Oilsands in Canada – by Michael McCullough (Canadian Business Magazine – February 14, 2012)

Founded in 1928, Canadian Business is the longest-publishing business magazine in Canada.

Funny, isn’t it, that just as investment in Canada’s vast reserves of oilsands hits a new high—$134 billion worth of projects under construction or soon to start—we should be struck by an unexpected question: Does anyone even want our oil? Given recent events, you couldn’t blame us for wondering.

For virtually all of the oilsands’ 45-year operating history, the overwhelming challenge was at the upstream end, finding technically and economically viable ways of getting the oil out of the sand, and coaxing brave investors to fund them. In the blink of an eye, the greatest obstacle has drifted downstream to the relatively simple matter of getting the stuff to market.

The obvious solution is to build pipelines emanating from northern Alberta to deliver more of our crude to the world. But recent events have shown that to be more problematic than anyone could have guessed.

Certainly the announcement on Jan. 18 was an abrupt and unexpected reality check. Forced to render an immediate decision on the controversial Keystone XL pipeline proposal by Republican opponents in Congress, U.S. President Barack Obama turned down would-be builder TransCanada Corp.’s application.

The Calgary-based pipeline company was free to reapply, the State Department was quick to add, following an altered route around Nebraska’s ecologically sensitive Sandhills region on its way to the Gulf Coast. But approval then would come in 2013 at the earliest, and there would still be an uphill battle against an environmental movement that views the oilsands as a climate catastrophe.

The decision disproved a long-held assumption of TransCanada, the energy industry and the Harper government: that when push came to shove, the U.S. would drop its pretensions, do the sensible thing and embrace Canadian oil. “To have [Keystone] turned down for the reasons being indicated is horrible for our industry, and it’s a horrible precedent,” Pat Daniel, president and CEO of rival pipeline company Enbridge, admitted at an investor conference. “It’s bad in terms of future approvals. It will only embolden those opposed to Gateway and other new project developments.”

It feels as if Canada’s oilpatch, so busy digging holes in the northern Alberta soil, has raised its head just long enough to discover that nobody wants our oil. For others, it’s a wake-up call of another kind, as the country creeps toward what Slate columnist Will Oremus called “a jingoistic petro-state.” Interests on both sides of Canada’s widening energy divide are calling for the federal government to take the reins and impose a new national energy strategy.

Before embarking on a series of ill-advised and ultimately costly policy missteps, though, Canadians need to calm down, take stock of the independently regulated and market-driven energy sector we have now and decide for ourselves what’s in the national interest. We may find that the solutions offered by the more strident voices out there—both for and against pipeline development—are not in our interest after all. Most important, we need to come to terms with the fact that Canada is now an oil nation. And rather than apologize, we should responsibly manage, to the greatest possible benefit, the enormous wealth with which our land was gifted.

Make no mistake, Canadians in large part have oil to thank for the rise in our standard of living, and the relative solvency of our government since the late 1990s. Today, oil is Canada’s largest single earner of foreign exchange, a shot in the arm for flagging industrial productivity and a subject on which Canadians have developed unparalleled expertise.

“It’s something that creates employment and wealth and income from coast to coast,” says Patricia Mohr, vice-president, economics for the Bank of Nova Scotia. The direct beneficiaries include migrant workers from the Atlantic provinces bringing paycheques home from Alberta, bankers, lawyers and steelworkers in Ontario as well as oil and gas industry workers (not to mention public-sector employees and taxpayers) in Western Canada.

Oil’s dominance in the economy is such that maintenance shutdowns of oilsands plants were blamed for a 0.1% pullback in GDP in November. But it’s not turning Canadians back into hewers of wood and drawers of water, the economists argue. Canada’s oil resources are huge but hard to access, hence extracting them requires a lot of ingenuity and capital expenditure. “This is not a low-tech industry. Quite the opposite,” Mohr says.

For the rest of this article, please go to the Canadian Business Magazine website: http://www.canadianbusiness.com/article/70945–oilsands-in-canada