News Articles Featured | Globe and Mail | June 29, 2011
Demand for oil in Canada's No. 1 market is slowing just as production in Alberta's oil sands is forecast to soar, adding pressure to step up efforts to build energy links to rapidly growing Asia, an analysis by the Bank of Nova Scotia argues.
Petroleum demand in the United States – where lofty prices have forced consumers to cut back on expensive travel, as well as other goods and services – fell 2.7 per cent in mid-June from a year earlier and ``will be largely flat'' for the rest of 2011, as substitutes like corn-based ethanol erode oil's market share, analyst Patricia Mohr writes Tuesday in Scotia's Commodity Price Index report.
That slowdown comes as Alberta's oil sands are expected to yield 1.2 million more barrels of oil per day by 2020, and is in marked contrast to China's petroleum demand, which so far in 2011 is up almost 11 per cent from last year. So, unless the mechanisms and infrastructure are in place to match supply with new – and more promising – sources of demand, Canada's producers could take a huge hit.
``In my view – given the substantial forecast growth of Alberta oil sands production in the next 5-10 years … in the face of only limited U.S. consumption gains – building further export infrastructure (pipelines or a unit-train system) to the B.C. coast to reach fast-growing Asian markets is vital for the Canadian economy,'' Ms. Mohr writes. ``Accessing Asian markets (Japan, South Korea, China, Taiwan and Singapore) would ensure world prices for Western Canada's oil.''
Scotia's report serves as another reminder of how much is riding on the first International Indigenous Summit on Energy and Mining, being held in Niagara Falls this week.
Most major energy and mining projects in Canada require consultations with native communities, and first nations groups across the country are insisting on their right to reject projects that don't look as though they'll provide real benefits or are too damaging to the environment. Among the more high-profile clashes is one in B.C., where opposition from native communities threatens to derail Enbridge Inc.‘s (ENB -T) $5.5-billion Northern Gateway pipeline, which would transport oil sands crude to Asian markets. (According to Scotia's analysis, Sinopec, one of the top three state-owned Chinese energy companies, is part of a consortium backing the proposed pipeline, all but guaranteeing access to the Chinese market.)
Enbridge has sought to win support with various financial sweeteners, but chief executive officer Pat Daniel riled opponents by insisting native communities do not have a veto over a pipeline running through their traditional territory. Other energy executives also bristle at the notion that aboriginal groups have an inherent right to veto projects, even if Canadian law doesn't give them a formal one, including Ian Anderson, president of Kinder Morgan Canada, who is attending the summit. Mr. Anderson's company is looking to expand its Trans Mountain oil pipeline from Alberta to the Port of Vancouver, and perhaps build a new leg to Kitimat, B.C.
Scotia's analysis doesn't mention these issues, but the economic message is clear enough: Find a way around these obstacles in time to match supply with demand, or prices could plunge and Canadian prosperity could suffer.
Asia is increasingly important, because even with the United States poised to eventually replace its Venezuelan and Middle Eastern supplies with “politically secure” Canadian oil, progress on pipelines that could transport Alberta oil to refineries in the U.S. Gulf Coast has been slow, Ms. Mohr notes.
``It will remain commercially very risky to rely on just one key export market.''
With a report from Shawn McCarthy in Ottawa