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Trouble on the horizon Think-tank urges Canadian governments to give greater priority to opening new oil and gas supply sources; study warns forecasts ‘overestimate’ production Gary Park Petroleum News Calgary Correspondent
Arctic natural gas, Alberta oil sands, liquefied natural gas terminals and offshore exploration should dominate government agendas if Canada is to head off a looming petroleum supply crunch, says an economic think-tank.
The C.D. Howe Institute, in a 32-page report entitled the Approaching Global Energy Crunch, warns that worldwide oil price projections “overestimate the prospects for increased production and underestimate the political and economic risks of delivering output to world markets.”
It said these “misleading forecasts seriously underestimate the future price of oil and natural gas.”
“The implications of a declining Canadian capacity to export oil and gas to the United States are serious for the Canadian balance of payments and for the Canadian dollar,” said study author Bob MacIntosh. “This is a major reason to press forward with oil sands and northern gas development.”
In the latest export figures, Statistics Canada reported September 30 that Canada’s trade surplus with the United States for crude oil, refined oil and other products, natural gas, coal and electricity was C$53 billion in 2003 up from C$42.7 billion in 2002.
A “high priority” on the government policy list should be to “facilitate the job of the private sector in the exploration for natural gas in the Mackenzie Valley and the Arctic and the financing of pipelines,” the institute said. Aboriginal agreements needed The immediate need for the Canadian government is to settle unresolved aboriginal agreements in the Northwest Territories, particularly the lawsuits filed by the Deh Cho First Nations that threaten to act as a drag on pipeline approvals.
In the same category, the C.D. Howe Institute is concerned that tax problems created by the Alberta government present obstacles for oil sands development.
Alberta and Suncor Energy are currently immersed in a legal dispute over the royalty classification of the latest expansion to the Suncor operation.
Suncor has filed a C$250 million suit against the province, arguing that its Firebag project is merely an extension of its main oil sands facility and entitled to pay only 1 percent gross revenue royalty until the C$500 million investment is recovered. Alberta insists Firebag is a new project and must pay up to 25 percent of net revenues.
That squabbling is seen as a deterrent to oil sands investors, at a time when the C.D. Howe Institute believes governments should be trying to attract partners, notably the Chinese, to build on Canada’s technical expertise in developing the oil sands.
The institute also urges decision-makers to look for ways to bridge the gap between future gas demand and supply.
“This will involve developing facilities for importing LNG from Russia, Qatar and elsewhere,” wrote MacIntosh.
“Governments should facilitate the private sector in finding suitable sites which are relatively secure, both for Canadian imports and as a staging point for U.S. imports.”
MacIntosh expressed concern about the impact on Canada of a decline in future oil and gas production.
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