ROME -- What does the world outside of Canada think of Alberta's mighty oil sands? In three words, not so mighty.
We'll know more about the global musings on the oil sands on Nov. 7, when the International Energy Agency releases its annual World Energy Outlook in Paris. This door-stopper is the IEA's flagship publication, is typically 600 pages long and is considered among the most credible analyses of mid- and long-term energy demand and supply scenarios.
The theme of this year's World Energy Outlook is surging Chinese and Indian demand and how it will be met (or not). The oil sands, relatively speaking, will probably not get much ink in the report. And that's the point. The IEA doesn't believe the oil sands, in spite of their rapid growth, will make anything more than "an important dent" in the global oil market - this from an IEA official who did not want to be named ahead of the report's publication. On the supply side of the equation, what the IEA cares about most is OPEC production, with special attention on Iran, the potential target of American fighter-bombers (more on Iran in a moment).
"Dent" status is not what Alberta and the rest of Canada like to hear. In Alberta, the gucky oil sands have become the glamorous industry as conventional oil and natural gas production wanes. Suncor, Syncrude and the other big oil sands players are promoted as phenomenal Canadian success stories. When he's on foreign trips, Prime Minister Stephen Harper touts Canada as an "emerging energy superpower," as if it were the next OPEC. It's a misleading, extravagant and potentially dangerous claim. Canada will not save the world from oil shortages and the numbers tell the story.
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Currently, global oil demand is about 85 million barrels a day. The oil sands produce about 1.2 million barrels a day, or 1.4 per cent of the total. The figure is small, though not insignificant. Of course, oil sands production is rising as tens of billions of dollars flow into new projects. The Canadian Association of Petroleum Producers (CAPP) has said the oil sands will pump out as much as four million barrels a day by 2020. That's equivalent to a meaningful 4.7 per cent of current daily production.
There are a couple of big problems with the four-million-barrel output figure. The first is that even as oil sands' production soars, so does global oil demand. Energy agencies and oil companies have predicted a demand figure of about 110 million barrels a day by 2030. It might go higher, depending on the oil slurp-a-thon in China and India. China alone is putting 14,000 new cars on the road every day. If 110 million barrels a day proves accurate, Alberta's share (assuming daily production of four million barrels) falls to 3.6 per cent.
The second is that CAPP's four-million-barrel figure may be ambitious. The new World Energy Outlook will probably pencil in a smaller number. Why? Because the oil sands are probably the world's most expensive oil production. As oil prices rise, so do costs. In the oil sands, natural gas is burned to generate the steam required to heat the bitumen in the reserve, allowing it to be pumped to the surface. Roughly speaking, it takes the equivalent of one barrel of energy to produce three barrels of oil sands oil.
The oil sands' other big problem is environmental. In the surface mining operations, it takes about 10 barrels of water to produce one barrel of oil. For the underground recovery operations, the figure is two to one (less water is used underground because it's recycled). Then there is the carbon dioxide output. The industry will get hit with carbon taxes. It's just a question of when.
The point being that with exceedingly high development, operating and environmental costs, production increases may happen more slowly than Alberta expects. If that happens, OPEC, not the oil sands, will be relied upon to save the oil markets. As conventional fields outside of OPEC, such as the North Sea, go into irreversible decline, OPEC's share of conventional output will rise. Almost every serious energy supply forecast sees OPEC supplying about half the global oil demand in 2030 or so.
Which brings us to Iran and why the IEA and European governments are focusing on it, not the oil sands. Iran is OPEC's second-biggest exporter and has the world's second-largest proven reserves of natural gas, after Russia. Iran also occupies the north shore of the narrow Strait of Hormuz, through which about 40 per cent of the globally traded oil supply flows by tanker ship. Iran's nuclear ambitions have already resulted in sanctions against the country, constraining the capital inflows needed to keep the Iranian oil fields alive and well. At worst, a war could substantially reduce or even eliminate Iranian oil exports. Imagine what that would do to the price in a market where the slightest disruption can send the price soaring.
Forgive the world outside of Canada and the IEA for not blowing toward Alberta. At this point, the oil sands just don't matter that much.
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