01 June 2011

Crude price forecasts don’t support Dunderdale’s empire of debt #nlpoli

Crude oil prices are the pedestal on which Kathy Dunderdale’s empire of debt called Muskrat Falls is built.

The provincial Conservative’s plan to burden the people of Newfoundland and Labrador with a huge public debt and grossly increased electricity prices – while shipping cheap power out of the province – is based on one simple premise.

From the time Kathy Dunderdale first unveiled the scheme,  she keeps insisting that oil prices will skyrocket between now and 2017 when the project is supposed to start producing electricity. 

Without Muskrat Falls, according to Dunderdale, people on the island of Newfoundland will be forced to pay ever higher amounts for electricity as oil climbs higher.  The culprit is the Bunker C fuel needed to make electricity as Holyrood.

Oil is supposed to be more than $120 by 2017 and at $200 by 2020 in order to make the Conservatives’ Muskrat Falls scheme work.  That’s the only way that a $10 billion megaproject of the sort they are talking about might make any sense at all.  That is the only way – theoretically – anyone can talk about a single project that produces electricity at a rate of 14.3 cents a kilowatt hour and thinks it is cheap.

These are not comments from just before Christmas last year, mind you.  Kathy Dunderdale used exactly the same claim on the last day of the House of Assembly before the fall general election:

It is feasible because we will charge 14.3 cents a kilowatt hour, which will be roughly the equivalent of what people will be paying on the isolated system in 2016.

To give a sense of just how ludicrous the Dunderdale forecast is, consider that the Conservatives’ favourite provincial economist isn’t backing her projections.  At a presentation to a recent conference in Gander, Wade Locke flashed a slide of forecast Brent crude oil prices that is distinctly at odds with the nightmare scenario Dunderdale has been using to justify her grand design.


Locke is using a forecast that shows crude in 2017 at a mere $100 a barrel, or about half of what Dunderdale needs to justify her forecasts.

Locke’s chart takes its numbers from the most recent forecast by GLJ Consultants.

What’s more, you don’t see oil going really close to the $120 a barrel they would need to hit in order to drive prices high enough to justify the huge increase that would have to hit in 2017 to start paying for Muskrat Falls.

Her logic – after all – is that by the time we get to 2017, we’ll already be paying so much for electricity, Nalcor can swap Muskrat Falls for crude and we won’t feel any difference.

That doesn’t look likely, does it?

Of course it doesn’t.

If Muskrat Falls proponents get their way, people will feel a huge difference.