Jeff Rubin, CIBC, noted energy bull, on oil sands:
Despite a doubling in crude prices over the last two
years, non-OPEC supply failed to grow in 2005, resulting
in a meager 900,000 barrels per day net increase in
global production. Energy markets should brace
themselves for another year of tight supply, as the
rebound in production growth once again falls short of
expectations.
Over 60% of the 3.6 million barrels of new oil production
that will come on stream in 2006 will not support
demand growth but simply offset the loss from depletion
of existing fields such as the North Sea or the giant
Burgan field in Kuwait (see pages 6-9). Net of depletion,
conventional oil supply will continue to decline this year,
just as it did last year. 2004, in hindsight, will prove to
be a Hubbert curve peak, at least insofar as low-cost
conventional crude is concerned. In any event, all of the
increase in net global crude supply this year, as well as
for the rest of the decade, will come from nonconventional
sources like deep-water and oil sands.
We live not only in a world of rapidly depleting
conventional oil supplies, but also in a world in which
those that remain are increasingly beyond the private
sector’s reach. Virtually all of OPEC’s massive production
remains in the hands of state-run oil companies. What
little is in private hands is being quickly converted back
under state control as recent events in Venezuela attest.
And even outside of OPEC, the picture isn’t much
different. From Mexico to Norway, there is a widespread
consensus that energy assets should be owned and
exploited by the state, often under the aegis of a stateowned
national oil company like Pemex or Statoil.
Investors shouldn’t be surprised to see a similar model
emerge in Russia, where the government is in the process
of de facto re-nationalizing its oil and gas industry
through state companies like Gazprom, as Moscow
increasingly leverages off Western Europe’s energy
dependence. Add it all up and some 80% of the world’s
conventional oil reserves remain effectively off limits to
private investment. The combination of depleting
reserves and sweeping state ownership has left each of
the world’s six largest publicly traded oil firms looking at
declining production over the next two years. That sets
the stage for a mad scramble for whatever proven reserves
the market still has access to.
And there are no greater reserves accessible to private
investment than the Canadian oil sands. Deep-water
wells may be the primary source of non-conventional
production now, but by the end of the decade, slated
production increases will make oil sands the single
biggest contributor to incremental global supply. Planned
capacity expansions in Canada’s oil sands even exceed
planned increases in Saudi Arabia over the next decade.
As oil prices continue to rise to over $70 per barrel this
year and to as much as $100 per barrel by the end of
2007, more and more of the world’s oil firms will seek a
foothold in these huge, but costly reserves. If the 2-year
decline in conventional production holds, this once
marginal energy source may not only become one of the
world’s most valuable, but one of the few remaining still
open to investors. |
