It doesn’t really matter whether the U.S. drills for its own oil, gets it from Canada, or ships it in from Venezuela or the Middle East. Hostile or friendly, no foreign supplier has turned off the spigot since the last OPEC oil shock three decades ago. There’s plenty of oil. The problem isn’t the availability of the fuel but the price needed to get it out of the ground.
Which means this.
Just like the forecasts the IEA made a decade ago about the much-anticipated increase in deep-water production from the Gulf of Mexico, the agency’s hopes for another game changer are unlikely to pan out.
Good old-fashioned North American engineering know-how like horizontal drilling, fracking or steam-assisted gravity drainage (SAGD) isn’t why we’re now tapping supply from problematic sources like the oil sands or the Bakken formation. Neither of these are new discoveries. The real reason that once-marginal sources of supply have been catapulted to prominence is soaring global oil prices.
Without higher prices, no one would be chasing tight oil from shale formations or trying to pull tar-like bitumen out of the oil sands.
It’s no mystery how rising prices work. The higher the price of oil, the more will be produced. This is a fundamental economic tenet that continually confounds the geologists of the peak oil movement.
In a world of $200-a-barrel oil, the IEA is probably right in believing that U.S. production might reach 11 million barrels a day or that Canada could deliver six million barrels into the global market.
The problem with such a bullish outlook for supply is explained by another economic axiom – the dampening effect of a slump in demand. The higher the price of oil, the less of it our economies can afford to burn. If global economic growth is already grinding to a halt when oil prices are around $100 a barrel, what do you think would happen to economic growth – and hence global oil demand – if prices reached the even higher levels needed to make the IEA’s supply dreams come true?