Canada: The World's Next Saudi Arabia?

October 2, 2005 – Vol.10 No.28

CANADA: THE WORLD'S NEXT SAUDI ARABIA?

Are the oil sands of Alberta, Canada the solution to the world’s oil problem?

According to an article in Fortune magazine - The Dark Magic of Oil Sands - high oil global oil prices are driving explosive interest in the bitumen of Alberta. Oil washed off particles of dirt could fill up 174.5 billion barrels, or much more. Saudi Arabia has stated estimated reserves of 264 billion barrels of crude.

But the cost of extraction is high. There’s regional environmental damage that may be permanent. There’s the technical cost of about $20 per barrel to remove the oil from the sand. Fortune says that oil can be produced in the Middle East for as little as $3 per barrel. There’s a big leap between 3 and 20, but 20 years ago oil sand extraction costs were $30 per barrel.

Now that oil is trading at over $60 a barrel oil sands are becoming more attractive: there’s considerable interest and investment in Alberta.

But will oil sands help the world’s diminishing oil situation?

Crude oil, thus gasoline, has to remain at prices higher than consumers (at least in the U.S.) are accustomed to for oil sands to remain appealing for investment.

However, the longer term economic effects of high oil prices are only beginning to be felt. GM and Ford, reliant on the sales of profitable gas-hungry light trucks, are suffering. Consumers, who put their gas purchases on credit cards, are only beginning to feel the pinch from the latest gas spike as bills now arrive in the mail.

To add to gas price concerns the situation in Iraq continues. A full blown civil war that could spread throughout the region could push oil costs into the triple digits. .

Consumers would get battered again while the appeal for oil from sand would grow, but who could afford to buy it?

Time, however, helps oil sands investments. It can take up to seven years for oil to be removed from bitumen dirt. Oil in huge amounts is not expected to be available until 2020. Fifteen years will allow consumers to get accustomed to high oil and gasoline prices by buying more efficient vehicles, traveling less or allocating more of their income to energy costs.

Time will allow oil sands production costs to fall.

Time will also see reserves elsewhere on the planet diminish as global demand rises.

Finally, there’s the concern that a new supply of oil will allow greenhouse gases to continue to be thrown into the atmosphere. The costs of global warming will eventually have to be dealt with.

Renewable fuels and efficient use of energy are still the answer to the world’s oil problems. Even with Alberta’s oil sands the costs of burning oil will rise while the cost of renewables will fall.

Read the The Dark Magic of Oil Sands from Fortune at

http://www.fortune.com/fortune/investing/articles/0,15114,1105691,00.html