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Time for Canada to look beyond U.S.
Gary Park For Petroleum News
Faced with an apparently shrinking United States market for its oil and natural gas, Canada needs to get serious about lining up other global outlets, according to energy economist Peter Tertzakian.
With the Obama administration intent on developing alternative energy sources, and shale gas supplies moving into the front lines, the U.S. has reached a critical “breaking point,” which could see it relying more on new forms of energy and consuming significantly less even when the recession has passed, he told a Calgary luncheon.
The chief energy economist and managing director of Calgary-based ARC Financial said the fundamental changes taking place in the U.S., which Canada has helped fuel over many decades, now require Canadian producers to look towards emerging industrialized markets in Asia.
Tertzakian noted that process is already under way through Enbridge’s proposed Gateway pipeline to deliver oil sands-derived production to the British Columbia coast for tanker shipment to Asia.
In addition, the British Columbia government is pinning hopes on delivering liquefied natural gas from its northern fields to Asia, he said.
Has U.S. demand peaked? The question for Canadian producers is to decide whether the demand for oil and gas has peaked and is potentially rolling over in the United States and whether they should “be going into markets on the other side of the world, where they are in the growth and dependency phase still.”
Contrary to generally held views about the decline of gas supplies in Western Canada, Tertzakian, in a strong vote of confidence in the long-term outlook, said shale gas is starting to replace conventional gas just as conventional gas once displaced gas manufactured from coal.
He said Canada has “unconventional gas in abundance, with the potential of getting it out at lower cost and the fact that it’s clean.”
“It is potentially the next magic bullet in North America,” he said, adding that “people are throwing numbers around like a thousand trillion cubic feet of this stuff (which is the equivalent of) 170 billion barrels of oil.”
Tertzakian argued that natural gas also has inherent advantages over other forms of energy, including a secure supply, a ready infrastructure and lower greenhouse gas emissions.
However, there is also the challenge for Alberta of remaining competitive with lower-cost regions (an issue now under review by the Alberta government), combined with evaporating demand as Americans turn to a “healthier energy diet,” heavily loaded with conservation and new technologies, he said.
Industrial maturity in U.S. He suggested the U.S. has reached industrial maturity, a fact underscored by the way the environmental agenda has survived through a deepening recession over the past six months.
Tertzakian said that even “very small changes in consumption can translate and multiply into very large changes on the supply side.”
Making the case for technological gains, he said 98 percent of the energy contained in coal is lost by the time it turns on a light bulb, while cars lose 85 percent of the energy in gasoline before the wheels start to turn.
More on the “bullish” side of his theories, Tertzakian said that, notwithstanding the opportunities to save energy, he does not believe the oil and gas industry is going out of business, even though the leverage that’s available will be exploited as new technologies hasten the drop in energy demand.
“If you cut 20 percent of business travel today, you will probably save on the order of 2 to 3 million barrels per day in the United States,” he said.
He thinks oil will return to $100-$150 per barrel, but when that happens the price spike is likely to be moderated, or even undercut by falling consumption in the U.S., as evidenced by the decline in vehicle fuel use in 2007 and 2008, during the most recent oil price spikes.
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