Have you ever been involved a successful exploratory well? There’s a feeling of euphoria, and everyone looks at a map of owned land in the area and charts out all the possible locations. A 200 b/d discovery well becomes 100 potential locations that are, in the glow of fresh success, surely to be just as good. You’ll find the accountants dreamily browsing Porsche websites at lunch. But they never are, geology is seldom that predictable.
Have you ever heard of a major new petroleum discovery somewhere in the world? The news coverage is frenetic and over the top, this is a game-changer that will alter the world’s energy supply balance, and that thought gets lodged in people’s minds even as it fades from view.
In the first two examples, reality quickly brings people down to earth, but the third example is different. Development of major discoveries is a decade-long phenomenon and the information tide moves on to the next wonder child before anyone pays attention to the demise of the first. And because there is always another “next big thing,”we forget that the first two examples are reality.
We should not forget how important this is. The world’s media treats new energy supplies like an infinite number of $100,000 prizes landing in your lap. We will never be short of energy, because there is always a new major discovery – Angola, Kazakhstan, Brazil, shale this and that, etc. – to meet rising demand. And they have been sorely needed, because oil demand has grown by 10 million b/d in the past decade alone.
These big discoveries are getting rarer and smaller, while the world continues to rely more and more on fossil fuels. All the major discoveries listed in the last paragraph combined don’t offset demand growth over the past decade, never mind offsetting natural declines. This fact remains true despite the ungodly furor made over renewable energy and electric vehicles, which are hardly gaining traction despite massive incentives and media hype. This fact also is not lost on hugely populous countries, particularly China and India, which are nervously eyeing the world’s oil supplies and buying up whatever crap comes on the market (apologies, Spyglass).
Which brings us to Canada, which needs a severe wakeup call about the global significance of its petroleum resources. Nowhere on earth are there reserves in such vast quantities in such a stable environment. The middle east has huge reserves, but their welcome mats are just disguised land mines. Venezuela has huge heavy oil deposits, but has become the latest (and hopefully last) socialist experiment to blow sky high, leaving those deposits stranded. A close encounter with Russia is as traumatic as a stint in a maximum-security prison. The other recently discovered deposits mentioned above are hugely expensive, complex, and really not that big in the global scheme of things (as always, it’s necessary to point out to shale fans that it took hundreds of billions of dollars to add about 5 percent to global production, and that’s from the sweet spots).
Then there is Canada, sitting on possibly several hundred billion of recoverable reserves, in one of the most open and hospitable countries in the world (climate notwithstanding), and we act as though we have no clue. We get hung up on aboriginal issues that bring needed infrastructure or development projects to a halt. We get panicked at the prospect of building a pipeline, when the rest of the world can accomplish similar feats that hardly even make the local news. We have a huge nation with vast resources in all the wrong places, and we get paralyzed in regional tiffs. We tie ourselves in knots debating relatively meaningless environmental programs (Canada’s entire share of GHG emissions is less than 2 percent, despite being the second largest land mass and exporting massive energy supplies) and have little clue as to how valuable they are to the rest of the world.
India knows. China knows. Russia knows. The US knows. Even Europe, with the world’s strongest green energy focus, understands well the risk of being beholden to Russia for natural gas supplies in winter.
And consider where resources are located versus where they’re needed. In very broad strokes, accessible large-scale resources (petroleum and mineral) are available to the world from a few locations that are relatively unpopulated compared to country size: Russia, Canada, and Australia. (Yes, there are deposits of each everywhere; this is a reference to big deposits that are available for development, in relatively friendly hands – Russia being a stretch of the word “relatively”). Of these, Russian and Australian resources are located in close proximity to 3-4 billion people, who most definitely understand the value of natural resources, because they’ve long since eaten theirs (or are close to it).
Canada is one of the few places with vast resources, a truly open economy, and surpluses available for the world. It is true that the US is a major consumer and a major customer for Canada, but as China and India continue to develop, 2-3 billion people will outstrip by far US demand (imagine demand for fuel if China and India approximated North American auto ownership levels).
It has been speculated that the Canadian oilsands are in essence being stranded as a huge strategic US oil reserve, including right here on BOE Report. That may or may not be true, but regardless, the onus is on Canadian governments (and just as much on us citizens, who elect them) to utilize our international competitive advantages like any nation does. We’re not even getting to the stage of blowing the $100,000. It’s like we have a winning lottery ticket that’s sitting in a pile of papers headed for recycling.
Thinking in a much larger scope and time frame, we need to stop thinking of our resources as a winning lottery ticket with which to buy trinkets. We need to take it seriously as a huge one-time benefit to the country. We need to leverage and optimize the value to maintain our standard of living and to position ourselves for a world that will over time move to greener energy sources.
We also need to stop being embarrassed by these resources on the world stage because the topic du jour is green energy, when the world’s oil consumption continues to relentlessly grow.
And that is the most crucial point on this topic: no matter what you read in the news, oil demand continues to grow. The stark reality is that what will actually wean us off oil will be the actual cost of oil, which will rise as the cheap stuff is used up. As that happens, countries that hold large reserves of accessible oil will be in a very enviable position. Canada, every corner and subdivision, needs to think along those lines and plan for that day. We are wasting an incredible amount of time fighting little skirmishes that change nothing.
Read more insightful analysis from Terry Etam here