The World Needs Every Single Drop of Canadian Oil

That?s what the International Energy Agencys chief economist, Fatih Birol said. According to Birol, oil demand is growing so strongly worldwide that every single drop of Canadian oil will be needed. No surprise there as the IEA is forecasting global demand for oil will hit 99.7 million barrels of oil per day in 2035 up from 87.4 million in 2011.

Following up on Birol?s growing demand, the recent numbers from China are still in an upwards trajectory. Its oil imports in October are up 13.8% from a year earlier. While the US is enjoying a renaissance in oil production due to the shale oil revolution, there are a lot of countries with falling domestic production.

declining oil production

Countries with declining oil production! (click to enlarge)

These countries produce in total about 24 million bbl/d. At a 3% decline rate, that?s 750k barrels to replace. The US might be doing just that as it ramps up its production from the Bakken and the Eagle Ford. However, we still need to come up with a few million barrels of oil to satisfy increasing demand by 2035.

While Canada?s production is expected to triple to 4.3 million bbls/d in 2035, none of that is going to happen if the proper infrastructure is not in place. All of these predictions are nice but there?s no guarantee any of it will materialize if the political will is not there to support the industry.

For one, if the price of oil drops below a certain threshold for an extended period of time, the shale oil revolution will stop dead in its tracks. Breakeven prices are estimated between $55 and $70 a barrel right now. ?At this level, oil price differentials would hit the Canadian oil and gas industry hard.

The price of oil is certainly the ace here but with a strong demand profile on the horizon I don?t believe we will see the 2008 lows unless we go through another economic shock. For Canada, this is our chance to cash in on our oil as a?long term wealth generator. And by long term I mean in the next 2 decades, we just don?t know how quickly renewable energy can become cheap and abundant.

To do it properly, we need pipelines, export facilities and full political cover.? I don?t quite get the opposition to the northern gateway pipeline. Will that be the first pipeline to cross into BC with oil? There has to be a compromise as Asia should be our primary focus for exports.?Even Quebec?s not so bright Marois is considering the possibility of receiving oil from Alberta. Maybe Redford smelled like newly minted bills during their last meeting?.( Forgive me for the political pot shots at the PQ, since I live in Quebec, I can?t help it)

Without the proper infrastructure, oil sands production won?t be growing?any-time?soon. That?s because the price discounts will put a lot of expansion projects on hold. Worse, it could force some producers to shut in production.

The lack of market access for our oil is hurting us royally; just think how much money we?re losing exporting 2 million barrels of oil per day at a $30 discount per barrel! The oil sands are supposed to be Canada?s economic engine for the next 25 years. I?d rather have no production growth at all rather than dump our resources at a discount.

If the world truly needs every single drop of Canadian oil, lets make sure we squeeze every dollar out of it. We have the capacity to kick Venezuelas heavy oil and Saudi Arabias light oil out of North America. Our sector has been trashed in the past 2 years thanks to all the worries in the world leaving foreign NOCs to pick up the pieces. But remember that the global economy cannot contract year over year. The world population is growing and demand is coming from non-OECD countries like China. Unfortunately, for now we will have to live with price differentials until new markets are opened up. Its simply a matter of time, as governments feel these discounts biting into their revenue, they will get their act together.

What do you think ?