Our calendars have flipped to 2011, but the market chatter hasn’t really changed: China’s insatiable appetite for commodities, European debt, a sputtering U.S. economy, environmental issues, peak oil and the North American gas glut. But plenty could change or start to change in this New Year.

Here are 11 big issues that stakeholders in the Canadian oil and gas industry should be watching in 2011:

China’s economy – This is the elephant in the room when it comes to growth in oil demand. Over 40% of the world’s incremental oil consumption is coming from China, so slight changes in their economy will amplify into big oil price movements. China will be celebrating the Year of the Rabbit in 2011, leaving behind the Year of the Tiger. Let’s hope the change in animals is not symbolic to oil demand.

The U.S. economy – Oil markets still believe that US petroleum demand is rising with economic growth, so listening to the Fed and reviewing US economic stats is still important. Truth be known, secular growth in American oil consumption leveled out around 2006 after the commuter radius stopped expanding, biofuels started substituting for gasoline, and other demand-mitigating factors began kicking in. Maybe 2011 will be the year that the market finally realizes that US oil demand is no longer positively coupled with economic growth.

China’s energy policies – In oil circles everyone talks about China’s booming economy and how many cars the Chinese are buying. It’s all true, it’s daunting, it’s going to keep pushing up oil prices in 2011, but these bullish Chinese factors are only representing half the picture. Few are talking about the major innovations that are brewing in China’s “new energy” efforts. Having dominated solar and wind technologies in the span of a few short years, China’s energy policies are now targeting leadership positions in other new energy areas like efficiency, batteries, electric propulsion and nuclear power. The Chinese have realized that their hockey-stick trajectory for energy demand must change, consequently they are aggressively pursuing and subsidizing alternatives. Will western oil markets start recognizing that side of the story in 2011?

Electric vehicles – At least two leading auto magazines have named the Chevy Volt the Car of the Year. GM’s new-age vehicle that Automobile Magazine calls “genuinely an all new car,” is getting very favorable reviews as is the all-electric Nissan Leaf. This year will be a pivotal trend marker for plug-in hybrid and pure electric vehicles (EVs) as other big automakers announce several more new models. Adoption of EVs looks more tangible than many in the oil business would like to believe. Denying that gasoline can be substituted by electrons is not recommended, especially if oil breaks through $100/B.

North American oil production – Since peaking in the mid-1970s conventional oil production in Canada and the United States has been on a 35-year secular decline. Recently, the application of horizontal drilling and hydraulic fracturing to tight oil reservoirs – a replay of the shale gas movie with different actors – is bringing meaningful quantities of light oil to market. For example, in North Dakota’s Bakken play, oil production has risen from zero to 250,000 B/d in a few short years. The Bakken can be viewed as a proof-of-concept oil play much as the Barnett was to natural gas. Horizontal drilling targeting oil is extremely profitable at current price levels and so will continue to climb through 2011. As such, oil production from nascent plays in both the US and Canada is rising quickly. This year’s North American oil production growth is going to confirm the reversal of a 35-year decline and maybe even shake a few peak oil theorists.

Cost inflation – The high likelihood of $100/B brings smiles to oil sands operators, but the joy may be short lived if costs can’t be contained. And it’s not only the oil sands that should be concerned. Cost inflation in the oil and gas industry worldwide has a high probability of returning in 2011, which means the only group that will be smiling will be the oilfield service companies.

Geopolitics of oil – Over the past couple of years the oil markets have mostly shrugged off noise from Iran, Nigeria, Venezuela and other oil producers from where geopolitical antagonism typically radiates. That’s mostly because oil supplies have been ample every since the Great Recession. Nevertheless, the known unknowns of oil geopolitics are always lurking behind the trading desks of oil markets. Heading into 2011, it feels like the geopolitical front has been too quiet for too long.

Natural gas fundamentals – Winter is statistically at its coldest right about now and there is still too much natural gas in North America. When the January calendar flips gas prices will begin a usual weakening trend into spring. Sometime in April the markets will be looking for positive news again, trying to shore up prices. The reality is that natural gas prices can’t sustain below the true marginal cost of bringing new molecules to market, so something will have to change, it’s just a matter of when. Falling rig counts will be watched for closely. The market will also be keeping an eye on any growth in non-seasonal consumption. What we do know is that the annual decline rate on all US gas production has steepened from 21% in 2003 to over 30% now. So, when change comes it will come quickly, which always seems to be the case in this business.

Asian capital – Last year $10.2 billion of Asian capital flooded into Canada’s oil and gas industry. The pace of Asian investment is unlikely to relent in 2011. No one is going to refuse cheap capital (Confucius must have had a proverb about this), but too much money coming in too quickly will arouse unwanted cost inflation.

Government policy – Whether regulating carbon emissions, ensuring energy security, tightening environmental protocols, making changes to fiscal regimes, or intervening in financial markets, government policy is the most influential factor in energy markets. We are in an era when more legislation is highly likely; there is no reason to believe 2011 will be void of impactful policy surprises.

Virtualization – Last week the Consumer Electronics Show (CES) in Las Vegas was once again showcasing technologies that would even amaze the Jetsons. Bigger, thinner, brighter, crisper video screens are a big theme, now in 3D too. Social networking and video phones are changing the way we interact as well. These and a bevy of new digital technologies are all part of the virtualization trend that is quickly reshaping our day-to-day lives. Photos, music, books, magazines and newspapers have all been virtualized. We as people are starting to be virtualized too. How we ‘meet’ each other is changing, which means our transportation paradigm will change too. If paper and compact discs can be virtualized so too can barrels of gasoline and jet fuel.