Urban Renaissance Institute

Lawrence Solomon
National Post
May 29, 2004

Trinidad and Tobago, a tiny island nation with vast natural gas reserves that it can’t easily export, earlier this week inked a deal with aluminum giant Alcoa that points to progress for both parties, and for us.

Under the deal, Alcoa will build a US$1-billion aluminum smelter in Trinidad, to use cheap electricity generated by exploiting the potential in Trinidad’s natural gas fields. This is only the second smelter Alcoa, the world’s largest aluminum producer, has built in the last 20 years, the other being a nearly completed plant in Iceland, also an island nation with hard-to-export energy. Alcoa’s new power-guzzling aluminum smelters replace mothballed Alcoa smelters in the United States, which, unlike Trinidad, has higher value uses for its energy. Following U.S. electricity deregulation, power producers can now profitably transmit power to U.S. locales that can use it more intelligently than in low-grade uses, such as converting tons of bauxite into half as many tons of aluminum. The Pacific Northwest alone has seen eight of its 10 smelters shut down, the better to satisfy higher-paying power users such as the west coast’s high-tech and media industries.

This transition in the U.S. away from a commodity resource industry is good for a highly developed economy such as America’s. Even dynamic developing economies such as Russia’s and China’s, to conserve their electricity for higher grade uses, are relocating their electricity-intensive aluminum production to countries that can’t find more productive uses for their power. The list of countries slated for new aluminum production includes the likes of Brunei, Bahrain, Guinea . . . and Canada, whose politicized and over-regulated system directs electricity to crude uses, instead of freeing it up for the highest bidders, anywhere on the continent. To encourage Alcoa to expand in Quebec, for example, the provincial government last week offered it a US$100-million interest-free loan and subsidized electricity for the next 50 years.

Simply put, resource industries, among others that are electricity intensive, routinely lobby for, and obtain, large amounts of subsidized power from our provincially owned electricity monopolies. When Canada stops subsidizing its electricity guzzlers, as China has begun doing, the smelters will move to more sensible locations, simultaneously modernizing the economies of all concerned. Such a worldwide transformation is also underway in fertilizers, plastics, steel, and other energy-intensive industries. Instead of importing energy from developing countries, developed countries are increasingly importing energy-intensive products, to the benefit of all. In Trinidad’s case, the transformation is all the more sensible because natural gas, unlike oil, cannot be easily exported without first converting it into liquid form, an expensive and fuel-consuming process.

With the Alcoa plant, Trinidad will obtain a large workforce – its smelter will employ 1,000 workers during its construction and 575 permanent workers. More importantly, Trinidad’s economy will have an opportunity to diversify away from oil, gas and petrochemicals, which account for more than one-quarter of its GDP: The aluminum smelter, its first, will also support downstream aluminum manufacturing.

Perhaps most important, the island would be tempering its dependence on Liquified Natural Gas exports – a rapidly expanding sector that already supplies North America with two-thirds of its LNG imports. At the same time, because it would be supplying us with the products we would have used the LNG imports to produce, Trinidad would be helping us temper our own growing dependence. Keeping an even keel in LNG is all the more important because, for rich and poor countries alike, the mushrooming LNG industry could blow up at any time.

LNG’s boosters quite rightly boast that LNG, one of the most dangerous products on earth, has had an excellent safety record for 60 years. Sixty years ago, in 1944, an LNG accident incinerated one square mile of downtown Cleveland and miraculously killed only 128 people. After that accident, public horror shut down the industry for 20 years, much as the explosion of the Hindenburg shut down air travel by hydrogen balloon. A lesser LNG explosion earlier this month at a Halliburton Company facility in Algeria, thought to be caused by LNG escaping from a pipe break, led to 27 deaths and US$1-billion in damage.

These are as nothing compared to the potential for catastrophe that comes of cooling some 20 billion gallons of natural gas to minus 260 degrees Fahrenheit, then compressing it 600-fold to allow 33 million U.S. gallons to be squeezed into a single tanker. One nightmare scenario involves LNG coming into contact with water, causing it to boil rapidly and release of a cloud of liquid and gaseous natural gas. If the cloud ignites before it has a chance to spread, the worst-case damage would be limited to an immense explosion, releasing the energy of 50 Hiroshima bombs. If the ignition occurs after the cloud has had a chance to spread downwind, to populated areas within 16 kilometres of an LNG tanker, the human toll from the blanket of fire that could befall a city could run to the tens of thousands. For this reason, in the hours after the Sept. 11 attacks, Richard Clarke, then America’s top counterterrorism official, told the U.S. Coast Guard to close Boston Harbor, fearing Al Qaeda might attack an LNG tanker as it glided past downtown buildings. “Had one of the giant tankers blown up . . . it would have wiped out downtown Boston,” Clarke said in his book Against All Enemies.

Should a serious LNG explosion occur by accident or by design, the LNG industry might well be shut down, devastating the economy of LNG-dependent exporters such as Trinidad. The devastation that developed nations such as Canada and the U.S. face should be no less sobering. In Canada, LNG tankers are slated to sail down the St. Lawrence to Levis, opposite Quebec City, if energy companies such as Enbridge have their way; LNG facilities are also proposed for Saint John, New Brunswick, and Cape Breton in Nova Scotia. Along with the risk we are asked to bear comes interferences in the marketplace: To make the LNG industry profitable, companies like Enbridge seek new regulatory protections from competition as well as depending on regulators to continue to channel Canadian energy supplies for the benefit of the few in the resource economy, and for the disbenefit of the many in the greater economy.