By Ken White
GLOBE-Net, September 19, 2012 - A few years ago
the "Peak Oil" proponents strongly argued that in the near future
oil shortages, insecurity of supply and price volatility would
destabilize economic, political and social activity.
Peak Oil, the point where the highest practicable rate of
global oil production has been achieved and from which future
levels of production will either plateau, or begin to diminish,
would mean the end to the era of cheap oil.
It was argued the impacts of "Peak Oil" would include major
increases in the cost of travel, food, heating and retail goods.
With the prospect of conventional oil supplies diminishing
attention turned to the vast quantities of unconventional
hydrocarbons including the Athabasca oil sands and vast quantities
of shale oil in the United States and Australia, even though at
that time the cost of commercially mining these unconventional
hydrocarbons was considered very high - well over $100 a
The global oil industry began to invest heavily in Canada's
Athabasca oil sands and this trend is likely to continue over the
Peak oil thinking (as well as the potential for export profits)
is part of the rationale for construction of the Keystone pipeline,
which would carry raw bitumen slurry to Southern U.S. refineries,
and the Gateway pipeline to Kitimat British Columbia, to export raw
bitumen to China and other Asian markets.
Is this the End of Peak Oil?
Recent oil production forecasts by leading energy consultancies
are starting to "debunk" the Peak oil scenario, at least for the
United States. Oil production in the U.S. could rise to nearly five
million barrels a day, or 74 per cent, in the next decade. An oil
drilling frenzy particularly for shale oil in the Dakotas is taking
"A torrent of oil pumped from new wells across the U.S. is
setting in motion a decade of dramatic change that promises to wean
the country off OPEC, and threatens the growth of energy imports
from Canada," said the Globe and Mail in September 10, 2012, adding
that an oil drilling frenzy is taking place in the United States.
The newspaper reported "three years ago, 288 U.S. rigs were
drilling for oil. Currently, 1,409 rigs are "chasing oil, a nearly
The increased U.S. production capacity brings mixed results for
Canada. While Canada will continue to supply the U.S. market, its
crude exports could face a wall in as early as 2018 as a result of
pipeline constraints, reduced fossil demand, greater energy
efficiency and growing U.S. capacity. The U.S. crude oil
market could conceivably remain flat from 2018 to 2025.
Recent projections by the United States Energy Information
Administration, Annual Energy Outlook 2012 also confirm this
Figure 1: United States
Production and Imports of Crude Oil and Projections to
2025 - Source: US Energy Information
Administration, Annual Energy Outlook 2012
The red line in Figure 1 refers to US crude imports, which is
forecast to decline from 2015 to 2025. The blue line refers to the
growing US domestic production, which the US Department of Energy
forecasts to experience constant growth to 2020. Note, the linear
trend line for US crude oil imports is a constant decline and the
trend line for US production is growing.
While the reduced U.S. demand for crude oil exports may affect
the Middle East and Venezuela more than Canada, this situation is
nonetheless a "wake-up" call that strongly reinforces the need to
exploit new markets especially in China and other Asian
In 2011, 99 percent of Canada's crude oil exports went to the
United States and only 1 percent was destined to China albeit the
Chinese market has been growing rapidly as shown Figure 2. The
crude oil to China is presently being distributed by pipeline to
Vancouver and then shipped by tanker.
Figure 2: Canada Crude
Petroleum Exports to China and Trend - Source: Industry
Canada, Trade Data Online
Canada is stickhandling two contentious pipeline applications to
carry Canadian bitumen slurry to both Texas in the United States
and from the West Coast for export to China and other Asian
markets. The growing oil supply being generated in the United
States could be a wakeup call for Canada to more seriously see the
importance of creating additional channels to the world, especially
The new paradigm in the United States involving increased supply
and lower crude oil imports should cause the Canadian oil industry,
even more than it is today, to realize the importance of creating
additional channels to the world.
Capturing these new markets are the key drivers behind the
future development of the requisite infrastructure including port
development and pipeline construction in order to distribute and
transport Canadian crude oil to markets in Asia (mostly
Selling massive amounts of crude bitumen to Asia involves
potentially strong economic rents and substantial profits to the
Canadian energy sector. The strong economic rents of the Canadian
energy sector are contributing to Canada's strong economic position
in the World and positive growth, which helps the economy in not
only Western Canada but also in Central Canada which contributes
critical indirect goods and services to the "oil patch".
Our strong Canadian dollar is reflective of a strong economy and
the confidence that the international investment community places
in our country.
However, these strong profits and economic impact are also
associated with an opportunity costs as the crude bitumen shipped
to Asia would also be processed there and not in Canada. This loss
of Canadian processing jobs would involve a considerable
opportunity cost or benefits foregone.
Additionally, the increased pipeline and tanker traffic involves
substantial environmental risks and the trade-off regarding these
risks and benefits (corporate profits) is subject to considerable
debate, especially in British Columbia. We live in interesting
times and the Canadian crude oil sector is moving into "unchartered
What about "Peak Oil"? Has it been debunked? Not completely. The
world is currently awash with oil, however, the new sources of
supply largely come from shale oil and from oil sands. And vast
quantities of shale gas are providing more cheap (and cleaner)
As discussed above, the growing increase in supply in the United
States involving both shale oil and shale gas strongly reinforces
the need for the Canadian energy sector to grow new markets
particularly in Asia.
However, capturing these new markets must reflect a "balanced
scorecard" where profits, jobs and environmental concerns are all
adequately addressed. That is easier said than done.