Loading...
Symbols:
Authors:

Oil Sands: Will the 'Greens' Cause Us to Miss Out?

by: Jim Kingsdale July 21, 2008 | about stocks: COSWF.PK / DBO / ENY / OIL / SU    

Jim Kingsdale

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The July 7, 2008 Oil and Gas Journal features several pieces on the Canadian oil sands.   I’m not going to attempt to summarize it all; much of it is technical information regarding the various ways to treat bitumen, which is what you get out of oil sands before starting to refine it.   Interested persons can get a copy on line or by mail.

Let me simply summarize a few points that are relevant to  investors. 

  First, total Canadian oil sands production is expected to grow from the current 1.32 mb/d to 3.23 mb/d in 2017. 

  Second, pipeline capacity must be expanded to enable growth.  A 500 kb/d pipeline is expected to become operational soon.  More are on the drawing board that may link Alberta to the Gulf refineries and to ports from which shipment to Asia is feasible.  In fact one was just announced, as follows:

Alberta-based TransCanada Corp. and Houston-based ConocoPhillips Co. said yesterday that they will add 500,000 barrels of daily capacity to the 1,980-mile Keystone Pipeline, which connects Hardisty, Alberta, with a delivery point near terminals in Port Arthur, Texas

Third, the U.S. refineries that buy oil sands  production may change their needs over time as alternative oil of differing qualities become available.  Most people think oil is a fairly standard issue commodity, but those closer to the scene know that there are many grades of oil and each is best suited to make slightly different end products.  It is not clear that synthetic crude made from oil sands by, say, Canadian Oil Sands Trust will always command a premium price to WTI.   It could become less desirable depending on available alternatives.

   Fourth, and potentially most important, the U.S. “green” lobby is pushing legislation that could limit purchases of oil sands products by U.S. government agencies based on its GHG footprint.  It would be well beyond stupid for Congress to prohibit our buying oil from Canada while we increase buying it from countries that threaten our security.  But just because something is stupid certainly does not mean Congress may not do it.

My guess is that any such setback to demand for oil sands products would be quite short lived.   I have no doubt that China, among others, would be very happy to be guaranteed a supply of oil from Canada if the U.S. does not want it.  There might be some demand disruption as distribution pipelines are built but eventually the oil sands products will find a ready market. 

In fact it is hard for me to imagine that in the fullness of time, as it is said, the Canadian oil sands companies will not be among the most secure success stories in the energy business.  As I’ve mentioned, the S.E.C. has asked for comments on a proposed rule making that would allow public companies to count oil sands assets among their proved reserves.  I think that when/if that happens there will be a strong demand by oil majors for Canadian oil sands assets and the public oil sands companies will tend to get bid up to premiums.

Investors who want a broad based vehicle for participating can use the Claymore Canadian Income Trust ETF (ENY).  I prefer either of that ETF’s top two holdings, Canadian Oil Sands Trust (COSWF) or Suncor (SU).  But the ETF gives you diversification with a heavy emphasis on oil sands operators.

Related Articles

This article has 10 comments:

  •  
    Jul 21 11:08 AM
    There are some serious green questions about oil sands. Production is incredibly dirty. NO doubt production will increase. But let's not just write off the hundreds of millions of barrells of toxic unclaimable water and hundreds of millions of tons of dirty sand as meaningless.
    Reply
  •  
    Jul 21 12:20 PM
    Jim,

    One can ignore the carbon and more general environmental impacts, until legislation changes the rules. But one cannot ignore the fact that in addition to the oil sands themselves, two other resources are required to produce syncrude from bitumen: water and natural gas. There is an unlimited supply of neither. Have you done the math to project the total amounts of those resources required to produce the syncrude supposedly available in Alberta's oil sands?

    I suspect the financial viability of the oil sands resource will be limited by the cost to procure water, rather than oil sand. When transport and desalination of seawater are eventually required, it may be impossible to produce syncrude at a net energy gain. (I know that isn't stopping the corn-to-ethanol business - but absent subsidies it would, and in the meantime few involved are making money at it). And good luck maintaining water pipelines that cross the thawing tundra...
    Reply
  •  
    Jul 21 02:15 PM
    Congress has already done this. In the 2007 energy bill as passed there is an item that forbids the military from buying fuel made from crude oil that has a CO2 life cycle footprint greater than that from the production of conventional crudes. Since many northern tier refineries use high-CO2-emission syncrude from Canada, this means the military is out their sources of jet fuel from those refineries. The military is fighting it although unfortunately they haven't used any of their heavy stuff on Congress. No nukes, power plants stopped, no Canadian oil sands - this Congressional leadership is the most pathetic I've ever seen. What will become of our country if we have to stop new energy production, except burning our own food, of course?
    Reply
  •  
    Jul 21 03:15 PM
    Let's see,

    Ban buying oil from a country (i.e. Canada) that was the first to help the United States minutes after the 9/11 attacks.

    But continue buying oil from a country (i.e. Saudi Arabia) that supplied 18 of the 19 9/11 suicide bombers and routinely funds terrorist groups around the world.

    Jim, I agree with you, congress is stupid !!!
    They really don't know the difference between their friends and their enemies.
    Reply
  •  
    Jul 22 08:29 AM
    i was informed that some of the 911 suicide crowd were egyptians, the same crowd that murdered sadat. none were iraqi. so we bomb iraq but don't bomb saudiland or egypt. who's in charge here - darth cheney?
    > jack
    Reply
  •  
    Jul 22 08:46 AM
    The viridity (the quality or state of being green; naive) of the environmentalists, is often appalling... While it is true, that we must do all we can to reduce environmental impact, we must never allow simple-mindedness to take over, e.g., switching to an environment-friendly product or process, which in the bigger picture, may increase other forms of pollution, or impact the quality of our lives, significantly. It's all about balance, something which environmentalists should understand... Balance is most often obtained, when the free-market is allowed to show us what works. Attempting to legislate that balance, is to arrogantly imply that, "I know what's best for my limited area of concern and I don't care how it impacts, equally important areas of the big picture!" Reducing the speed limits to 40 mph, may save hundreds of lives on the road, but the resulting impact, millions of people starving to death in a destroyed economy, outweighs this. We cannot allow narrow-mindedness, either by the "greens," or by industry, itself, to influence our decisions... Simply put, it's called being reasonable.
    Reply
  •  
    Jul 22 10:25 AM
    Get over it! Oil is a 19/20th century fuel. Staying addicted to oil is like bloodletting to cure disease. I doubt that the Canadians are going to continue to use up most of their clean burning natural gas and fresh water to provide for our lust of gasoline.

    I was an early supporter of oil sands. Once you've seen those lagoons of contaminated water, coal looks clean by comparison.
    10 barrels of wastewater for every barrel of oil produced. MS should be so lucky to have beach front property on this lake.
    That would be balance. Let's use the fuels we have instead of coveting those we don't. We shouldn't expect others to pay the price for our inability to adapt.

    And get serious about renewables. For every tax dollar used to subsidize big oil and nuclear, an equal amount should be spent elsewhere on our future, not on our past.

    There is no free market when it comes to energy. It's been rigged since the 1870s. How the heck is a $100 million company supposed to compete with $200 billion giants and their inside supporters on
    Capital Hill?

    This can be an opportunity for America, just as genetic research was before the Neanderthals took over.
    Reply
  •  
    Jul 22 10:43 AM
    Does anybody believe that new technology will negate much of the negatives of the oil sands production as we know it today? Check out Petrobank and Ivanhoe for potential new technologies.
    Reply
  •  
    Jul 22 12:43 PM
    EROEI for Canadian tar [not oil] sands may be unfavorable.

    "EROEI % net Representative Source
    100:1 99 Early oil
    50:1 98 Mid 20th century
    33:1 97 Late 20th century
    25:1 96 Turn of 21st
    20:1 95 Century oil
    15:1 93 Oil now?
    10:1 90
    9:1 89 Deep water oil?
    8:1 88
    7:1 86 Tar sands?
    6:1 83
    5:1 80 Polar oil?
    4:1 75
    3:1 67 Biodiesel
    2:1 50
    1.5:1 33 Oil shale?
    1.33:1 25 Ethanol best
    1.25:1 20
    1.1:1 9
    1:1 0
    1:.7 -43 Ethanol worst"

    www.prosefights.org/oi...


    Use of natural gas to extract bitumen may not be a good idea. See Dave Hughes plots.

    www.prosefights.org/ga...



    Reply
  •  
    Jul 22 07:34 PM
    Regaedless of the return on investmentn of "Bit" it is clear that the Conservative Party of Alberta pre-empted the Liberal Party of Alberta on beating them to the punch on raising Royalty Tax for the purpose of more dollars for government spending.

    It is equally clear that the current Albertan regime favors oil sands production over conventional production for the simple reason of longevity of the resource and hence a long cash flow to the government. The current Albertan regime does not mind one whit about conventional gas production moving to B.C. and the former Northwest Territories and conventional oil production moving to Saskatchewan and the Arctic. In fact it encouraged it by the tax whack they gave the conventional producers and by the agreement reached with Suncor.
    Conclusion: Political climate favors bit producers and bit producers will pay the higher tax due to the long life resource. Albertan population will stabilize and stop sucking every skilled worker out of the rest of Canada, thereby putting to rest the other Provinces penchant for wanting to declare a break up of the Canadian Federation, thereby assisting their conservative Brothers in Ottawa with final reason to explore the arctic and start to receive revenues in the Federal Treasurury and therby put money into the hands of the other provinces as witnessed by the record millions of land sales in B.C. and Saskatchewan. The Bit extra income will begin to satisfy the Albertans with more social services, tax holidays, more housing, more education, and more concerts in the park and a bigger dinosaur museum and probably a $5.00 per barrel whack on the Bit producers who will gladly go along with it for Enviro peace, for the Albertan Eviro Fund, where all of Alberta will buy carbon credits thus satisfying the religous based enviro jihadists, all over the world. It couldn't have been planned better, in fact it was.

    Buy, buy buy more oil sands stocks. Everything is OK. QAll is right with the world.
    Reply
More Comments on OIL ยป
More by Jim Kingsdale
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Exploration & Production
Alternative Energy
Coal
Ethanol