Investment U E-Letter: Issue # 574
Wednesday, August 23, 2006 Canada Oil Sands: Investing In The Oil Reserve 8 Times Bigger Than Saudi Arabia's
by Alex Green, Investment Director, The Oxford Club
Some optimists believe the spike in oil prices we've seen over the last three years is merely temporary. T. Boone Pickens isn't one of them.
The long-time oilman and current chairman of BP Capital Management was recently asked in a 60 Minutes interview when he thought we'd see $1.50 a gallon at the pump again. "We won't ever see $1.50 a gallon again," said Pickens. "No, that's gone." It's tough to disagree. On the demand side, citizens of the wealthy West aren't using any less oil, nor are the up-and-coming Tigers of the East. On the supply side, just look at many of the world's biggest exporters: - Iran
- Nigeria
- Venezuela
- Saudi Arabia, and
- Russia.
It's a virtual rogues' gallery, filled with nations that represent tyranny, corruption or instability. Fortunately, the world's single-largest oil deposit sits right here in North America. Time magazine calls it "Canada's biggest buried treasure." It's an area with up to 2.5 trillion barrels of oil, locked in Alberta sand. That's eight times the total reserves of Saudi Arabia, enough to satisfy the world's demand for petroleum for the next century. Canada's oil sands are easily the world's most exciting energy story. The Highest Demand for Oil In 24 Years In August, the International Energy Agency (IEA) revised upwards its estimate of world oil demand, squashing hopes that a significant decline in oil prices is imminent. Demand growth this year is running at its fastest level in 24 years. Last year, world oil use was estimated at 82.6 million barrels a day. The U.S. burns a quarter of that. But competition for oil is heating up. Emerging markets - and particularly giants like China and India - are rapidly industrializing. According to the U.S. Energy Information Agency, world demand for oil is expected to increase 54% over the next 25 years. Unfortunately, American oil production has been on the downswing since 1970. And many of the world's major oil suppliers are either indifferent or downright hostile to U.S. interests. Where can Americans look for a steady, reliable source of black gold? How about 900 miles north of Montana, in Alberta, Canada? Can Canada's Oil Sands Meet the Global Demand? Alberta, Canada's oil sands are the largest known reserve of oil on earth, containing between 1.7 and 2.5 trillion barrels. (Saudi Arabia, by comparison, has only 262 billion barrels of proven reserves. In fact, all OPEC nations combined have less than 900 billion barrels.) For decades, these sands weren't even considered part of the world's oil reserves because the oil there wasn't economically extractible at prevailing prices using then-current technology. But times have changed… And the gold rush is on. In Alberta's oil sands, energy companies don't drill for oil. They dig it up. After excavation, giant trucks three stories high - carrying up to 400 tons of oil sands - carry it off to a processing plant. There, the sands are heated in a cell where the oil comes to the top of the water and the sand drops to the bottom. This oil froth is then sent to an upgrader and eventually to a refiner. Is Canada's Oil Really as Good as the Stuff Coming from Saudi Arabia? Actually, it's better. According to Clive Matter, chief of Shell Canada, this oil is "absolutely as good as it gets. In fact, it even trades at a premium because it's high-quality crude oil." Already a million barrels a day are coming out of the oil sands. And oil production is expected to triple within a decade. By that time it will be the single-largest source of foreign oil for the U.S. - even bigger than Saudi Arabia, which is currently sending us a million and a half barrels a day. In short, Alberta's oil sands are fast becoming one of the most lucrative opportunities in North America - for oil producers and investors alike. Good investing, Alex Green
Investment Director, The Oxford Club Today's Investment U Crib Sheet - I've just written about one such opportunity in Alberta for The Oxford Club's monthly investment advisory, the Communiqué. Learn more about becoming a member of The Oxford Club, and getting access to all of our investment research, for as little as $49 per year.
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