August 29, 2005
Boomtime, eh?

Fark (of all places) linked up this detailed look at recent developments surrounding the Alberta oil sands. Now that oil prices have gone far beyond the $40 per barrel price generally seen as required to make the sands profitable, the region is experiencing a gigantic development boom. The potential windfall of billions of dollars in profits are creating fault lines throughout Canadian politics, and could change any number of international axes of power.

In other words, the system is working... higher prices are causing alternative sources of energy to be exploited. This will (eventually) increase supplies, causing prices to decline. That is, if the markets are allowed to work. As mentioned in the article, Canada's eastern liberal elite have once before instituted controls on the development of oil resources for their own purposes, and they're already making noises they will have no problems doing so again. Such bureaucratic meddling is perhaps the only thing gauranteed to prevent the efficient utilization of any resource, and with the mountains of cash this resource can bring in, meddling attempts are pretty much inevitable.

Will exploitation of the oil sands mean the return of cheap oil? Well, it'll certainly mean the return of cheaper oil, which may be enough to bail China out of the jam in which its energy subsidies have placed it. This is probably the most desirable result, since it will allow India's, China's, and the US's economies to continue expanding without a major financial disruption. Canada will become the surprise superpower of the 21st century, with stunned canuks in an enviable position of being able to dictate terms at will to both OPEC and the industrialized world.

But if it doesn't, the subsequent economic collapse will certainly send oil prices crashing well below the $40 per barrel price Canada needs to keep the oil sands profitable, causing an entire industry there to implode. Seething resentment over meddlesome government bungling could finally trigger a rupture that splits the country apart. Governments of oil-rich states, grown fat on monstrous profits, will suddenly be saddled with expensive, inefficient welfare states and constituents unwilling to accept any deprivation. The Middle East will almost certainly wither on the vine, and Hugo Chavez will be lucky to make it to Cuba before a mob hangs his body by its ankles in the capital's square.

It is a very fine line indeed that the various players are walking on right now, and anyone who thinks they know where it'll all end isn't paying attention. Welcome to interesting times!

Posted by scott at August 29, 2005 08:49 AM

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You havea to factor in the hurricane and the potentional damage to all the drilling rigs and refineries that are in the gulf. They produce 1.5 million barrels a day. Cude opened at $71 a barrel this morning.

Posted by: Pat on August 29, 2005 09:22 AM

The hope for me is that Alberta could manage to pull this off - we're so close that transportation costs can effectively drop to zero, making it cheaper to buy from there than most of the OPEC companies. While reducing our demand on the ME, I think it might put OPEC in a jam - lower prices to keep our business, move it all to China (and Goddess knows how their gov't will react to price increases) and Europe, etc.

Toss in the whole Montana coal-->diesel thing going on, and life might become a bit easier in the next decade or so.

Guess time will tell...

Posted by: ronaprhys on August 29, 2005 09:31 AM
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