Reports of an oil glut have been greatly exaggerated

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December 28, 2012


Firby-DougEiinCLOGOWINDSOR, ON, Dec. 28, 2012/ Troy Media/ – Here’s a happy New Year’s prediction for you. (It’s a fact, really, so I can make no claim to being prescient.)

There is no ‘glut’ of oil. Prices are not going to go down. And, much as we might want to think we’re all modern and post-industrial, oil is not going out of fashion any time soon.

This is actually a very good news story for this country, where resource revenues have shielded us from the economic devastation we see next door. And it offers reassurance that 2013 could be another strong year for the Great White North.

All of this comes as balm to the battered spirit of Canadians, who must sometimes feel like the poor cousins of the world’ oil barons. Americans and Europeans accuse us of producing ‘dirty oil’. Our bitumen is remote, expensive to extract and a long way from world markets. Even the price of Western Canadian Select is heavily discounted from the West Texas Intermediate standard.

We look like the Rodney Dangerfield of oil producers – we can’t get no respect.

This has been especially hard on the province of Alberta, where the government staked its budget on $100-per-barrell oil, and is finding itself facing multibillion-dollar deficits because oil is selling in the 80s, and that’s having a direct impact on resource-dependent government revenues.

The financial troubles aren’t going to be over instantly, but the longer term outlook suggests prices have bottomed out and will start trending back up.

This may confuse those of you who have been reading all the hype about the coming glut of oil. Edward L. Morse argues in a much-cited Citi GPS report this year that by 2020 North America will be the new Middle East. He writes, ‘North America is emerging as a major petroleum product exporter, and LNG exports are also likely to grow, with the continent playing an increasingly important role in balancing global markets.’

What Morse misses is the fact that demand is growing around the world at a rate that exceeds supply growth. Demand in China is surging, which certainly explains why it’s looking to buy Nexen, and why China’s CNOOC and Malaysia’s Petronas signed billion-dollar oil deals here, too.

Steve LeVine argues in that any gain in North American production will be eaten up by a combination of a surge in Chinese demand and the axiom that oilfield production naturally declines over time. For instance, Brazilian oil production will be down in 2012, he writes, because new oilfield production is not coming on line fast enough to overcome an 11 per cent natural decline rate.

So, Canada can take a Valium and forget about the fear of being the last girl standing at the high school dance. Much as Europeans may publicly revile us, they secretly lust for the dirty little treat we’ve kept covered up.

Longer term, Canadians will be well-advised to stay focused on life after oil. As a northern country where the benefits of global warming are yet to be fully realized, we need to think about how we can squeeze more comfort out of every ounce of energy. The future for our country in the long haul isn’t in producing more of a non-renewable resource; it’s in discovering better ways to use what we have and becoming a world leader in developing energy sources that are today considered science fiction.

Ironically, the revenue source that will sustain that technological leap is the very commodity it aims to replace – oil. It’s been our best friends for many years, and will be for years to come.

Doug Firby is Editor-in-Chief and National Affairs columnist of Troy Media. 

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