Tag Archives: Carbon Shift

Column: Oil prices will force changes

The StarPhoenixToday’s column in The StarPhoenix

Former CIBC economist Jeff Rubin was one of the first to say that oil would hit $100 a barrel, back when it was around $20. Now he is suggesting it could go to $200 in the next short while unless there’s another global recession.

While many call for more drilling and oil exploration, the world simply doesn’t have the capacity to keep up with demand.

Despite requests from U.S. presidents, OPEC has not been able to meet the supply demands. High oil prices don’t just impact us at the pump, but the previous price of $147 a barrel brought global economic growth to a halt and contributed to a banking collapse felt worldwide.

As prices climb, Barack Obama has authorized a 60-million barrel drawdown from the U.S. Strategic Petroleum Reserve.

He blames Libya, but it’s much more than that. If it were that simple, releasing oil from the reserve would make sense, just as it did after hurricanes Katrina and Ike.

This time the problem is that oil prices were higher than $100 before the fighting started in Libya, and global demand was already in excess of a record 87 million barrels a day. The fact is the world is running low on oil and we haven’t been able to find the capacity to meet the demand. The U.S. military recently expressed concerns that we could see a precipitous decline in worldwide production by 2015. England is looking at gas rationing as soon as 2020.

Despite what some write, the planet isn’t out of oil; we have just taken all the easy-to-get-at oil.

From now on, we will be spending more to reach harder-to-get oil while depleting reserves elsewhere.

A perfect example is the Alberta oilsands, which were not feasible at $20 but now are attracting billions in investments. Yes, we have reserves, but they are expensive to extract.

The good news is that Canada is a global exporter of crude oil. Like many other Canadian provinces throughout history, Alberta’s willingness to scar its natural landscape in the pursuit of resources will ensure there is significant oil for us for years to come. The bad news is that we both sell crude at world market prices, and 60 per cent goes to the United States.

Under NAFTA rules we can increase production; we just can’t stop shipping to the U.S. what’s already agreed upon. In other words, we export the bitumen, give the profits to foreign investors and then get to purchase the refined products. I am not sure that was thought out particularly well.

Saskatchewan has oil reserves – not enough to get invited to OPEC, but more than a billion barrels in the ground in active wells. But the proceeds are sold at market rates, so the scarcity in the world supply will mean tougher times for Saskatchewan residents even if it’s our own oil we are buying.

How much tougher? It affects different demographics differently. For some it will mean no more cheap golf weekends in Las Vegas. For others it means that they can’t put food on their plate or drive to work.

In 2008 Saskatoon saw rents skyrocket and food prices increase significantly. The shelter where I work has a food program largely paid for by the provincial government. It was designed to help families who had more month than they had pay check. In 2007, it served around 40,000 meals a year. In 2008, that number doubled. In 2009 and since then, it has served more than 100,000 meals a year.

A lot of the problem was high rent, but much of it was rising food prices. People kept saying apologetically, "I just can’t make it anymore." That was at $140 a barrel. What’s it going to be like at $200 a barrel?

Every city in North America is in this situation. Designed and conceptualized when fuel was cheap, we built this city to drive in. Circle Drive surrounds us (kind of); Idylwyld, 22nd Street and Eighth Street cut through us.

We have several functioning bridges at any given time. In some ways, at the moment when it feels like we got the answers right, oil and energy prices could change the picture fundamentally.

The good news is that we aren’t the first city that has had to face a reinvention moment. The bad news is not many handled it correctly.

Some more reading if you are interested