Peak Oil News: Oil an easy target, but imagine the outrage if supply falls short

Monday, June 23, 2008

Oil an easy target, but imagine the outrage if supply falls short

By Gwyn Morgan

The audience was a diverse group of promising and intelligent Canadians a decade or so into careers in the public, private and non-profit sectors. My talk focused on a favourite topic - values based leadership. Halfway through the Q&A session came the question ... how could I credibly espouse ethical values given my career in the oil and gas industry? It seemed as though the questioner expected me to admit that retirement has brought repentance for this great sin. I wondered how the many thousands of creative, dedicated and proud employees I had once led would expect me to answer this attack on EnCana's Mission of "Energy for People." The same week brought news that the husband of Quebec's environment minister owned shares in companies involved in oil sands and liquefied natural gas (LNG) terminals. A spokesman for a Quebec-based NGO responded: "It's like having a justice minister who was a full-fledged member of the Hell's Angels."

When did an industry whose products Canadians depend upon for essentially every aspect of their daily lives become a pariah? And what sense does it make that, while consumers express outrage over high energy prices, environmental groups say the "cost of carbon" is too low? And what to make of the goings-on in Ottawa, where some MPs want to haul oil industry leaders before a parliamentary committee to explain why prices are so high, while all of the opposition parties devise plans that would make prices even higher?

The oil and gas industry is an easy target ... from high prices to apocalyptic articles about the environmental impact of oil sands development. It seems few support the activities needed to produce oil and gas, but I wonder what the public's reaction would be if motor fuel failed to reach service stations, or if natural gas supplies fell short on a cold winter day?

Questions, so many questions, all easier to ask than answer. I don't intend to try in this short column, but intelligent debate needs to be founded in realism. Here is a dose of reality.

Almost 80 per cent of Canada's greenhouse gas emissions are created by end-users, i.e. businesses, agriculture and individual consumers, and another 10 per cent arises from the production and transportation of those same hydrocarbons. The balance comes from the production and export of oil and gas to the United States.

Asian demand growth, primarily Chinese, is the primary driver of high oil prices as well as the skyrocketing prices of coal, copper and nickel. In fact, OECD demand for these commodities has decreased.

When OPEC's unutilized capacity grew to over 10 million barrels a day in the 1980s, oil prices fell. Today, excess capacity is only 2 million barrels a day out of world demand of over 85 million. This precarious cushion fuels fears of supply shortfall, driving market reaction to news such as political or social conflict in countries such as Venezuela, Nigeria and Iran.

Recent weeks have brought allegations of speculative futures trading as a root cause of rising oil prices. While these activities can have a temporary and modest effect, it's real world data and events that ultimately drive oil prices. Recent data showing falling crude inventories, falling spare production capacity, along with reports of Nigerian unrest and potential Middle East conflict, are what's driving up prices.

In the 1960s, 85 per cent of global oil and gas reserves were available to private sector firms for exploration and development. Reserve depletion in the West, combined with resource nationalism in Latin America and the Middle East, have reduced reserves available to what some like to call "big oil" to a meagre 7 per cent, leaving oil firms with few places to offset falling production.

In 1783, fur trader and explorer Peter Pond reported using bitumen tar flowing from natural seeps on the banks of the Athabasca River to repair his expedition's canoes. Today, we know the source to be a massive deposit of bitumen-soaked sands. Canada's oil sands are the most important source of production growth in a stable, developed country. The resulting scale and geographical concentration of oil sands projects have drawn environmental concern. As usual, perspective is important. While technically complex, oil sands development basically involves digging up the gooey sands, separating the oil, and returning the cleaned sand back where it came from. Like any mining project, it looks pretty messy along the way, but a visit to the two longest-running projects operated by Suncor and Syncrude reveals a very high standard of reclamation.

World oil supplies are being stretched ever tighter, and a higher and higher portion comes from areas subject to instability such as the Middle East and Africa, ideologically hostile regimes such as Venezuela or countries thirsting for geopolitical dominance, such as Russia. Through good fortune of resource endowment and the technological ingenuity and professionalism of its people, our country does not have to rely upon these vulnerable sources for our supplies.

Food and fuel are two things that no one can do without. Denigrating the thousands of Canadians from coast to coast who ensure that oil and gas is available when and where it's needed makes as little sense as would vilifying our farmers over rising world food prices.

Gwyn Morgan is the retired founding CEO of EnCana Corp.


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