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Canada Flips China the Loon

Preparing for an Oil Sands Showdown

Written by Keith Kohl
Posted January 12, 2011

We have the bald eagle and Canada has the loon.

Well, not exactly...

Although the loon, which is about the same size as a duck, isn't the “official” bird of Canada, we'll give it the interim title for now — or at least until it's dethroned by a better beak.

Don't get me wrong; I like a good loon as much as the next guy, but it's not why I'm driving to Canada in 2011.

You see, Canada's good fortune can be extremely profitable for savvy investors, and things are going to get much better going forward...

Setting the stage for a showdown

I recently reminded my readers of China's never-ending quest for energy... The International Energy Agency reported China's energy demand will jump 75% by 2035.

Can you blame them for buying stakes in nearly every major oil project on earth?

There's one area in particular they've set their sights on: the Canadian oil sands.

Their oil sands buying spree is still going strong. The country has funneled more than $8 billion into oil sands investments during the last 15 months.

PetroChina snagged a 60% stake in two oil sands projects, costing nearly $2 billion.

Hopefully OPEC won't feel too left out...

Flipping China the loon

The problem, however, is that China might not get what they're after.

Alberta is welcoming oil sands investors with open arms, but Premier Ed Stelmach has made it clear that they won't take over — no matter how much money is thrown at the province.

Last week, Mr. Stelmach was quick to alleviate concerns, saying:

We have many, many investors in the oil sands, from many different countries, including many state-owned enterprises. Let's say if one company, whether it be state-owned or not, but one large company wanted to buy everybody out, I can assure you that we wouldn't allow that to happen because it would not only affect production... but also royalties.

China may have other obstacles obtaining that Canadian crude, too.

As you know, they aren't the only country hard up for crude oil...

Competition for future demand

Make no mistake, dear reader, the U.S. holds the title. We are the unconquerable, reigning world champion in energy consumption — consuming a quarter of the world's oil supply and making up less than 5% of production.

Sure, there's good news on the horizon.

In 2009, our daily oil production increased for the first time in decades.

But no matter how much we want to daydream, let reality step in a moment: the United States will never again regain its former glory.

Peak oil production US

And to think that every president since Nixon has said the U.S. will shed its independence on foreign oil...

So much for that pipe dream, which has been fed to us by politicians during election years — and sometimes just when they need a good speech.

Or is it?

There's even more good news in that department. As it turns out, our oil imports from OPEC have been declining:

  • Venezuelan oil exports to the U.S. have dropped to levels not seen in more than 18 years. At this rate, we'll be importing less than a million barrels per day from them in 2011.

  • The same goes for the lion of OPEC, Saudi Arabia. In 2009, oil imports from the Saudi Kingdom did fall below a million barrels per day — a feat not seen in the last 22 years.

  • Take your pick of any of our OPEC enablers, and you'll see the same curve.

It's a fact that will sober you up to the realities of the U.S. dependency on Canada.

And if that doesn't do the trick — or at least set you on the bullish path toward the oil sands — perhaps this will:

canadian oil imports 1-12-11

Did you notice how our imports barely dropped as oil prices crashed 77% during the latter half of 2008?

Look even closer at the EIA data, and you'll see that when the market hit the fan in August 2008, Canadian imports declined for only two months before recovering.

By October, 2008, monthly imports of Canadian oil were already higher than a year prior.

Still not enough to stay bullish on our northern neighbors?

A few months later, when oil prices hit rock bottom — $33 per barrel — our imports of Canadian crude broke a new all-time record.

How can you afford to not be bullish on Canadian oil?

It's the reason my readers are smiling right now. My last two Canadian plays — one of which revolutionizing the entire production process — will break wide open for investors in 2011.

Until next time,

Keith Kohl

keith kohl

Editor, Energy and Capital

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