British Columbia needs to take more risks for a better economic future

[Alex Mackinnon]

Surely you're only looking at this on the surface. Oilsands mining has a considerable economic benefit locally, even if the government isn't rolling in royalty cheques like Alberta. Heck, if the NDP hadn't driven Finning out of Vancouver in the 90s, one of the greatest benefactors of oilsands production would be within walking distance of my house. As is, any extra mining talent in Vancouver is being soaked up by oil sands production, and I can tell you we've got quite a bit of it. Almost all the equipment bound for North Alberta comes from Canadian and American sources, due to it's sheer bulk and high degree of specialization. Huge amounts of Canadian produced natural gas also are used up there, soaking up a lot of excess gas production at a time when prices are at all time lows.

As far as production rates go, we already have a glut of available oil production which currently is outpacing our transportation abilities, driving the price of bitumen down locally and in the interior of the US. We also have an already very abundant resource, the oil sands has a several trillion barrel resource reserve which is several centuries at even the most optimistic extraction rates.

Limiting the rate of transportation to what currently exists right now will obsolete any expansion of the current oil sands facilities. This is why it's such a hot topic, if you can't get enough of it out of Alberta then the vast bulk of the resource is pretty useless, and for centuries to come will be worth more as oily dirt than mined bitumen.

While you could continually extract oil at current rates for a very long period of time, money has a time value to it. A dollar today is worth more than a dollar tomorrow, the reinvestment of oil sands money should be the long term benefit associated with the resource, not just the employment coming from the extraction.

Back on to the natural gas aspect, since prices of gas are so low, production prices in the oil patch are also lower than they would be otherwise, making it a relatively good time to cash in. Once LNG exports speed up, this margin will likely shrink for the oil sands producers.

I think we should cash in now, then use the capital reserves we build up to do some massive investment in more sustainable infrastructure.

[paradigm4]

Originally Posted by Alex Mackinnon

I think we should cash in now, then use the capital reserves we build up to do some massive investment in more sustainable infrastructure.

I remind you, next to none of the money is headed to BC. Most already goes to Alberta, which has used it to keep their other taxes artificially low. Yes, some goes to federal transfers, which pays for national healthcare. However, the Alberta government and Harper Conservatives seem intent on reduce the federal transfer system, allow AB to keep even more oil money. It would be one thing if there was a medium term plan to invest the wealth into sustainable infrastructure but there's not.

[Alex Mackinnon]

I'm pretty sure a large amount of the pipeline royalties would go directly to BC. Certainly a good chunk will go to first nations, and like I said in the post right above this one, a fair amount of people from and residing in BC are employed in/by Alberta at any given time due to Oil Sands operations.

[Really]

Originally Posted by Alex Mackinnon

As far as production rates go, we already have a glut of available oil production which currently is outpacing our transportation abilities, driving the price of bitumen down locally and in the interior of the US.

Yeah, we aren't very bright expanding production without secured markets.
The Chinese are investing because they want to create a glut to drive prices down.

Originally Posted by Alex Mackinnon

We also have an already very abundant resource, the oil sands has a several trillion barrel resource reserve which is several centuries at even the most optimistic extraction rates.

Only around 170 billion is exactable at current prices. Prices won't go much higher because the world economy tends to collapse at higher prices lessening the demand for oil.

Originally Posted by Alex Mackinnon

Limiting the rate of transportation to what currently exists right now will obsolete any expansion of the current oil sands facilities. This is why it's such a hot topic, if you can't get enough of it out of Alberta then the vast bulk of the resource is pretty useless, and for centuries to come will be worth more as oily dirt than mined bitumen.

Too much reliance on any one industry is just a very bad idea economically. Even now it is killing other industries. Why on earth would we want to become even more of a petro state. Typically, things don't end well for petro states. There is also no correlation between petroleum extraction and economic success.

Originally Posted by Alex Mackinnon

While you could continually extract oil at current rates for a very long period of time, money has a time value to it. A dollar today is worth more than a dollar tomorrow, the reinvestment of oil sands money should be the long term benefit associated with the resource, not just the employment coming from the extraction.

It would be an awesome idea to sock the money away for the future but that just isn't going to happen under a Harper government. They are using the oil revenue to cut taxes instead. It is pretty pathetic that both Alberta and Canada are running deficits as a result. When Alberta tried to raise royalty rates, the industry funding the Wildrose Party so the PC's backed down. They won't try that again soon.

Even if there was the political will, the cost structure of the oil sands likely makes it difficult for governments to skip off more money. When oil cost $3 a barrel to extract, everyone can take there bit. When it costs $60 and up, much more difficult.

Originally Posted by Alex Mackinnon

Back on to the natural gas aspect, since prices of gas are so low, production prices in the oil patch are also lower than they would be otherwise, making it a relatively good time to cash in.

Not for much longer. The industry is starting to smarten up and cutting back on drilling. I would expect the really low prices won't last much longer at all.

I admire your optimism on this, but if you really take a look at the numbers and the political situation, none of this is really going to end well for BC and Canada.

[Alex Mackinnon]

Norway doesn't seem to be doing half bad. We're already pretty deep in being a resources tied economy.

It will speak volumes if our real estate sector collapses and our dollar stays afloat. If Canadian consumer spending can take a tumble and our economy is floated on resources alone any hopes of growing a decent manufacturing base that isn't tied directly to resourcing is pretty well screwed, like you imply.

The fact that a barrel costs so much to produce does indicate that the wealth is spread around a lot more than with conventional oil though.

My bias is as ever as a mining engineer though. With a shrinking supply and enough demand someone will find a way to make extraction feasible when conventional oil slows down. At a 170B barrels reserve and with 4M Barrels/day we still have a reserve of 116 years to let things get figured out. Maybe someone will make a nuclear power plant up there to provide cheap steam for in situ methods or maybe someone will come up with a new mining method. There will be a lot of money going towards figuring this out.

I'm still hoping that enough money will come along for someone to get me on a tunnel boring job.

[cornholio]

Exactly, 10 years ago most deep sea drilling was not viable, now they can drill through over a dozen km bellow a sea bed that is several kms bellow the surface with no problem. Thanks to this deep sea exploration is taking off and huge new deposits are being discovered and taped. Or horizontal drilling that made unviable and assumed depleted reserves suddenly viable.

Or even say natural gas extraction with fracking, who saw that coming...certainly not the natural gas mining companies otherwise they would never explore and announce as many reserves as they have because its in their interest to control known reserves and production to inflate prices.

But having said that Really makes some good points, and that is that we should not take this opportunity forgranted. We have to plan for the future and do this properly, and make sure we milk every penny out of this and make the best possible use out of the easy money.

As far as benefits go, again, money is like water it flows and spreads, there are no borders and very few obstacles between Alberta and the rest of Canada. The money will flow to all provinces, including BC, you cant stop it, or better yet Alberta cant stop it because they dont have the capability as a province with limited rights regarding the movement of people and money within Canada. Im sure Alberta would love to plug the holes and keep the wealth for them selves but without separation they cant.

[cornholio]

I also want to add that im all for doing all we can to protect against oil spills.

BUT

#1 major oil spills are incredibly rare and unlikely, there are over 10,000 oil tankers in the world floating around 365 days a year with over 1200 of those being super tankers. just these supertankers have a combined capacity of well over 1.2billion barrels of oil. there are hundreds upon hundreds of millions of barrels of oil floating around at any given point in time. afteral we all do use some 90million or so barrels of oil every day.

#2 the worst case possible spill, even more rare and nearly impossible, is a acceptable risk, past spills have shown this as they have been cleaned up and the environment recovered.

[Really]

Originally Posted by cornholio

#2 the worst case possible spill, even more rare and nearly impossible, is a acceptable risk, past spills have shown this as they have been cleaned up and the environment recovered.

This certainly is not really true. Even decades after the Exxon Valdez spill, there are still large environmental problems. Still huge problems with the BP spill as well. Even without spilling, the oil industry still causes a lot of environmental damage through their operations. It is estimated that it will cost around $150 billion to fix up Louisiana after decades of damage by the oil industry. This is more than the revenue received by government from the industry.

Especially if you take a long-term view, there is really no economic advantage to having a large oil industry. There is no really no positive correlation between the oil industry and the health of economies. There are strong economies without oil extraction and weak economies with huge oil industries. Greece, an economic basket case is actually ahead of Saudi Arabia in per cap GDP.

http://en.wikipedia.org/wiki/List_of...PP)_per_capita
http://en.wikipedia.org/wiki/List_of...oil_production

[Vestry]

http://en.wikipedia.org/wiki/Dutch_disease

[mezzanine]

Originally Posted by Really

Especially if you take a long-term view, there is really no economic advantage to having a large oil industry. There is no really no positive correlation between the oil industry and the health of economies. There are strong economies without oil extraction and weak economies with huge oil industries. Greece, an economic basket case is actually ahead of Saudi Arabia in per cap GDP.

I would tend to agree, although this applies to any resource-based economy (e.g. diamonds in equatorial africa).

It all depends on the underlying political structure - if regulation, government and society is more transparent (eg. norway, UK) then oil royalties are more equitably distrubuted. Would the oil and gas industry be a net negative for the UK or norway, versus nigeria?