Canada's Heartland - Political Peak Oil's First Refuge


Edward Burtynsky. Alberta Oil Sands # 6, Fort McMurray, Alberta, Canada, 2007. Image credit:via Blogotariat.

The concept of "political peak oil" (an obscure, unpleasant term I admit) has been floating around under that name or as "geopolitical peak" (even worse) for years. Large oil companies based in the US, and UK, and France - known as the 'oil majors' - cumulatively control, at most, 15 to 20% of proven global oil reserves, while nationalized oil companies control the remainder. Venezuela would be an example of the latter.

Nations with highly developed economies rely extensively on the 'oil majors' to supply fuel. Doesn't matter how big global estimated potential oil reserves are in total: when an oil company has diminishing access to state-controlled fossil fuels it may be experiencing its own peak - as a corporation. What evidence do we have that 'oil majors' could be experiencing political peak oil? Anecdotes only: as in a recent quote from a French oil executive.AFP's story, Canada's tar sands are the future of oil production: Total is the source of this particular quote.

Pressed about the high cost of oil sands extraction and attacks by environmentalists worried about its contribution to global warming, Jean-Michel Gires, president of French-based Total's Canadian subsidiary, told AFP he is optimistic specifically about the future of Canada's oil sands development.

"These are ambitious projects, very big projects, and thus very expensive," he said in a telephone interview from Calgary, Alberta -- Canada's oil capital.

"It's clear that cost is a problem," he conceded. "But it's also an important deposit -- several billion barrels of oil in the ground -- while more conventional sources of oil that would be relatively easier to extract are either drying up or are inaccessible to international firms such as Total."

Now think. Are there any 'oil majors' not invested in Canada's tar sands? Even China's state-controlled oil company, PetroChina, is heavily invested. This indicates, but does not prove, are that they are approaching a political access peak.

I'll go a step farther and say that physical peak oil, besides being controversial as a mathematically-described phenomena, is almost irrelevant. All that matters to the average driver is the price and availability of fuel, and that will be, or already is to some degree, controlled by political peak oil. Expert opinions about existence and timing of physical peak oil are a distraction from that reality. The recent intense lobbying to have access to the relatively small pools of oil in ANWR and below the US' formerly off-limit outer continental shelf zones corroborates this view.

Relationship to Cap & Trade
Assume, for the sake of discussion that, outside of a few outer continental shelf areas near the USA, Canada's tar sands are the only economically useful major new reserves accessible to publicly traded oil companies. How would this situation prospectively shape their response to Cap & Trade?

Well, because tar sand-extracted oils have a 2X+ greater carbon footprint than 'conventional oil,' operating margins for producing oil in Alberta will be roughly 1/2 as good as those of the competing state oil companies, once Cap & Trade is fully implemented. This gives the state-controlled oil companies a profit advantage.

Notably, upstream production costs would not take this hit if, instead of Cap & Trade, a straight carbon tax were levied at point of consumer purchase - the fuel pump. I think you see where this is headed.

Next up?
Not long after Obama returns from his Asian tour, expect a lengthy state visit to Canada, with announcements to follow of nuclear power plant development (needed to extract the oil) and carbon dioxide storage tests in Alberta: at Canadian and US taxpayer expense. Then a repeat of NAFTA vows to ensure that there are no added costs for pumping the Alberta extracted crude across the border.

If that doesn't work out, and if oil goes back up over US$100/barrel, it's oil shale or bust. Based on Obama's journey to China, it looks like the oil shale contingency is already on the Federal budget.

Next subject...the interleaving of climate action and political peak oil.

Additional posts on Alberta Tar Sands and Oil Shale
National Geographic Slams Tar Sands - Canadian Politicians Pissed ...
Alberta Tar Sands to Increase Output 250% Over Next 10 Years
US State Department To Permit "Alberta Clipper" Tar Sands Pipeline ...
A Return To Colorado Oil Shale?

Tags: Colorado