Lately, I've noticed that a few of my readers may have a couple of misconceptions about some of the topics I've covered. So before jumping into today's article, let's quickly clear them up.

The first one is regarding peak oil. A few of you (I won't mention any names, we're all friends here) were under the impression that because the world has used up half of its estimated oil reserves, then peak oil theory means that global production will decline. In other words, production is going to fall since we've reached the halfway mark.

Unfortunately, that's completely wrong. Don't think of peak oil as how many reserves are left. Instead, focus on how much we can produce annually.

I know I've touched on this before, but here it is, once again, for the sake of our newer readers. Peak oil suggests that the world's annual oil production will hit a peak, followed by a plateau and then finally an irreversible decline. But it isn't whether or not peak oil will happen. I haven't met a single person who doesn't believe oil production will peak one day. Rather, the debate is centered around when it will happen.

Predicting the exact date of peak oil is a tricky thing. Naturally, there are numerous reasons why I believe the world is on the verge of peak oil (or may have already passed it), but we can save that for next week. Don't worry, I won't forget, and I do hope this answered a few of your questions.

Another set of readers were confused from last weeks article on Oil Shales. Many of you were mixing up the Colorado oil shales with the oil sands in Alberta. The two are quite different. Although both have a massive amount of resource potential, Canadian oil sands are receiving much more attention than the oil shales at the Green River formation in Colorado.

Oil Sands Boom

I know what you're thinking, "So why are we looking toward Canada when there might be over two trillion barrels of oil underneath Colorado, Utah and Wyoming?"

For starters, the world's oil shale production is less than 30,000 barrels per day. Canadian oil sands, on the other hand, make up over 40% of Canada's total crude production. With the spotlight pointed Alberta, the potential for oil has attracted a huge amount of investment dollars.

Canada is one of the few areas in the world where oil production is expected to increase. How many times have you read about OPEC refusing to raise output because the organization is "comfortable" with current oil prices? The cartel may feel the oil markets are well supplied, but the fact remains that oil is still hovering around $90 a barrel during a period when prices should be at their lowest.

Perhaps we shouldn't be asking OPEC when they will increase output but rather if raising production is even possible.

Do I think oil shales have a chance?

Absolutely. But we're decades away from that point.

Right now, the Canadian oil sands are booming.

Thanks to the oil sands, Canada's oil reserves are second only to Saudi Arabia (we'll assume the Saudis are telling the truth on how many reserves they have, no matter how shady their numbers are)...

Oil Sands Investments

Remember, it isn't only about how many reserves you have, but how much of those reserves you can produce.

I've read varying estimates concerning Canadian oil sands production over the next few years. Canada's National Energy Board slightly lowered their initial production estimates to just under 3 million barrels per day in 2015 and approximately 5 million barrels per day by 2020. Current production is a little more than one million barrels per day.

Estimated Proved Oil Reserves, 2005

So why am I so bullish on the Canadian oil sands?

Unlike the oil shales in Colorado, I've personally seen some remarkable advances in oil sands extraction.

Whenever I ask someone how they feel about Canadian oil sands, they immediately picture the massive surface mining operations. After looking at the huge mining pits north of Fort McMurray, I don't blame them. Watching the whole process can certainly leave a lasting impression.

Surface mining, however, is only the tip of the iceberg. Remember that roughly 80% of the oil sands are too far below ground to be mined. This means the bitumen must be extracted using in-situ methods. In other words, companies first need to heat up the bitumen (which has a high viscosity) before pumping it out of the ground.

The problem is that most of the extraction methods are very energy intensive, requiring large amounts water and natural gas during the process. The good news, however, is that a few companies have already solved some of these problems. The only question in my mind is whether or not they can successfully bring production to a commercial scale.

For investors, the door is still wide open. In fact, most of my Energy and Capital readers are already capitalizing on these breakthroughs. If you're interested in joining us, please feel free to find out more at the $20 Trillion Report.

Until next time,

Keith Kohl

www.energyandcapital.com

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Have we ever stopped to think "maybe we should not consume and burn all this oil?". There's a natural limit to this and our Earth is already screaming out it's pain.
Peak oil does not exist in my mind as we may never get to use it all. It's peak fossil-fuel consumption that we reached years ago that must curb urgently.

Have we ever stopped to think "maybe we should not consume and burn all this oil?". There's a natural limit to this and our Earth is already screaming out it's pain.
Peak oil does not exist in my mind as we may never get to use it all. It's peak fossil-fuel consumption that we reached years ago that must curb urgently.

As others commenting have indicated, attention has to be paid to the environmental impact of extracting oil from Alberta's "tar sands," as they have been commonly called. Most importantly, as practically all reports indicate, this operation is making unusable for other purposes a huge amount of water in a province that has critically important agricultural and domestic uses for it, and is also a major polluter generally and a devastator of land on a large scale.
Of course Alberta oil production is largely an American operation being carried on for American purposes. Is it fair to say that its main effect is to allow the U.S. to persist in its materially wasteful ways.

Can the Canadian Oil Sands push back Peak Oil? No.
Having been editor of oil & gas journals for many years and watched this crisis grow, I can tell you it won't. Think of the cost of the plants. How many can they build? If we use 85 MMb oil a day and the existing facilities can produce 1 MMb, to be effective, we'd need several of these enormous plants (what are they US$1 billion a go?)
But not only cost will stop them. Environmentalists will as well. Although a degree better than the Orinoco extraction method, the Canadian system still scars the landscape and a lot of people don't agree with the open-cast mining methods. Underground mining is out of the question.
So, will it change anything? No. Only in the very short term. Peak Oil can only be pushed forward a little - the slope of the decline curve is the determining factor. Want a long slope, cut back on production. Want more production? Then the decline curve will be like stepping off a cliff - straight down! But whose choice?

Have we ever stopped to think "maybe we should not consume and burn all this oil?". There's a natural limit to this and our Earth is already screaming out it's pain.
Peak oil does not exist in my mind as we may never get to use it all. It's peak fossil-fuel consumption that we reached years ago that must curb urgently.

I liked this article and agree that production is more important than reserves. There is a big field in Saudi Arabia called Manifa. It's huge yet almost completely useless because it's oil is heavy vanadium and heavy in hydrogen sulphide making it virtually worthless. It doesn't matter how much is in the ground if you can't use it. Yet study after study concludes that global reserves are falling. One of the most recent is a German study by EWG and states global production will fall to only 39 million barrels per day by 2030. How can this not effect global production? In regards to my recent comments about Saudi Aramco GOSP Plants, two people found my telephone number in Peachtree City and called me. They believe that because Aramco have projects to increase capacity at Ras Tanura and Yanbu that this is proof that they will have more oil in the future. RT will increase capacity from 550,000 bpd to 950,000 bpd by 2012. Because they are planning to refine 400,000 more barrels per day at RT in 2012 most people think this means they will expanding field production from the ground. That might not be true. Where will they get the extra 400,000 barrels per day? They could get it from exports. What most people don't know is that forever Saudi Arabia only had one grade of gasoline. Regular. Then in very late 2005 or early 2006 projects were finnished that allowed Aramco to get directly invlolved in the downstream business of gas stations. Now they have 3 grades of gas at the pump. So they use to only refine one grade and now three which means they have to expand their refineries. Also because there is now more and more heavy sour and less and less light sweet. My comments about the GOSP is my opinion that they only have enough GOSP to handle 11 to 12 million barrels per day and not 16 to 18 million in the future. The great demand for refinery capacity in Aramco is for their local market which is booming and booming. This is not good for exports. As for the RT expansion project, they are still in the negotiation stage which means they are trying to nail down specks and scope and haven't picked a design contractor. Which means they haven't even started! I emailed 4 friends in Aramco and asked about other and any Mega Project and got no answers. This is because working in Aramco it is not uncommon to get your personal mail opened, your telephone calls and emails monitored. It's great you are recommending Oil Sands to your readers. Regardless when the peak is, oil or production peak, the world will be so energy hungry that oil sands will get developed and used. But I take these concepts one step or two futher. Doesn't matter when peak oil is here, it's coming in our lifetime, doesn't matter when peak production will happen, it's coming in our lifetime. The more important point, of the oil that's left and can be produced, who will get it and how will it be used? What's growing faster than any thing we can come up with is (1) population growth (2) immigration (3) urbanization (4) global tourism (5) global car sales in India, China, Korea, Brazil and others. My great grandaddy was born several years before Col. Drake drilled his first well in American. When my grandaddy was born there were no cars in America and only 142 miles of paved roads. When I was born there were only 152 million Americans and now there are 300 million and 400 million Americans by 2043. People will always want to believe in Santa and the tooth fairy will leave a quarter under their pillow and their lives will always get better and the future will be much like the past. Invest in Oil Sands! Invest in Solar! You need to make as much money as possible before the brown stuff hits the fan! Keith Aramco Renick, Peachtree City, Ga.

Extracting the oil from the sand takes a huge anount of energy and produces carbon dioxide. Burning perfectly good gas or oil to cook the sand to extract the oil does not really stack up. Also take into account the vast quantities of water needed and the resulting pollution of the Canadian landscape.

Add the the enormous ( and rapidly increasing ) capital project costs the economics and investment needed looks increasingly a last ditch panic.
How much better would it be to increase conservation efforts to reduce the amount of energy we currently use ?

My response is "I hope so", but there is a growing environmental backlash in Canada. You touched on the issues, but if you follow the Canadian press the backlash is getting more and more shrill. The anti-oil sands articles usually come from outside Alberta, perhaps there is an element of jealousy.

When big oil companies have bought back all their stock (I assume their thinking is money spent (saved) on stock will return more dollars that money spent on exploration), who will own the company? Big Oil companies will only disappear in the eyes of the investor.