Forget OPEC... Invest in America's Top Oil Supplier

David Fessler
by David Fessler, Energy & Infrastructure Strategist Natural Riches Natural Riches

Forget OPEC... Invest in America's Top Oil Supplier

by David Fessler, Senior Analyst, Investment U

Friday, June 17, 2011: Issue #1357

Ask 10 people the name of America's top oil supplier.

Chances are half of them will get the answer wrong.

A surprising number still believe our top source of foreign oil is Saudi Arabia. They're now number three, supplying the United States with a little more than one million barrels per day (bpd).

Mexico is second, at 1.14 million bpd. As you can see from the Energy Information Administration's (EIA) chart below, the leading crude oil supplier to the United States is...

Canada.

Investing in Canada... America's Northern Neighbor

It sends us just under two million bpd. And there's money to be made in the Great White North.

Canada - The Top Source of U.S. Crude Oil Imports, 2010

In 2010, Canada was the source of 22 percent of all of America's oil imports. Crude oil from Alberta's vast oil sands deposits accounts for more than 50 percent of Canada's 2.9 million bpd.

As you can guess, Canada has enormous energy resources. With a population of more than 33 million - one-tenth that of the United States - Canada is the world's fifth-largest producer of energy. It cranked out 19.11 quadrillion Btus of energy in 2008.

Its unconventional bitumen deposits also represent nearly 97 percent of the country's proven reserves. Canada's total reserves are estimated to be about 175 billion barrels.

Number Three in Proven Oil Reserves and NOT a Member of OPEC

Canada is number three in the world in terms of proven oil reserves. It's the only country in the top five reserve holders who's not a member of OPEC.

Top Proven World Oil Reserves, Jan 1, 2011

That's important to the United States for several reasons...

  • The first is that we're Canada's immediate neighbor, and its most strategic trading partner.

  • Second, Mexico is the second-largest supplier of foreign crude to the United States. But its crude production continues to decline, and we need to locate new sources. That means Canada will become even more important as a source of oil to the United States in the future.

Canada's Oil Consumption to Remain Flat

The EIA estimates Canada's oil consumption will remain relatively flat over the next several decades (see graph below), leaving any increase in production available for export. Canada itself uses about 2.3 million bpd.

Canada's Oil Balance Forecast, 2007 - 2035

By 2035, our neighbors to the north are expected to produce nearly seven million bpd, primarily from the oil sands. Those two facts combine to make Canada one of the top sources for non-OPEC oil production growth in the next several decades.

By far the biggest contributor to the growth of Canada's oil production will continue to come from the Athabasca oil sands in Alberta.

How to Invest in Canada's Energy Bounty

Holding one of the largest positions in the deposit is Suncor Energy Inc. (NYSE: SU).

Suncor was the first company to develop the oil sands, and holds one of the largest land positions in the play.

It currently uses conventional surface mining techniques to extract the oil-rich bitumen. Suncor also holds a stake in the Syncrude Canada Project, a joint oil sands venture between seven partners.

Shell Canada (private) operates the Athabasca Oil Sands Project, currently producing 155,000 bpd.

Another major producer is Canadian Natural Resources Ltd. (NYSE: CNQ). Its Horizon Oil Sands Project began producing in September 2010, upping the output from the sands by 110,000 bpd.

No less than 17 new projects and/or project expansions are planned between now and 2022. In total, they will result in an incremental capacity expansion of nearly three million bpd, nearly all of which will be available for export.

Much of that will likely be coming to the United States, as transportation through existing and planned pipelines directly to refining facilities in the Midwest is the cheapest and most direct market for the oil.

Investors who want to get in on the Canadian oil sands boom should view the current market pullback as a golden opportunity to pick up oil sands companies at bargain basement prices.

Oil will eventually resume its upward climb, and you'll want to be onboard for the ride.

Good investing,

David Fessler

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