves by as much as 300 billion barrels by padding supposedly proven reserves with probable reserves and tar and oil sands." And it wasn't that long ago that Royal Dutch Shell, the third-largest oil company in the world, shocked energy markets around the world by announcing that its proven reserves were overstated by 23 per cent.

So what does this mean to a province like New Brunswick? What happens to our self-sufficiency agenda with oil at $200 or more a barrel, and what is the government doing to prepare our population and industry for the coming energy crunch? The answer seems to be don't worry, be happy.

Imagine for a moment, what your life will be like with energy prices four or five times what they are now. How much of your disposable income will be spent on heating your home, how much will it cost you to drive to work, and will your work still be there?

It would be refreshing to hear a politician actually articulate a plan for this coming crisis.

But do you hear anyone talking about the need for more urban population concentrations where mass transit can be efficiently utilized? Are we prepared to stop spending billions on roads, in favor of a more diversified transportation base? Are we investing in energy efficiency for our homes and businesses?

Or how about creating significant - the key word is significant - tax incentives for industry to convert to more fuel-efficient production. Why not impose penalties that discourage us from driving and using the proceeds to invest in greener transit systems?

There is a reason government is not forcing lifestyle changes through public policy. The kind of plan that would actually make a difference would also make them unelectable. Short-term pain for long-term gain, just doesn't sell. After all, we are human, and if history has taught us anything, we would much rather wait for a crisis and then act. The unfortunate part is, by squandering the opportunity to prepare we guarantee far more pain down the road. Sadly, we won't have to wait too long, because this one is right around the corner.

Stephen Campbell was an investment banker for 28 years. He currently serves as chairman of the Saint John Port Authority. He can be reached at telegraph.Campbell@gmail.com. His column appears Tuesdays.