Monday, August 29, 2005

Canadian oil sands, Albertan independence and an investment idea 

If the invasion of Iraq were all about the oil, there is a much softer target just to the north. Via Chrenkoff:
The National Energy Board estimates there are approximately 1.6 trillion barrels of crude bitumen saturating the ground in northern Alberta. Bitumen -- a form of heavy, thick oil laden with sulphur and deficient in hydrogen -- can be refined into synthetic crude oil to make everything from gasoline to plastics. It is the lifeblood of every industrialized economy. According to the Alberta Energy and Utilities Board, about 178 billion barrels of bitumen are economically recoverable using existing technology -- enough to produce more than 150 billion barrels of crude.

If these estimates are accurate, Canada's oil reserves rank second behind only Saudi Arabia's 260 billion barrels. And there are many who believe the current oil sands assessments understate the true potential here. The AEUB has projected that rising prices and improved technology could ultimately push the oil sands yield close to 300 billion barrels, which would make it the richest petroleum field in the world. By 2015, the oil sands are expected to be producing roughly three million barrels of petroleum a day. Assuming prices will average US$40 a barrel (well below where they are today), that suggests annual revenues of close to US$43 billion. (bold emphasis added)

Of course, huge amounts of oil is going to lead to huge amounts of wealth to fight over. Canada has never been one of the world's most united countries (how many other OECD countries have significant seperatist political parties?), but its divisions have long been more linguistical than economic (although economic differences once were a big factor in Quebecois seperatism). That may change:
In August 2001, Jean Chr├ętien foreshadowed the coming tension over Alberta's blossoming oil wealth during a speech in Edmonton. "We have to make sure that every person in every part of Canada benefits from the potential and the wealth that belongs to the people of Canada," he said. With those words, Chr├ętien jabbed a stick into the hornet's nest of western alienation. The reaction in the oil patch was swift and indignant. For many Albertans, it was just another sign that Ottawa was intent on stealing their birthright.

The article is particularly good on the geopolitical significance of the Albertan oil sands, and is well worth reading in its entirety. Then consider two questions.

First, will Albertan seperatism ensure American access to Canadian oil? That is, if Ottawa squeezes Alberta too hard, it may try to secede from Canada. If it does so, the United States will be in a position to guarantee Albertan security, or support Canadian efforts to keep it in the confederation. Ottawa will know that if it wants Washington's support, it will have to guarantee that in a pinch Canadian oil flows south, rather than west to China and India.

Second, should you buy Suncor (NYSE: SU) stock? Suncor has the inside track on the Albertan oil sands because of its extraction technology and expertise. From the (hotlinked) chart below, you can see that it has enjoyed a tremendous run in the last year. Does it remain a good value in the mid fifties? Probably, over the long run at least, but predicting stock prices is not a TigerHawk forte.

Disclosure: I did get this one right -- I bought Suncor more than a year ago, in the low twenties. The way I look at it, I have fully hedged my short position on gasoline for many years to come.


By Blogger bill, at Mon Aug 29, 12:39:00 PM:

I still haven't got past the leftist lead by Clinton, making a monument of the huge deposits of US low sulfer coal, and erecting a sign that says look don't touch.

Face it, our stupid energy policies, led by Democrats, have put us in the present fix.  

By Blogger Catchy Pseudonym, at Mon Aug 29, 01:47:00 PM:

Bwahahahaha! oh sorry... you were being serious.  

By Blogger TigerHawk, at Tue Aug 30, 06:35:00 AM:

I assume, Catchy, that you are laughing at bill's comment, rather than the transcendant smartnitude of my post.

Clinton's proposed BTU tax was one of the smartest ideas to come out of his presidency. Unfortunately, he could not deliver even his own party to vote for it.  

By Blogger geoffrobinson, at Tue Aug 30, 07:08:00 AM:

Since oil is a fungible commodity, I wouldn't be too concerned about who the Albertans sell it too. It will affect the overall supply and demand. That's a good thing.  

By Blogger Catchy Pseudonym, at Tue Aug 30, 11:33:00 AM:

Yes Tigerhawk I was laughing a Bill's comment. Not blowing smoke, but your posts are usually very good even when I don't agree. Bill's comment just struck me as over-the-top, wrong and funny.  

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Bill nailed it.  

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