I recently wrote a post describing how much oil Alberta has. It was well received but I felt it was too mean spirited, angry, inflammatory and did not reflect the tone and style I want for this blog. I also was not entirely sure about the accuracy of the information and decided to unpublish it until I did some additional research.
I wanted to write a post for my fellow Albertans to defend our oil industry against climate change fascists who assert that because oil is non-renewable we should not rely so heavily on it economically.
Today I sat down for lunch with my older brother and grilled him about Alberta oil.
He is a petroleum engineer with over 15 years industry experience in upstream and midstream operations. Even though he went through a rough patch during this past recession he bounced back and found a job. Presently he is a project engineer working on multi-million dollar plant and pipeline project.
Getting information about the oil industry from my brother, I take to be right from the horses mouth.
According to Natural Resources Canada, the Alberta oil sands alone represented 166 billion barrels of proven reserves in 2014. At the same time, total oil sands production reached approximately 2.3 million barrels per day.
Were production in the oil sands to remain at 2014 levels, it would take 200 years to exhaust just the oil sands.
We will not run out of oil sands anytime in our lifetimes.
Not only so, in 2014, Alberta had 424 billion barrels of shale oil reserves. Back then, those reserves were not recoverable but technology has progressed to the point that today they are.
To put Alberta’s shale reserves in perspective, the Bakken shale formation in North Dakota, one of the largest shale plays in the US, is estimated to have between 271 – 503 billion barrels of oil.
Because the technology for shale was so new in 2014, there were no statistics available for shale production in Alberta. However, if Alberta were to instantly build up shale production that matched it’s 2014 oil sands production it would take around 500 years to extract it all.
This video from 2014 by Geopolitical Analyst Peter Zeihan explains the basics of shale very succinctly.
Zeihan shows that there are 4 ingredients necessary for a shale industry to develop:
- A legal system of subsurface mineral rights, and
- Infrastructure supporting market access
Alberta has a legal system that could support a shale build up, since natural resources fall under Provincial jurisdiction. Alberta’s system of the crown owning subsurface mineral rights is more advantageous than the American system, where individual property owners own the rights to said minerals.
Shale producers in the US need to negotiate with individual land holders to drill at many numerous small sites. This means they have to “throw money” at the individual property owners, until they agree to let them frack.
In Alberta, producers can negotiate with the province to be able to drill across large, contiguous sections of land, accomplishing a significant economy of scale that is not as easy to accomplish in the US.
Unfortunately that is the only advantage Alberta has as a member of Canada.
Canada’s aging demography means domestic capital is going to become very scarce in the near future. There are too many Baby Boomers hitting retirement age and oil stocks are considered high risk investments. As Canadian Boomers retire, they will not purchase shares in Oil companies.
They will purchase bonds, treasuries, cash and all inclusive resort vacations in Mexico.
Owing to anti-energy environmental policy of the Trudeau Liberals and Notley NDP, foreign capital will similarly be scarce. Canadian environmental regulations are already extremely stringent, requiring oil producers to follow vastly more costly operating procedures than in any jurisdiction in the world. Simultaneously, with the exception of the government of Saskatchewan, lead by Premier Brad Wall, no government in Canada is supportive of Alberta oil, including the Alberta government.
They all think climate change is more inportant than human progress and energy self suffeciency.
Why would any foreign investor want to invest in Alberta when the Americans are unlikely to adopt Draconian measures, such as a national carbon tax?
The lack of support for Alberta oil among different population groups and governments also reflects the poor state of transmission infrastructure in Canada. Inter-provincial pipeline politics are extrenely divisive and toxic. The recent pipelines have only been approved Federally to create some leverage in coming NAFTA negotiations with President Trump.
Engineers, or more accurately, skilled labour, is the last criteria for a successful shale industry. It is also one where Alberta is struggling in the midst of our current downturn.
Calgary, my home town, is the Engineering capital of Canada. My father was a Petroleum Engineer. My brother, whose input over lunch allowed me more clarity in writing this posts, is also a Petroleum Engineer.
(I myself am a Software Engineer, so when it comes to the oil industry, I am pretty much useless.)
This downturn has caused the industry to take a severe hit, creating mass outflows of some of the most important skilled labour we need to make our industry thrive.
“We will never run out of oil,” was an off hand remark my brother made over lunch today. We may, however, run out of skilled labour necessary to get that oil out of the ground and out into the market.
During the Thanksgiving of 2007, my girlfriend and I drove up to visit my brother and his fiance in Edson, Alberta. Oil was around $100/bbl and he was working as a Plant Engineer in town.
Life was good back then, and with the upcoming Federal Election, we started to talk politics.
Over turkey dinner, my brother described how some of the projects he was working on, our father had stamped 20 years earlier. He also remarked how in the field, the damage the Trudeau NEP days was still very apparent.
Neglected and undeveloped facilities, infrastructure, technical competency and chronic labor shortages created very real technical challenges for my brother. As good as times were, there were still tremendous lost opportunities owing to Pierre Elliot Trudeau.
At the rate we are going, 20-30 years from now, our children will face the exact same challenges.
Between shale and oil sands, we will NOT be running out of oil anytime soon. If we stay in Canada, we will not be able to realize the full opportunity that oil presents.