Alberta’s oil sands are going to be the focal point of the largest-scale competition for energy resources ever seen, according to Donald Coxe, Global Portfolio Strategist, BMO Financial Group and Chairman, Harris Investment Management Inc.
Speaking beside a DaimlerChrysler smart car (right), Coxe said, “Even if the Chinese all have cars like this, we’re still going to need massive new oil production.”
Coxe made the comment during a lunchtime speech to the Economic Club of Toronto today.
Coxe noted that recent Saudi and Kuwaiti increases in oil production generated generated heavy oil instead of easy-to-refine light oil. “We’ve used up the cheap light oil in the world.”
The twelve biggest oil companies, all with Reserve Life Indexes that have fallen for seven straight years, have only one quick fix, according to Coxe: to be permitted to book oil sands as part of their reserves. Current Securities and Exchange Commission rules do not allow oil companies to book oil sands. Coxe believes those rules will be changed next year.
Such a rule change would make Alberta’s oil sands very attractive for investment by major oil companies, who currently have massive amounts of capital to spend but nowhere to invest it. As a result, “Canada’s going to face a new kind of importance in the world.”
The Pembina Institute, an environmental group based in Alberta, Canada, recently issued a cautionary environmental report on the effects of the boom in Canadian oil sands production.
The report, Oil Sands Fever: The Environmental Implications of Canada’s Oil Sands Rush, warns of escalating water usage, rising greenhouse gas emissions and the disruption of Alberta’s boreal forest. (Earlier post.)
The production of Oil Sands-Derived Fuels (OSDF) carries its own set of challenges. The refinery feedstock, whether shipped as unprocessed bitumen or in upgraded form as synthetic crude, has different characteristics from conventional light and heavy crudes.
Most conventional refineries are limited to using about 10-15% of synthetic oil sands crude in their diets before fuels quality limitations begin to appear, according to a workshop earlier this year that began to identify the gaps in knowledge related to the use of fuels derived from synthetic crude produced from oil sands (OSDF—Oil-Sands-Derived Fuels) in advanced combustion engines. (Earlier post.)
The challenges to utilizing these crudes include the need for more “severe” processes to refine the heavy synthetic crude to duplicate fuel characteristics to which engines have become accustomed. The technology to overcome these differences is largely known, but requires significant lead-time to install.