Alberta Tar Sands Loom Large as Source of New Global Supply

CIBC World Market recently put out quite an interesting report on the future of world oil supply and demand and the implications for Canada. ( OPEC’s Growing Call on Itself.)

The major point is that OPEC countries plus other major oil producing countries such as Russia and Mexico are consuming a fast-rising share of their own oil output at quite low prices, greatly eroding their potential for future exports. The domestic oil market of major oil producing countries is now larger than that of all Western Europe.

The report goes on to argue that, with dwindling conventional oil supplies around the world and the falling-off of deepwater supplies, the Canadian oil sands will loom larger and larger  as a key source of new global supply, especially since most other potential sources of supply will be state owned and controlled. In fact, they calculate that the Canadian tar sands actually account for a very high 50-70% of “investable” oil reserves in the world, that is, those open to development by transnational corporate interests.

Given those kinds of numbers, its no wonder that the locking in of Canadian oil exports is central to US energy policy now being implemented through the so-called Security and Prosperity Partnership (or SPP). What is a surprise is how reluctant Canadian governments are to use energy as a bargaining chip in the international economy, or to capture the rents through higher royalties and/or more public ownership.  If the CIBC numbers are right, it would seem that  Canada could have a significant impact on world oil prices, meaning that we could capture high and rising revenues even with a significantly slower pace of resource development.
It’s also interesting to note that, in CIBC’s view,  carbon taxes are unlikely to have more than a negligible impact on the pace of development of the tar sands.  In a world of $100/bbl. oil, even a carbon tax of $40 per ton (higher than the starting point recommended by the Stern report or even the Pembina Institute in Alberta) would add only $4 to a  bbl. of oil.

If we want to slow the pace of development for good environmental as well as economic reasons, it will take regulatory measures.

One comment

  • Another interesting stat: around 80% of the world’s oil is controlled by national oil companies (NOCs) i.e. publicly owned enterprises. This number has been on the rise the last couple of years.

    Canada is a bit of a strange duck in allowing foreign multinationals access to our oil and at rock-bottom prices. And we simply do not know how much they would be willing to pay in royalties, or how much they hide from taxation through transfer pricing, etc.

    Most countries make their decisions on rational economic grounds, but Canada’s policy in the last 20 years has been guided by ideology, not rationality.

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