Stupid to the Last Drop

The title of this post is the title of a book by William Marsden (Full title: STUPID to the LAST DROP: How Alberta is Bringing Environmental Armageddon to Canada) about the oilsands and although I haven't yet read it, I think it's got a great title!

Forgive me but this post is a bit of a ramble about energy issues in general and investing second. One of the nonsensical things about the tarsands is that we're burning a relatively clean burning fuel (NG) to upgrade tarsands into syncrude and then into gasoline so that we can drive our cars, yet there do exist cars that run directly on Ng. Sounds kind of stupid.

Of course though, most of the oil we do produce is exported to the U.S. to be refined and consumed. The other economic noose that binds Canada is the Free Trade Agreement under which Canada is obligated to export the same proportion of oil and gas to the U.S. even in the event of a domestic shortfall. This proportionality only applies to Canada. Were the negotiators of this provision stupid or what? The reference article is here.

What's worse is if there is some geopolitical event that chokes off oil exports leading to oil shortages, there's no guarantee that refined products would flow back north across the border. What's interesting is that the pipelines from Alberta to the east end in Sarnia, so that Quebec and the Maritimes and part of Ontario rely heavily on gasoline imports. I recently listened to a CBC Radio interview regarding whether Canada should develop storage units for oil and gas much like the U.S. has the SPR (strategic petroleum reserve) which has a 2 month supply of oil. Many countries in the world including China are now developing these reserves to buffer any supply disruptions. From Wikipedia:

According to a March 2001 agreement, all 26 members of the International Energy Agency must have a strategic petroleum reserve equal to 90 days of oil imports for their respective country.^[2][3] Only net-exporter members of the IEA are exempt from the reserve requirement. The exempt countries are Canada, Denmark, Norway, and the United Kingdom. However, Denmark and the UK have both recently created strategic reserves due to their requirements as European Union members.

The lobbyist representing the pipeline companies say there is nothing to fear regarding gasoline imports from the U.S. because it is an integrated market and global commodity etc. etc. It doesn't sound stupid to me however, to have some on reserve.

Onto another subject is the price of Ng. Since my post Profiting from Gov't Intervention the price of Ng has drifted sideways just like the weather! Record snowfall but not that much cold. I'm still bullish about the longer term for Ng due to the geology of smaller fields and higher decline rates. A recent headline about a LNG joint venture between Petro Canada and Gazprom having been shelved, highlights the immense capital costs in developing a LNG strategy. Also a Toronto Star article suggests that there will be more Ng electricity plants to be built now that dirty burning coal is seen as a negative. It also suggested applications for new nuclear plants in the U.S. aren't materializing as predicted.

So even at the brink of a U.S. lead downturn, oil as well as energy consumption in general will continue grinding upwards. A decline in world population growth, or a concerted mass conservation effort might derail this demand growth, but I don't see much chance for either happening.