Chilly Reception Awaits U.S. Energy Companies in Canada

Posted by Jeff Rubin on January 24th, 2012 under SmallerWorldTags: , , ,  • 23 Comments

On the same day the Obama Administration put the kibosh on the Keystone XL pipeline, two engineering contracts totaling $12.2 billion were awarded to two U.S. companies for work in the Alberta oil sands. One included a $750 million contract to a Chicago-based company for work on Exxon’s huge Kearl Oil Sands project, one of the largest it has anywhere in the world.

Good thing for those U.S. engineering companies there are no “Buy Canadian” provisions in oil sand contracts like there are “Buy American” provisions in U.S. federal procurement.  But U.S. oil companies may soon find a less hospitable political landscape north of the border. After Obama sandbagged TransCanada, and all the Alberta producers that were going to supply it, I wouldn’t want to be a U.S.  pipeline company looking for regulatory approval in Canada these days

When it comes to energy markets things can change in a hurry.  No doubt rainmakers in Calgary’s Petroleum Club are already starting to brush up on their Mandarin. How the goal posts have moved.

It wasn’t that long ago when I was chief economist at CIBC World Markets that Alberta government officials would tell me in no uncertain terms the province wasn’t looking for investment from state-owned oil companies.

Since then, China’s state owned refining company, Sinopec paid more than $4.5 billion for a 9% stake in Syncrude, the largest oil sand producer in the province. Similarly, State owned Petro China spent about $2 billion acquiring full control of the Mackay River project from Athabasca Oil Sands Corp..

State owned Chinese energy companies are not pouring billions of dollars into developing Alberta’s oil sands so more synthetic crude or bitumen can be sent to refineries in Cushing Oklahoma. While the sudden about turn by the Obama Administration may have been a rude awakening for some folks in Calgary’s Petroleum Club, in the end it only serves to reroute Canadian oil to where world markets will ultimately dictate that it flow.

Prime Minister Harper once remarked it was a no brainer for the Keystone XL pipeline to connect Alberta oil sand product to supply U.S. markets. Looking at geography, it is easy to understand the remark. But looking at where market growth will occur, the Prime Minister’s sentiments are misguided.

U.S. gasoline consumption continues to fall, and it is now down to the lowest levels in more than a decade. The future of the oil sands lies with the growth of oil demand in Asian markets, not in American ones. And that future, more than any regulatory decision in either the United States or Canada, will depend on the price of oil.

 

 

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  • JB

    Jeff,

    How do you expect to extract oil from the Alberta Tar Sands once the Canadian natural gas reserves (currently about 10 years left) are exhausted?

    JB

    P.S: If you want to use fission nuclear power plants you better start building them now because if takes about 10 years to build one…

  • http://profiles.google.com/mjcole77 Michael Cole

    JB your question implies long term planning on the part of Alberta and the oil producers, I don’t think these guys know what they are going to have for breakfast in mountain time when I’m already at the office in eastern time!

  • http://twitter.com/peterscholtens Peter Scholtens

    I wouldn’t bet on China. The demographic trends of their one-child policies aren’t particularly encouraging.

  • rfk

    How possible/likely that if the pipeline is built to the US that the refined product ends up on ships exported to the highest bidder outside the US?   Is it possible that this nothing more than an opportunity to score political points?

  • Rig Pig Petey

    Actually, you can thank me for being able to stop at the gas station for a “fill up” and then drive across the street to your “Timmy’s”. Breakfast for me was decided last week as to where i’d b this morning. You must understand that the world runs on “oil”, i didn’t decide that and neither did you. I am thankful though,……..sure beats rubbing a couple sticks together

  • Instincts

    Right, as long as you personally can outlive longevity of finite hydrocarbon energies, why bother caring about or planning for what alternative energies our descendents are, with certain, going to need when we’ve exhausted and/or priced hydrocarbons out most people’s reach?  …simply being thankful at the pumps is a big part of why things have come to this point.

  • Rig Pig Petey

    Until hydrocarbons are taxed out,…it is what it is. Think of all the infrastructure in place. To change a society’s habits takes 2, maybe 3 generations,… totally. Oil consumption and utilization has tinkered / occurred and increased since the start of the industrial revolution. What is that,maybe 150 years,…not even a blink on the grand scale. So that is a couple generations. Alternative energies will eventually become part of the mainstay IF we don’t blow ourselves to smithereens. Some reality here now,….. everything we have in our daily lives has an “attribution/connection” to oil. Now my point is, “i’m old, i’ve been in the oil business for over 50 years and i’ve been a part of GETTING US THIS FAR, now, i suggest you be thankful for that tank of gas and Timmy’s, I am all about passing the torch to the next generation. I have kids in university, two have graduated as engineers to date,…………but to say we haven’t got it together? Wow,…..you guys spend too much time daytrading.

  • Charles

    Jeff , what is your take on recent oil exploration activity in the Caribbean … Repsol in Cuba, Bahamas, Jamaica and also, Guyana ? What is prospect for Haiti ? Reports have ALBA meeting in Jacmel in March .

  • Mark Hecht

    Jeff,
    Love your articles. You need to post more often!
    M.Hecht, Calgary

  • Robinson

    JEFF POST MORE OFTEN……TONNES OF STUFF GOING ON AND WE WANT YOU INPUT!!!!! :D

  • Luc Binette 7

    Looking forward to your next article Jeff! By the way, have you presented the content of your book in Quebec? The book was superbly translated, but conferences can also make a difference.

  • Abitibi Doug

    Yes, we would like to read your take on recent events and the higher oil prices lately.

  • RZ

    Jeff is actually polishing his French to ensure that his presentation in Quebec will be fully understood…

  • Rfg

    Isn’t this a good thing? Long term, how are we going to do being slaves to oil and gas suppliers, be they Canadian, or Russian or Middle Eastern or what have you. Isn’t sustainable energy and clean technology the way out?

  • Rollie

    Mr. Rubin – I am a big fan.  Thanks for your thoughts on energy and the economy.  In your book you talk alot about supply and rising demand.  One other theme is demand destruction and economic stress.  Can I ask you to comment on that theme as we look at oil pricing north of $100 a barrel in North America and in the $120 / barrel range elsewhere.  What is the level oil can reasonably be priced today before the destruction of demand kicks in and pushes prices lower?

    Rollie

  • TerryAMcNeil

    While
    there is little doubt that oil is the metaphoric blood of the economy, we
    cannot forget that there over 58 other elements that are critical to sustaining
    the consumer-industrial complex -and many of these are on target to be
    economically depleted within less than thirty years. Throw into this deadly mix
    the exponential increases in global population – running at a pace of one
    billion new species every ten years; we face an algebra that leads to but one
    ungodly outcome. The collapse of the global economic-political paradigm that
    was fostered and nurtured by neo-classical economic theories built on
    childish abstracts which failed to embrace
    the physical and mathematical realities of existence defined by universal laws
    of matter and energy.

     

    For
    those seeking evidence of our predictable post-resources state; they need look
    no further than Nauru and Easter Island. Their lessons are simple. Shrinking pies
    with growing mouths to feed is not a workable formula that assures the
    sustainability of a civil society. Indeed, civil unrest, decay and anarchy are
    certain destinies.

     

    These
    concerns are further inter-related to the diminishing state of food stocks,
    farmlands, oceans, climate, bio-diversity and more that are adding to an
    overall decline of the planet’s wealth thus making the
    probability associated with a massive die-off in some form much more
    likely. In short the need for actions and policies on many fronts has never
    been so great – yet the political comprehension and agenda is bankrupt of the
    will deal with the most salient matters facing the human condition. 

    First Financial Insights 
    http://www.firstfinancialinsights.blogspot.com
        

     

  • Guest

    To see the future of oil, consider the present of natural gas. Until recently, many thought the West was running out of gas — most of the easily accessible natural gas finds were being depleted, making the West reliant on ever more distant, ever more difficult reserves to exploit. The U.S., the world’s biggest natural gas importer, began to build ports to receive liquefied natural gas from distant continents in the expectation that it couldn’t import enough from Canada and Mexico.

    Then everything flipped. New technologies emerged to extract gas from shale and other rock formations. Because these so-called unconventional technologies — fracking is the best known among them — proved cheaper than obtaining gas from the harder-to-find “conventional” sources, and because shale gas is plentiful, the unconventional became the norm. Thanks to fracking, the U.S. has suddenly become the world’s largest producer of natural gas, creating a massive glut that has more than halved the price of natural gas. Those liquefied natural gas ports that the U.S. was building to import gas will now be used to export gas.

    A glut will soon also materialize in Europe, another major natural gas importer, where massive finds of shale gas in the U.K., in France, in Poland, in Ukraine and elsewhere will be slashing the cost of energy. So too with China and other major energy importers — the world is now awash in shale gas and will remain so for many decades, if not centuries.

    The oil story is following a script similar to that of natural gas,  …..

    http://opinion.financialpost.com/2012/03/30/lawrence-solomon-a-world-awash-in-oil/

  • Marlene Gregory100

    What has happened to Jeff Rubin( and his blog?) Hope you are well, Jeff! Take Care!

  • Rig Pig Petey

    Looking like he was a day trader,……”take the money and run”.

    Someone wrote a song about that. However, i,..as you,…was always curious as to his views based on experience from that perspective. Retirement comes early to some. 

    At least bow out graciously and say it’s over,….”you’d think”.

    Cindy Lauper’s song about “True Colours”,……..

  • Abitibi Doug

    What you said above can be summarized by Kenneth Boulding who said: Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.

  • TerryAMcNeil

    Indeed as both deny the existence of object mathematics and physics; which again confirms Churchill’s wise observation:” it is not the facts that count – it is the interpretation”. Sadly, the algebra of politics and economics is governed by this human shortcoming that will steer us to certain extinction in an order that is much shorter than possible.  

  • Pete

    No more blog entries?  Suffering from writer’s block?

  • Instincts

    Folks – I presume that Jeff has been quite busy completing final edits and polishing off his new book volume “The End of Growth”, and getting ready for his book release, which will occur May 8th, 2012.  He’s also likely giving lots of public talks, so maybe his biweekly columns have had to be put on the back-burner for who knows how long?

    Those who continue to cling to the fatally flawed infinite economic growth within a resource finite biosphere won’t have much to cling to as we witness the outcome of the laws of basic arithmitic, physics, and chemistry on this planet overwhelmed by artificially supported human population and resource exploitation.  Jeff’s new volume is bound to shed new light on how we can’t disconnect the economy from limits of a finite environment, no matter how hard we wish that it weren’t so.