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6/20/2005

Alberta Bound

James Fallows writes an imaginary memo to a 2015 American Presidential candidate in this months' issue of the Atlantic. Like everything Fallows writes, it is beautifully researched and written. It is also a very bleak picture of the American future. And it is predicated on two assumptions about the world economy: first, that the Chinese are going to be in a position to seize economic dominance from America over the next decade. Second, that we are about to enter a period of radically rising oil prices which will cripple the gas dependent American economy.

The Chinese assumption is, to a degree, realistic; but it ignores the huge problems which China faces - chief among them the fact virtually the whole of China is running out of water. (Which I wrote about here.)

The oil assumption is much less realistic. The world in general is running out of cheap oil. The reserves of the Middle East have, pretty much, been discovered. However, with oil trading at $58.00 a barrel, the days of financing Saudi princes are fast drawing to a close.

The National Energy Board estimates there are approximately 1.6 trillion barrels of crude bitumen saturating the ground in northern Alberta. Bitumen -- a form of heavy, thick oil laden with sulphur and deficient in hydrogen -- can be refined into synthetic crude oil to make everything from gasoline to plastics. It is the lifeblood of every industrialized economy. According to the Alberta Energy and Utilities Board, about 178 billion barrels of bitumen are economically recoverable using existing technology -- enough to produce more than 150 billion barrels of crude.

If these estimates are accurate, Canada's oil reserves rank second behind only Saudi Arabia's 260 billion barrels. And there are many who believe the current oil sands assessments understate the true potential here. The AEUB has projected that rising prices and improved technology could ultimately push the oil sands yield close to 300 billion barrels, which would make it the richest petroleum field in the world. By 2015, the oil sands are expected to be producing roughly three million barrels of petroleum a day. Assuming prices will average US$40 a barrel (well below where they are today), that suggests annual revenues of close to US$43 billion.
Macleans
Peak oil enthusiasts and the folks who are convinced that america is going to hell in a handbasket tend to conviently forget that there are all those barrels of oil a few hundred miles north of Edmonton. In fact, the tar sands are so vast that the current reserve estimates, based on a $40.00 per barrel assumption may understate the reserves by an order of magnitude. Alberta may have more oil than Saudi if prices rise to $60.00 and stay there.

Along with making Alberta stupidly rich, the oil sands have the potential, in themselves, to ensure America's energy security for the next serveral decades even without the technical innovations and conservation strategies which $60.00 oil will spur.

The Macleans article quotes Barry Cooper on the effects of this mega oil wealth,
And as the gap grows between rich Alberta and the poorer parts of the country, the demands to spread the wealth are sure to follow -- especially if prices for gasoline and heating oil skyrocket, as many predict. It's guaranteed to fan the flames of western discontent, Cooper says. "It's Alberta's oil if you live in Alberta and it's Canada's oil if you live in Ottawa," he says. "Energy has become the basic fault line of federalism."
macleans
While Cooper is likely right it is difficult to imagine a federal government trying a version of the NEP again - they know that this time Alberta would be gone in a matter of months. More to the point, the nature of the extraction process at the oil sands means that there will be a huge demand for labour in Fort McMurray. The place is already crawling with Maritimers who got fed up with sitting on pogy waiting for the return of the cod. More will follow and, while it will denude the Maritimes and the more depressed regions of Ontario and the praries, the employment attractions of the oil sands and the economy which services them will rejig the balance of power in Canada. Especially after Quebec leaves.

Viewed from the American perspective, the oil sands are an economically feasible solution to the problem of national energy security. The cost of extracting the oil means that there will never be a return to fifty cent a gallon gas; but no one was seriously thinking that was going to happen.

The oil sands are, however, a stick in the eye for the happy souls whose Bush dementia has lead them to conclude that the American economy is finished. An assured fifty to one hundred year supply of oil, admitedly at a relatively high price, means the American economy has plenty of time to re-invent itself in the face of Chinese competition. Even better, the higher price means the incentives are there for the innovation necessary to wean America and the rest of the world from fossil fuels. And, as the oils sands production ramps up, the need to treat the Middle East as anything other than a minor irritant will diminish.