Canada sees risk in U.S. oil boom – by Shawn McCarthy and Nathan Vanderklippe – (Globe and Mail – November 13, 2012)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA, CALGARY – The United States is on track to become the world’s biggest oil producer by the end of the decade, a stunning turn of fortune that threatens to stifle the growth prospects of Canada’s oil exporters.

America’s rising oil output is “nothing short of spectacular” and will exceed that of Saudi Arabia or Russia by 2020, the International Energy Agency said in a report that starkly illustrates why the Canadian industry – and the federal and Alberta governments – are determined to build pipelines that would serve Asian markets.

The U.S. currently imports about 10 million barrels per day of crude, and Canada accounts for nearly 30 per cent of that total. But oil companies are using new technologies to extract vast amounts of crude from the U.S. Midwest. The IEA forecasts the Americans will be producing 11.1 million barrels per day by 2020, up from 8.1 million last year.

At the same time, the IEA expects American demand for petroleum products to decline significantly. The double-edged forecast has the potential to cause upheaval in the oil patch in Western Canada, which drew $40-billion in investment last year and is a major driver of economic growth and jobs in the country.

Nearly all Canadian oil is exported to the U.S., and Natural Resources Minister Joe Oliver said the IEA report “dramatically emphasizes” the need for Canada to find new markets.

“They’re simply not going to need to buy as much from us and so we can’t rely as much on the U.S. market,” Mr. Oliver said in telephone interview.

“If we don’t find new markets, the resources will be left in the ground and the legacy will be lost. So it is crucial.”

Todd Hirsch, a senior economist at ATB Financial in Alberta, sees the rise of U.S. output as among the chief threats to the Canadian oil business – partly because it may push down oil prices to the point where many projects no longer make sense economically.

“It is distinctly one of the biggest risks – supply coming out of the U.S. pushing price down to the point where they don’t need Canadian oil, or the price is too low” for Alberta producers to press ahead. With oil sands projects, “almost none of them work at $50 [U.S. per barrel] oil. And if all that Bakken oil does come on stream, that’s the scenario we could be looking at.”

The Bakken is a prolific oil formation underneath North Dakota and Saskatchewan.

Still, the Paris-based IEA remains bullish on Canada’s oil sands. But it offers two critical caveats: growth in the oil sands depends on the industry’s ability to address the environment impacts as well as its success diversifying sales to Asia.

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