Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Just the Facts, Ma'am: A Compendium of Liberal Fiction -- Ignore unavailable to you. Want to Upgrade?

To: Orcastraiter who wrote (24583)	1/3/2005 4:20:05 PM
From: fresc	Respond to of 90947

As I read it, American oil Co. have already begun to spend Billions in this Continent. :)) The world is changing, as everyone says. But the more things change the more they remain the same. Last year Canada exported more oil to the United States than did Saudi Arabia. Thanks to deregulation and America's energy appetite, we also exported about three times as much natural gas to US consumers as we did in the 1980s. We are selling it as fast as we can get it out of the ground. All that limits our exporting still more is a lack of pipeline capacity. That we continue to export oil at a time when our cheapest supplies of conventional oil are declining -thereby saving the US the high costs of replacing its cheapest oil with domestic alternatives - is mostly owing to expanded production from the Alberta oil sands. It was clear as long ago as the mid-1970s following the first OPEC oil crisis, that some American planners and oil companies saw the oil sands, with its 300 billion barrels of recoverable synthetic crude, as a vital backup source of supply for the North American continent. Those who saw Canadian resources being developed for a continental rather than the Canadian market, argued that the oil sands would come into their own when prices were right, when technology brought the costs of development down, and when Ottawa and Alberta agreed not to cream off any of the surplus revenues (rents) generated by major projects. As costs came down and the oil sands became more competitive, the industry wanted a guarantee that the private sector, not the Crown, would collect the billions in spare change. This in spite of the fact that all of the first experimental and commercial plants, including Syncrude Canada Ltd., were heavily subsidized and written off by Canadian taxpayers. All of these elements in place, and the petroleum industry having gone through two very profitable years (Exxon's return on capital employed was 15% in 1996, with record net income of $7.5 billion), the major oil companies are planning massive new investments in the oil sands and in heavy oil development in Alberta. What do they stand to gain? First, the major companies need reserve additions. Every time they use up a barrel of conventional oil, they need to find (or buy) a replacement barrel. This is one reason why there are so many takeovers in the industry, but at some point companies have to develop new supplies. The oil sands are costly, but the resource and technology are known and the government's terms are very attractive. Second, US refineries have been spending billions in converting so that they can use heavier oils: the best sources of supply are both in this hemisphere - Alberta and Venezuela. The oil industry has pressured Alberta to develop its oil sands and heavy oils at a rapid pace; otherwise, they say, we are off to Orinoco. Undoubtedly they are saying similar things in Spanish to the Venezuelans. As I noted, using imports spares the US the hundreds of billions of dollars required to develop more expensive domestic energy. Third, Syncrude was always something of an experiment or test-case for the whole industry. The first truly scaled-up integrated mine and refining operation, Syncrude had to demonstrate that the costs of exploiting the oil sands could be brought down with new technology, and that the resource could offer an attractive return to companies looking for a long-run investment. It must be able to compete with, say, North Sea oil or Hibernia. Syncrude has now proven that it can produce synthetic oil at a rate of some 225,000 barrels per day (about 12% of Canadian oil supply) with unit costs of close to $13 a barrel and a return on capital employed of nearly 12% - highly respectable numbers, as the industry sees it, and ones that show every indication of improving. It is Syncrude's success and the new royalty deal that are bringing other major companies into the game. The plan is to raise production to over 800,000 barrels a day. Finally, although the costly, sticky oil sands can never be cheaper than the giant fields of the Middle East, they are located in a part of the world that the companies regard as a relative haven of stability and security of supply. Under the NAFTA free trade deal, their massive corporate holdings in Canada and their right to sell their oil at world prices are guaranteed (Canada cannot charge US consumers more than it charges Canadians). Even better the oil industry got Ottawa and Alberta to buy their so-called 'generic' fiscal regime, which bases royalties on net profits rather than production and requires Alberta to forego royalties (estimated at $2.8 billion over eight years) until investors fully recover their capital costs.