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Bright natural gas flares dot the North Dakota landscape amid an oil boom that is changing the energy dynamics of North America. (Nathan VanderKlippe/The Globe and Mail)
Bright natural gas flares dot the North Dakota landscape amid an oil boom that is changing the energy dynamics of North America. (Nathan VanderKlippe/The Globe and Mail)

In U.S. energy renaissance, flares of fear for Alberta’s oil patch Add to ...

As the sun dips below a grain stubble horizon, the flares flicker into view, a dozen tongues of flame licking against a pink sky.

The flares are natural gas being burned off in the rush for a far more valuable resource – oil. Shining in the gathering dusk, they are industrial glimmers of a changed future for a nation whose long-faltering dreams of energy independence are being revived.

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Oil is pouring out of North Dakota. In September, some 728,000 barrels a day flowed, up a startling 57 per cent from the year before. And it’s not just here: Similar fields in Texas and elsewhere are seeing similarly fast rises in oil output, prompting a near-euphoric re-examination of what’s ahead for a country that has long relied heavily on imported oil to fill its gas tanks and keep its economic engine running.

Now, as hundreds of drilling rigs employ technological advances to extract rich reserves of previously untapped energy, the oil renaissance is triggering some startling forecasts.

The International Energy Agency predicted this week that the U.S. is set to become the largest oil-producing nation on earth, more prolific even than Saudi Arabia. One day, the IEA said, the U.S. could drive away most foreign imports.

What, then, does the future hold for the country that today delivers the largest share of those imports? Some 27 per cent of all barrels that cross U.S. borders come from Canada, and a belief in unfettered access to an insatiably oil-hungry U.S. market has been a central underlying assumption of the great energy expansion under way in Alberta.

Canada already produces far more oil than it needs. Any flaws in that assumption about U.S. demand will have a profound effect on Canada’s oil sands, where companies are spending a billion dollars a week to build production destined for export – virtually all U.S. bound.

At stake is the growth of an industry that keeps Western Canada’s economy vibrant, producing boatloads of well-paying jobs, welcome spinoff effects and government revenue. Already, amid weaker oil prices, some oil companies have contemplated deferring or cancelling projects, and just this week the Alberta government backed away from a goal to balance its budget.

“Canada has a real problem,” said Al Monaco, chief executive officer of Enbridge Inc., the pipeline company that has long been the prime mover of Canada’s oil. Combine rising U.S. oil output with declining consumption and the lack of other markets for Canada, and “none of that bodes well for prices if you’re a producer – nor if you’re a government that has royalties at play. Nor if you’re the federal government for tax revenue.”

The greatest vulnerability, he said, lies in the northeastern corner of Alberta, the Fort McMurray area that not long ago looked a lot like North Dakota, a nascent boom town that stoked – and continues to stoke – great economic hopes for Canada. But, Mr. Monaco warned, “if you’re in the oil sands and you are the marginal production because you’re the highest cost, this is a big factor. These are big issues.” He is not, however, worried. Enbridge believes it can be the solution by building new pipelines to bring Canadian oil to new markets, both abroad and in U.S. states not served by current pipelines. But it’s hard to find a new pipeline proposal – to the West Coast, to the Gulf Coast, to the East Coast – that is not wrangling with severe political and social skepticism.

And if opponents succeed in stopping or slowing those projects, the outlook is grim: Prices for Canadian oil “will get pushed down to the point that production stops growing,” says Chris Micsak, an oil analyst with Bentek, an international energy forecasting and analysis firm.

So the North Dakota flares are a flickering glimpse of an uncertain future. It’s one that is already arriving. Alberta’s primary export pipeline system is already turning away oil, in part because North Dakota crude is shouldering its way in, prompting some Canadian companies to employ unusual alternatives, including trucking oil into the U.S.

Larger shifts are under way, too. The refining complex in the U.S. Gulf Coast, with its huge capacity to process heavy crude, has long been viewed as virtually the only market the oil sands will ever need. But refiners are already working to cater their operations to light barrels like those found in the giant Bakken field that is fuelling North Dakota’s growth.

And there are signs that corporate spending is shifting. Producers like Suncor Energy Inc. are scaling back growth expectations as they work to shake out excess costs. And as U.S. oil shoulders in on the pipeline network, Canadian oil is backing up and prices are soft. In the third quarter, Connacher Oil and Gas Ltd. sold its oil sands crude for just $38.12 a barrel.

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