April 04, 2004

Canada, the Oil Giant?

Alexander's Gas & Oil Connections is one of the industry's bibles. It covers who's who and what's what in an accessible way. While this is an older article from there, it contains an important gem that I was unaware of. The price for extracting a barrel of Canadian tar sands is now $12 per barrel. That puts them at a competitive price with Siberian crude. Congratulations, Shell corp., you've solved the upcoming energy crisis, at least when you can get the water requirements down.

The age of the article shows when it talks about the pricing problem of Saudi Arabia which can swing production to crash oil prices, dropping them to $10 at will and bankrupting expensive producers if they become too large a threat. This is no longer true as the Saudis are running at capacity now and will likely stay like that in future.

As soon as the water supply problem clears up and the dirtiness of the production problem is addressed, the US is going to have another oil power on its border, this time to the north and Canada will become the world's new swing producer, with the political power and responsibility that this position implies. The Middle East will still be important, but its importance will no longer be outsized because of its control of world energy markets.

The problem of getting sufficient water to the fields to inject them is not a trivial one and transporting sufficient water from other sources may balloon prices back up beyond economic viability but Canada has to be treated seriously now when discussing the oil situation. Tar sands (which occur in many nations besides Canada) have to be treated seriously, especially where they are combined with large sources of nearby water.

The very fact that Saudi Arabia can no longer peak its production and bankrupt high cost oil suppliers like the tar sands producers in Alberta is a revolution. In the coming years, we're likely to see a lot of fallout from that and a big positive for Canada.

Posted by TMLutas at April 4, 2004 02:40 PM