With oil markets currently in an over-supplied situation, it’s easy to get caught up in the perception that things will never get better, that this glut will last forever. US shale is rewriting the global supply story,and so on. However, shale resources are definitely finite and being blown out as fast as possible, and not always wisely. But regardless, they form only a fraction of global production. From the perspective of global energy players, what are the key building blocks over the next 20 or 30 years?
If one were to lift their gaze to the macro environment, global oil supply strategies are at play, with the world’s largest energy consumers taking full advantage to secure their energy future. This is being accomplished in a number of ways. From direct acquisition, to political alliances to who knows what. Here’s another thought-provoking thought though: Are the Canadian oil sands being warehoused as the US’s unofficial strategic oil reserve?
It’s not a crazy question. Energy importers need to think about what will fuel their economies and do what they need to in order to ensure adequate supplies. There are countries that take a direct route to energy security by buying reserves. China has spent, according to a recent Bloomberg article, $169 billion acquiring oil assets around the globe. India is beginning to do the same. At the same time, China (and anyone else with a storage tank bigger than a Buick’s) is buying and storing cheap oil for rainy days ahead.
Many of these same countries have bought interests in the Canadian oil sands, as many multinational oil companies did, because the resource is incredibly huge and in friendly Canadian hands. No other country with a properly functioning democratic government can boast 170 billion barrels of reserves in a single jurisdiction. Keep in mind also, that number represents a mere 10 percent of oil in place. And no other country is so lackadaisical in controlling who owns or controls those reserves.
But most foreign nations that invest in the oil sands as a strategic reserve are wasting their time, because the resource is landlocked.
At best, ownership of the reserves acts as a hedge against price hikes in times of shortage, but as a physical reserve it makes no sense for foreign nations (except one). There is no obvious route to get large quantities of oil sands oil to market (never mind their home country). What’s more, regulations, movie stars and native bands are continuing to strangle every pipeline project that is attempting increase access to market. With BP’s appalling Gulf of Mexico oil spill still within memory, it’s understandable that coastal regions are skittish about the potential for a large spill on pristine shorelines. However that does not give justifiable grounds to the ludicrous anti-pipeline campaigns, just to point out that not all projects are equal in terms of negative impact.
Which brings us to Keystone XL. President Obama rejected its construction on some highly dubious grounds, ostensibly related to the United States’ desire to fight global warming. That argument is, of course, crazy. There are a lot of ways to fight global warming, such as Obama’s much more intelligent attack on fugitive methane emissions. Methane emissions are far more harmful from a GHG perspective than the over-vilified carbon dioxide expulsions.
So maybe the rationale for blocking construction of the pipeline was something else entirely. And maybe they told us, but no one was paying attention (except one R. Bruce Malcolm, the sharpest mind in the oil patch, who suggested this article).
When announcing rejection of the Keystone XL pipeline, Secretary of state John Kerry concluded that the project “was not in the country’s national security interest.” That was a fascinating choice of words. An oil production project that is only marginally more environmentally harmful than California’s heavy oil deposits has absolutely nothing to do with the US’s national security interest.
A 170 billion barrel resource on the US’ doorstep most certainly has a lot to do with that security interest though. Perhaps Kerry and Obama rejected the pipeline to keep the oil sands reserve nestled comfortably in the ground until they need it. No other nation can readily access those reserves because of the natural barriers to markets. Other than Canada, of course, who couldn’t burn that much oil in a thousand years even if every citizen watered their lawns with the stuff (which, incidentally, makes grass greener in small quantities. It’s true.).
Would Keystone XL have been rejected if we were in a global oil shortage now, and there were lineups at gas pumps across the US? Or would there be two Keystone XLs under construction as we speak, crossing the US border with the ease of a pole-vaulting Mexican?
It’s hard to imagine that US security planners aren’t well aware of the importance of the oil sands. With an economy that consumes 20 million barrels per day of petroleum products, it’s not sensible to be relying on the hyped shale oil revolution, which at its peak produced 5 million barrels per day. No other resource is that close or in such friendly hands, with Venezuela being a perfect example of the opposite end of the spectrum. For long term energy supply, having a 170 billion barrel resource a few hundred unimpeded miles from the US border is valuable beyond belief.
Read more insightful analysis from Terry Etam here