Canadian Oil Sands Fever
Playing the Canadian Energy Bull, Again
Mark November 1, 2011, in your calendars. Circle it. Put an asterisk next to it.
Because by November 2, we'll know whether or not Canadian crude will continue to flow into the United States.
After passing H.R. 1938, the House of Representatives approved a bill that expedites President Obama's decision on the Keystone XL pipeline.
H.R. 1938 set a deadline for the approval or denial of the project's permit for November 1, 2011.
Of course, you already know how I think things will turn out... President Obama has only one path to choose.
Remember, Remember, the First of November!
We've been beating this drum for some time now. But our gains from the Canadian oil sands patch have only just begun...
Over the years, our love affair with Canadian crude hasn't diminished in the slightest. Imports have grown steadily since 1980 and will soon top more than three million barrels per day.
To say that imports from our northern neighbors are vital to meeting U.S. demand going forward is an understatement.
So, what role does the Keystone XL pipeline play in all of this?
Once completed, the project will raise the total Keystone pipeline capacity to 1.29 million barrels per day — a 700,000 bbls/day increase.
The reason for the deadline is easy enough to understand. H.R. 1938 lays it all out for you here. In a nutshell, it's called security.
When you think about it, it makes sense to satisfy our oil addiction from a place with political and economic stability. To me, the added benefits to the U.S. economy that are listed by the bill are just the icing on the cake.
Ethical Oil, Growing Gains
We'll give Canada's PR department some credit for labeling their oil sands production as an "ethical alternative" to "conflict oil." This hits the nail on the head.
The campaign has highlighted an upcoming showdown between Canada and the Saudis. And they aren't pulling any punches, citing political oppression and environmental recklessness.
For now, let's look beyond the government's polish on the oil sands industry.
Unfortunately for the United States, there's a snake in the grass — and it isn't peddling apples.
The Canadian-Middle East showdown isn't the only battle brewing over crude; if we don't take advantage of this resource opportunity, other countries will.
Cutting OPEC Dependence
Anyone else notice we buy nearly one million barrels per day from a country whose leader has consistently compared our presidents to the devil?
Why do we continue to go back for more oil?
Because we have to. A million barrels per day are still a million barrels per day.
But that's about to change...
A closer look at the details reveals Venezuela is more worried than the Saudis about losing Uncle Sam as a customer.
Over 40% of Venezuela's production is sent to the United States. Losing its number one customer is not in the country's best interest.
And slowly but surely, the U.S. has been lowering its dependence on Venezuelan crude. Since 1997, imports have been nearly cut in half.
There's a particular reason the Keystone XL will transport oil sands production to Gulf Coast refineries: Those refineries have been specifically designed to handle the heavy oil from Venezuela.
Of course, it just so happens this new pipeline would be able to practically replace all of our imports from Venezuela...
That's why we're putting an asterisk next to the first of November.
It's also the reason smart investors are positioning themselves accordingly. If you're taking a closer look at oil sands investments, it's only natural to start with the in-situ producers. That's where the real growth will take place.
Because remember, future production from the oil sands won't come from massive surface mining...
Not when 80% of the entire bitumen resource is too deep to be mined.
Until next time,
Editor, Energy and Capital