Who's the banana republic? Canada versus Venezuela
Financial Post (Vincent Lauerman): Venezuela was once the exploited banana republic, and Canada a respected member of the G7 industrialized countries. As of now, Canada could learn an important lesson from Venezuela about protecting its economic interests.
Canada and Venezuela have the two largest commercial non-conventional oil resources in the world. According to the Alberta Energy Resources Conservation Board, the oil sands in northern Alberta had remaining proved reserves of 170 billion barrels at the end of 2008. In Venezuela, recoverable extra-heavy crude oil, bitumen and oil sands resources in the Orinoco belt in the central region of the country have been estimated at 235 billion barrels, with the Magna Reserve Initiative recently identifying 73 billion barrels as proved.
Despite the negative impact of the global financial crisis, the Venezuelan government is planning to increase Orinoco production capacity to about 3.6 million barrels per day within a decade, compared to about 600,000 bpd now. In September, Venezuela signed agreements with the Chinese government and a consortium of Russian companies to each develop 450,000 bpd of Orinoco capacity within three years. In addition, the Venezuelan government has re-scheduled an auction for three projects in the Carabobo region of the Orinoco belt for January 2010, with each project to add 400,000 bpd of capacity. Almost all new Orinoco oil production is to be upgraded into lighter grades of oil or into refined products prior to export.
According to Bob Dunbar from Strategy West, if all plans for mining and in situ projects were implemented for Canada's oil sands, production capacity would eventually increase to 7.3 million bpd compared with about 1.8 million bpd today. Of course, many of these production projects are currently on hold, along with all but one Alberta-based upgrader project, the Albian Oil Sands Project, lead by Royal Dutch Shell PLC.
A recent study by the Canadian Energy Research Institute indicated a large number of oil sands production projects should move forward in the coming years, whereas there is little commitment to build upgraders in Alberta. The difference in light and heavy crude oil prices has imploded over the past year with OPEC pulling about three million bpd of heavy crude oil off the market to support prices. In addition, the cost of a coking facility to upgrade the oil sands is more than double in northern Alberta compared to the Gulf Coast region of the United States.
Wilf Gobert, a widely respected energy analyst and chairman of Calgary Economic Development, has warned the export of Canadian bitumen to the United States rather than higher quality upgraded oil "could become the greatest loss of economic value for any country in world history."
When the bitumen is upgraded outside of Alberta and Canada, it leads not only to lower levels of economic activity and employment, but lower income and corporate tax revenue for the Canada and Alberta governments, and lower royalty revenue for the Alberta government as well.
A scenario in a new study by Sheikh Zaki Yamani's Center for Global Energy Studies and Calgary-based Geopolitics Central says that relatively strong economic growth and oil prices during the next several years and widening light-heavy price differentials as OPEC heavy crude oil returns to the market would encourage the Alberta government to follow Venezuela's example and require all new oil sands production to be upgraded within the province as of 2015.
Under this geopolitically benign scenario, the primary market for incremental volumes of oil sands supply is not the United States, which tends to be well-suited to process heavier grades of crude oil, but the relatively unsophisticated refineries of northeast Asia, especially after 2014.
http://www.financialpost.com/news-sectors/energy/story.html?id=2188451
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