Oil Sands Focus of Global AttentionOil Sands Focus of Global Energy Attention
Sizzling world economy puts province in driver's seat
By John Ludwick - Business Edge
Published: 02/16/2006 - Vol. 6, No. 4
https://www.businessedge.ca/article.cfm/newsID/11929.cfm
With the global economy racing at a thoroughbred's pace, Alberta's energy sector will stay in the winner's circle if it continues to place its bets correctly, experts say.
"You've heard the phrase, 'the sands of time,' " says Avery Shenfeld, managing director and senior economist with CIBC World Markets. "Well, in a sense this is the 'time of sands,' because world economic conditions have never been brighter in terms of creating opportunities, not only for the oilsands but in other aspects of Alberta and Canada's energy industry."
Worldwide economic growth is strengthening, Shenfeld told a recent energy forum in Calgary, and the global real gross domestic product has grown by nearly five per cent, a trend that is expected to continue this year and into 2007.
Given the outlook for global energy demand and the prospect for increased bitumen production from the 'sands, Alberta is well positioned to prosper far into the future, agrees Alberta Energy Minister Greg Melchin.
If you were to look 50 years down the road, what actually could we become here in Alberta?" he said in a speech to the 2006 Global Energy Conference held at the Epcor Centre. "I don't know why we wouldn't be the world's largest single producer."
Unlike with past energy booms - which have mostly been driven by a reduction in supply - this time it is more about the "briskness" of the global economy and the resulting increase in energy demand, CIBC's Shenfeld said.
He noted the International Energy Agency estimates that East Asia, China, India and its neighbours will account for half the overall growth in world oil demand between now and 2008.
While the world is not running out of energy, it is running out of the cheapest sources of energy, as conventional oil production is on the decline and new supplies are increasingly coming from deep offshore sources and the oilsands, Shenfeld added.
"By the time we get to the end of this decade, the oilsands will be the greatest contributor in terms of annual increases in production. And over the next decade, Alberta is expected to be the world's leading source of additional supply of oil to meet the market's needs."
Given these factors, the economist is forecasting that oil prices will hover around the $70 US per barrel level in the coming few years, with the possibility of the price "touching the magic $100 mark" not out of the question.
Spencer Abraham, former U.S. energy secretary and now an energy consultant, also foresees a robust world energy market driven largely by economic growth outside of North America.
He told the conference that world oil consumption could grow to as much as 130 million barrels per day (MMb/d) in 20 years, from the current level of 85 MMb/d.
"To me, that's a staggering load to overcome and challenge to meet, because if you take into account the likely reductions and depletions in the existing resources we have worldwide, what it means in gross terms is we'll need to find some 45 to 50 MMb/d of new production between now and 20 years out," Abraham said.
"That's not going to be easy to do, even with the great production increase we're seeing here in Alberta."
Output from Alberta's oilsands, which today account for more than one MMb/d, is forecast to grow to 2.7 MMb/d by 2015 and to as much as five MMb/d by 2025.
David MacInnis, president and CEO of the Canadian Energy Pipeline Association (CEPA), said he also sees huge potential, but warns that the pipeline industry must press federal and provincial governments to streamline regulatory processes and allow market forces to guide Canada's energy future.
"When (governments) prescribe capital cost allowance rates that are not competitive with those in the U.S., they shunt investment south of the 49th parallel," he said. "When they craft public policies without considering the cap investment cycles of business, they stifle investments and innovation."
MacInnis cited other factors that could upset Canada's energy applecart, including a lack of regulatory efficiency in Canada and a shortage of "community capital," such as road infrastructure, housing, and hospitals and schools, as well as a human capital shortage - "we must convince non-traditional energy sector workers that they can enjoy long and secure careers in an industry that balances work and personal needs."
He also urged industry to pay close attention to trade issues; while the North American Free Trade Agreement has given Canadian oil and gas producers virtually unrestricted access to the huge U.S. market, MacInnis reminded the audience of the federal export tax imposed on crude oil shippers in the early 1970s."
While no one believes today's governments would entertain such measures, we must be ever vigilant that we not isolate ourselves from the world markets. That does not create opportunities - on the contrary, it eliminates them."
Jim Dinning, a former Alberta cabinet minister and the heir apparent for the premiership, told the conference he believes if Albertans focus on developing their vast energy assets, embrace new technology and strive to add value "at every link in the value chain" such as petrochemicals, synthetic crude and refined products, Alberta can become an energy powerhouse.
"If we focus just on exporting the raw resources ... we will miss the huge opportunities that we have because the real value lies in connecting the energy-resource dots - all of those BTUs - with the opportunity dots in refining," he said. "I see a future that is maximum value-add, job-creating, innovation and tech-driven, emission-eliminating ... (what) others in the world can only dream about Dinning also highlighted the importance of tapping into the burgeoning Asian market, especially China and India.
Shyamala Cowsik, India's high commissioner to Canada, noted that her country's economy is the world's fourth largest, and that economic growth has averaged seven per cent in recent years, last growing by eight per cent - a reason why Canada's vast oilsands reserves have caught India's eye.
"The key to our sustained growth and the key to our future is energy, and basically for us, Canada is very important," Cowsik said.
Shri Srinivasan, India's secretary of the ministry of petroleum and natural gas, acknowledged he has been in negotiations for his country to take a major stake in the Alberta's gooey deposits.
"Alberta is now occupying the centre stage of the Canadian economy and the whole world is focusing its attention on Alberta. The oilsands of Alberta today ... merit a closer look - most countries are doing that, including India."
(John Ludwick can be reached at ludwick@businessedge.ca)