Monday, December 17, 2012

Our small potatoes bring all the boys to the yard; damn rights, they're better than yours

Well now, the floodgates have been opened and very quickly the oil sands tune is changing. The old narrative is pretty well gone now (just do a Google news search for "oil sands" - where did all the "ethical oil, economic leader" crap go?). Well, it's gone, of course, as the reality of the situation can no longer be completely hidden and as such this new reality must be spun in a way in which it supports the stupidity of the old narrative. Albertan's so staunchly support their own economic destruction that it will probably work too.

Athabasca Oil considers Duvernay partner
One of the largest drilling rights holders in the Alberta Duvernay says it is considering taking on a joint venture partner following a $1.18-billion investment by PetroChina in Encana Corp.’s part of the play last week. 
“With the Duvernay results coming in, with the industry interest in the Duvernay increasing a lot lately, it’s a place with our 350,000 net acres (140,000 hectares), we will have to take partners in the future, just too much cost,” said chief executive Sveinung Svarte on a conference call with analysts.

“But we’re going to wait now over the next half year, to see how the type curves play out so we actually know the real value.”
"too much cost". This is about to become Alberta's new mantra, both from the business and governmental perspective.
The industry needs around $60-billion of capital annually, which exceeds the available long-term private capital. Meanwhile, Chinese capital — abundant and patient — is an attractive and alternative source of capital to fuel the oil sands’ development.

Chinese enthusiasm for the oil sands is in sharp contrast to the ambivalence of Americans towards the resource.

The U.S. once perceived oil sands as part of the ‘Holy Grail’ of hydrocarbon resources that would ensure energy security and liberate it from Venezuelan and Middle East oil.

But the shale revolution down south has altered how Americans view the oil sands. While new oil sand plays need $80-$90 a barrel to be profitable, companies focused on shale oil in the U.S. can turn a profit at $60 to $70, says the analyst.

In addition, U.S. refiners are benefiting from Canadian crude glut, which makes it attractive for many U.S. operators and decision-makers not to alleviate bottlenecks in a hurry. 
Did you catch that folks? This new "energy renaissance"  that the U.S. is betting on is based on: "oil sand plays need $80-$90 a barrel to be profitable, companies focused on shale oil in the U.S. can turn a profit at $60 to $70". As I've already gone into detail about, the cost of the U.S. new found energy is relatively high still in comparison to conventional oil and production is still being supplemented by the cost saving of having conventional oil still available. We're not going to discover what the true cost of extreme energy extraction really is until our conventional energy stocks are near depleted.

I think the most aggravating aspect of oil sands development for me is that when it comes to the importance of global energy supplies, Canadians and particularly Albertans overstate the usefulness of oil sands. We love to compare our reserves to Saudi Arabia, but the reserves are not what matters, what matters is daily production. To a country like China, with it's measly 2mbd production (Saudi Arabia usually does near 9mbd), it's "small potatoes":
Big. Bigger. Biggest.

If you thought Canada’s approval of China’s biggest overseas energy acquisition, the $15.1 billion takeover by state-owned CNOOC of local oil and gas producer Nexen was big, think again.

The Communist giant’s newly issued passports show a regional map on Page 8 with China laying claim to almost the entire area covered by the South China Sea.

Now THAT’S a big takeover and they achieved it without spending a single yuan.
Here in Canada we love to tell ourselves that China is just all about business now, but do you really think that's true?
Japanese prime minister Shinzo Abe, boosted by his sweeping election victory, has declared there will be no compromise on the sovereignty of islands at the centre of a dispute with China.
Of course it isn't true. China is going to be playing whatever game is needed to get it's hands on the energy it needs for long term prosperity. Canada has stupidly blown it's energy surplus, we can now no longer afford to actually develop our own energy at a time where energy protectionism is about to become rampant. In the meantime, Canada's housing bubble continues it's slow motion crash defying the wishes, plans, and contingencies of our "economic brains".

All of these indicators should be telling you one very important thing (you'll have to rely on indicators because our "financial experts" which have for the last 5 years been telling you how oil sands are essential to recovery have clearly demonstrated they couldn't forecast themselves out of a box): the prosperity won't be happening, the prices won't be happening, the jobs won't be happening.

"The jobs won't be happening? bu..bu..bu..but the unemployment rate!", you're probably saying. What about it? We've been here before, large swaths of people move to Alberta, Alberta doesn't have the infrastructure to support them and the cost of living is driven up so high, they move away. We're already having to borrow to build a fucking highway people! Emergency wait times are atrocious. We're having problems funding education, hell we're having problems funding pretty well everything. The sustainability fund? Well for all we know that doesn't even exist anymore - they sure act like it doesn't exist.

The oil sands are small potatoes with big cost, and you're the ones paying for them.


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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