Today I’ll be on the way to Canada to see the Conoco Phillips tar sands oil extraction operation near Fort McMurray in Alberta.  It’s another of those American Petroleum Institute efforts to inform and educate.  Being a blogger in the field has its perks, if flying for a day to get up there, racing about for two days and another day to get back can be called a perk.  If political junkets were run this way, no one would go.  You have to be seriously interested to go through this.  The API covers the expenses and I suppose Conoco Phillips foots some of the costs to some extent.  Its worth it to see such an effort, it will give one the sense of scale that consumers miss from news reports.  Technology on this scale is just what will have to happen across the full range of fuel production methods for the economy to be healthy.  Keep in mind that the world is using between 80 and 90 million barrels of oil a day.

Canadian Tar Sands Map. Click image for the largest view.

Canadian Tar Sands Map. Click image for the largest view.

It’s a great relief that the tar sands are there.  It’s also worthwhile that it’s in a free country where the world’s independent companies, their employees, mangers and stockholders can benefit.  These producers are always working for the lowest cost, just what consumer’s need, and nearly opposite of what the nationalized companies do.

Which brings us to an interesting report that came out in the UK last week from Greenpeace. We’ve all heard of peak oil supplies by now, but a market also has demand and the market is looking like it might have reached a demand peak.  Wild price run ups will do that, temper demand into a sustainable and affordable measure.  In the industry and in the news we know that demand has peaked and shrunk, and industry predictions of how long it will take to recover are getting longer each month.

The Greenpeace report uses forecasts from the International Energy Agency and OPEC to make their case.  Now, forecasts are entertaining things, which more often as not are wrong over longer periods. But they do serve to answer the questions about investment and planning for the short term.  Just like weather forecasting the next few hours are pretty accurate and accuracy fades as the time frame gets longer.  What isn’t known is the staying power of consumer thinking about that $147 a barrel price from last summer.  It played a role in driving the current recession, but wasn’t the main cause, that can be laid on the Congress for letting the mortgage securities matter go out of control.  Housing is and will hopefully stay a bigger part of the economy and family expenses than energy and fuels forever.

Raw Tar Sand Alberta Canada

Raw Tar Sand Alberta Canada

Tar sands might be the most expensive source of crude oil coming to the market.  The numbers for breakeven are important proprietary information, yet the moves companies make tend to expose the point at which these projects must be shut in to avoid losing money.

The spooky effect is that the IEA is saying that 1.7 million barrels per day of production capacity can be attributed to the Canadian tar sands losing projects.  Low oil prices have put lots of projects into deferment.  That cuts into the excess production margin that keeps a lid on the price of the “last barrel” bought each day.  When there are very few or there isn’t a last barrel the price can get very high as we saw last year.  So when oil production projects get in trouble, consumers need to notice there are risks ahead for much higher prices.

The past few years have been a little bewildering, oil soars from a very low price to a very high price leaving everyone wondering where the fair market value price is.  That uncertainty, keeps oil consumption curtailed and economic growth constrained.  This is not good news, human needs increase just as social demands are much harder to fund.

The matter then becomes, at what price can the marginal barrel above demand be produced and is that a price that supports a healthy economy?  This is a matter of great concern.  For example, if those marginal barrels must be at $100 and the same $100 price prolongs the recession, what are consumers and producers to do?

The answer is to conserve, cutting the amount used so that the marginal barrels reappear in the market.

Today the sense, right or wrong is the developed world demand has peaked.  Greenpeace even suggests that the U.S. could shave 10 million barrels a day out of the market by 2030. (Seriously, they explain how it’s done.)  Meanwhile China and India are seen as the remaining markets with oil demand growth.  That may be so, but there are a lot of third world people who’d love to have more oil-powered lifestyles which also depend on price.

The Greenpeace report has a point to make – that investing in Canada’s tar sands isn’t a good idea – and they provide a lot of interesting data to make their case.  But consumer’s needs aren’t the same.  All Greenpeace has managed to do for the objective observer is point out that the two major market forces, supply and demand are volatile.

The lesson then is how to protect oneself from the high prices and exploit the low prices.  Or more practical for many, just come up with a level monthly cost that can be counted on to assure supply.  What that means is when prices are low save that money for the periods when prices are high.  What we’ve just seen was about a year of a rising price followed by a year of a declining price.

Maybe those oil companies will use those company credit cards to accept a little savings by consumers to level out the cost per month.  They might even pay a little interest.  The tools are there to help stabilize the oil market demand – if the companies work up the understanding to use it.


3 Comments so far

  1. russ on August 5, 2009 6:56 AM

    Better than greenpeace usually does. At least they are not doing anything too destructive in writing useless reports.

  2. Brian Hayes on August 5, 2009 10:40 AM

    Extremely complex issues here. And very difficult to wrap into a post, but nicely crafted. It seems all nations are committing to changes in technology, efficiency and allocation, on every front available, while clamoring for innovation and research, and stretching investment in many directions. If frenzy is productive, we’ll find out soon. Extraction sectors are legitimately criticized on one hand but eagerly encouraged on the other. We’re all looking to closed-loop greentech to lower impact. Most are worried about imposed austerity, or utter disruption. These are tough days to make projections, but I think it’s safe to think that stability is a very long way off.

  3. Deb Johnson on June 1, 2010 10:37 AM

    I believe the government should, in some way, influence all businesses with employees who could effectively do their jobs from home. We have built this incredible infrastructure called the “Internet” which would enable many of us to work from home without realizing we aren’t even in the office. How much fuel would that save? Do we have time to dilly dally and not use every way possible to reduce our consumption?

    Additionally, I believe we should have a Geek Squad added to our military. I believe we should draft Geeks (at least similar to the National Guard weekend warriors) who would go out to businesses and improve their computer / Internet systems, so that additional workers can stay off the road.

    Not only would commuting fuel be saved, but there would no longer be a need to climate control a second space 24/7 for each of these workers.

    This doesn’t benefit big oil, doesn’t line the pockets of politicians. It will only help the Earth and the average Joe, which is why, I am sure, I am being ignored. And, it is why brilliant men like Al Gore (who claims a lot of credit for the internet and is sounding the Global Warming alarm) don’t think of this, I believe.

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