Canada Next Regime Change

[Justin]

Came across this interesting article.

Under NAFTA I believe that Canada is obligated to open its reserves to the States and Mexico. In any event at the rate the Americans are buying up the oil-patch companies it's not a moot point.


Friday, August 15, 2003

America has many reasons for its risky involvement in Middle East politics, but there is no question that dependence on imported oil plays a very large role. The fact is, however, that the largest deposits of oil in the world are not in the Middle East -- or in Russia or off West Africa or in the Caspian Sea area, for that matter. They are in two Western Hemisphere countries: Venezuela and Canada.

The catch is that they consist of bitumen and other forms of "heavy oil" -- petroleum buried in sand deposits that requires a special refining process to be converted into so-called syncrude. This conversion is expensive, but the end product has all the favourable qualities of conventional light oil. And these heavy oil deposits occur in mindbogglingly large quantities.

Along the north shore of the Orinoco River in Venezuela, in an area known as the Faja de Orinoco, the Venezuelan national oil company estimates that 1.2 trillion barrels of heavy oil lie within a few thousand feet of the surface. A representative of Total, the oil giant, said that as of now only 5% to 10% of the oil can be recovered. Yet he estimated that technical improvements could raise recovery rates to around 25%. If so, this would eventually mean some 300 billion barrels of usable crude.

Canada's deposits are even larger: estimates range from 1.6 trillion to 2.5 trillion barrels of bitumen (which is also called "oilsands" or "tar sands"). About 9% of the deposits are relatively close to the surface and should have very high recovery rates -- at least 50% and possibly up to 90%. Combining this with a very modest 5% recovery rate for the deeper bitumen, and the country's total potential reserves can be estimated at 174 billion to 271 billion barrels.

Thus the total potential of the two countries nearly equals the 600 billion barrels remaining in the Middle East reserves.

[who won]

That is true, however as somewhat indicated in the article you posted, the opil in Canada is extremely expensive to mine and refine.
I dont remember the exact numbers but is something like 20 times more expensive than the oil that can be pumped inh the middle east.

While some oil can and will and is being extracted, the use of the oil is at best simply to keep the OPEC oil price in check. If they attempt to push the price of oil above the price that makes the Candian oil viable then the oil in Canada will start flowing and cap that price rise.

Additionally as technology does continue to improve the costs will inevitably drop but it will never be able to compete with the Saudi reserves where getting at oil is almost as straightforward as sticking a pipe in the ground and watching the oil spurt out..

[glendo]

now all canada needs is WMD, and a dictator

[Danny Boy]

glendo said:

now all canada needs is WMD, and a dictator

Correction; A brain dead moron to say they have WMD and a Dictator.

[glendoforgotto login]

thats right.. you dont need them, just someone to say you do.

[CFF]

Guest-who said:

That is true, however as somewhat indicated in the article you posted, the opil in Canada is extremely expensive to mine and refine.
I dont remember the exact numbers but is something like 20 times more expensive than the oil that can be pumped inh the middle east.

While some oil can and will and is being extracted, the use of the oil is at best simply to keep the OPEC oil price in check. If they attempt to push the price of oil above the price that makes the Candian oil viable then the oil in Canada will start flowing and cap that price rise.

Additionally as technology does continue to improve the costs will inevitably drop but it will never be able to compete with the Saudi reserves where getting at oil is almost as straightforward as sticking a pipe in the ground and watching the oil spurt out..

Who won - I don't know where you got your figures from (reference oil in Canada being 20 times more expensive to produce than that of the middle East), but I feel obligated to correct you *I'm no banker, but I do work in the upstream (exploration/production) end of the oil/gas industry, in Alberta, and hence feel qualified to address the number you've put out there*.

First - Middle East conventional oil is, and always (likely) will be, cheaper to produce than conventional oil from western Canada. But not by much. Consider that as a whole, the world always quotes prices relative to US dollars. The unit cost of oil from Saudi Arabia is currently in the range of $2 - $2.50 (US) per barrel. VERY LOW. But what people outside the industry don't realize is that this unit cost has gone up dramtically over the past few years (it once was less that $1US/bbl). And it continues to rise. The Saudi's (until very recently) never used gas conservation (reinjecting NG back into the reservoir to maintain pressure). Nor did they reinject any produced water. The result is their vast reserves are now becoming unproducable (at the rates they once were), and they're having to introduce secondary & tertiary recovery schemes (gas reinjection, water floods, miscible floods, etc).

So what you ask? Well all of this costs HUGE $$'s. The Saudis recognize this well, and are faced with the fact that their production costs will rise to unheard of levels in the near future (5 years??). We're talking $6.50 US/bbl, perhaps even higher.

Conventional oil in Canada (the drilled type, not oil sands) has unit production costs all over the map - it depends how efficient the company is. There are some that can find/exploit a reservoir for as little as $5 Cdn/bbl (that's $3.60 US/bbl). Others, with higher exploration costs as well as frontier field costs might have unit costs approaching $8 or $9 Cdn per barrel (again, using today's US/Cdn conversion, that's in the $5.75 - $6.50 US/bbl range). Much higher than Saudi costs, but still huge profits when you consider the world price is around $30US/bbl!

Finally, with respect to your first point regarding unit costs at the Oil Sands, I quote a (World) industry report written March 2003 on Syncrude (oil sands) unit costs:

"Production costs have dipped as low as 11.75-12.50 Canadian dollars per barrel, with a current price of about 30 U.S. dollars."

Using these figures (which convert to around $8.50-$9.50US/bbl), one can see that while dramatically higher than what the Saudi's costs are, they are NO WHERE NEAR the 20 times you suggested. Dividing $9US by $2.50US gives me a ratio of 3.6.As well, as the Syncrude and other oil sands plants become more efficient, their unit costs continue to decline. All this while the Saudi's unit costs continue to climb. Perhaps 10 years from now .... you might even see the day when Saudi production costs (on the basis of a US dollar) are close to being the same as the heavy oil costs in Alberta.

In closing .... let me also say that I'm not writing any of this with the intent of being a smartass. The numbers I've quoted are what we in the industry use on a daily basis (reporting to our shareholders, hedging prices, buying/selling reserves). The numbers I quoted on Saudi costs come right from a close friend who works in Saudi (Schlumberger - Aramco). They're real-world working numbers. I should also mention the Saudi's (Snr. Exec's in Aramco, who basically represent the Saudi Royal family) are currently in a state of panic over what's going on in the world today, because they see the liberation of Iraq (which ultimately is going to mean huge petroleum investment from all parts of the world) as a serious threat to their position as the number one producer in OPEC. Not to mention Russia's ever-growing oil production capacity. Word is - Saudi Arabia believes that OPEC will cease to exist (or be a key player) in world oil prices, in as little as 5 years from now, perhaps even sooner.

CFF

[who won]

CDNF1FAN, I bow my head to your expertise.

In my post, I mentioned I didnt remember the exact figure, it seems my guess of 20 times was slightly over the top.
I didnt just totally make everything up though, I had read an article about these very reserves in the economist some time ago, I didnt have the article to hand, but whatever the actual prices, the summary of the article was just that the oil was not truly viable at the current prices but the reserves would serve as a check on the opec cartel.

Anyway, I'm sure your numbers are accurate, in which case, thats great news for Canada and the world.

[Henrik]

Considering the concern in Saudi, perhaps they could then use their money to develope alternative fuels. Seeing as no other major western country is willing to go away from the oil dependancy, with the obvious primary "bad guy" being the US, Saudi could in this way maybe create a new market and find new favours perhaps with Europe.