U.S. Oil Imports: Three Million Barrels or Bust
A Flood of Canadian Crude
Eventually, you'll be forced to make a decision concerning peak oil.
Believe it or not, there are still people out there that believe it's a massive scam or cover-up.
It's also one of the few topics that I refuse to let my readers ignore.
There's simply no getting around it...
And once you realize what a peak in global oil production really means for us, you'll understand why there's an extraordinary opportunity developing right now for us.
Peak Oil: Nonsense or crisis?
This week, the nonsense came from an e-mail I received proclaiming that peak oil was nothing more than "propaganda" used by gasoline suppliers to incite fear of an oil supply crisis.
I don't think the gentleman who sent me the e-mail has ever seen a oil production chart — certainly not one from the U.S.
If he had, he might not have felt this way.
We've read the EIA numbers time and again. The cold, hard truth is that U.S. oil production peaked in 1970. That year we pumped out approximately 9.6 million barrels per day.
Seven years later, U.S. production had fallen 9% to 8.2 million barrels per day.
As you can see below, adding more drilling rigs didn't help things much:
It almost looks as if drillers gave up by the 1980s. You might also notice that the number of active rigs increased steadily during that decade.
Yet while the number of rigs was growing, our production was still declining.
When Ian Cooper reminded you earlier this week that the cheap easy-to-get oil is gone, he wasn't joking.
Think about that...
The Saudis might be able to produce one barrel of oil for $5 — a luxury they're quickly losing — the rest of the world's oil producers aren't as lucky.
There's speculation that some deep water wells can cost producers up to $70 per barrel. (I cringe just thinking about how much BP's Macondo well will end up costing the company.)
When was the last time we heard of a major oil discovery that won't cost millions of dollars per well?
I can only think of one... It was an ex-Soviet oil field that was all but forgotten during the Cold War. And opportunities like that don't come around very often.
As good as it gets
Aside from BP's once major oil debacle in the Gulf of Mexico, 2010 has been a strong year for the U.S. oil industry.
According to the EIA's Short Term Energy Outlook (published yesterday), our crude oil production is expected to increase by 70,000 bbls/d this year.
What about next year? The report expects crude production to rise by a mere 10,000 bbls/d. I guess we'll take whatever we can get.
Meanwhile, our demand growing, slowly but surely.
During the first six months of 2010, our consumption of crude oil and petroleum products (natural gas liquids, finished petroleum products and such) averaged 18.9 million barrels per day — a 200,000 barrel increase over the same period of 2009.
The one statistic that isn't declining, however, is our Canadian imports.
Now, before you cry foul on the oil sands operations, take a deep breath...
I've heard the worst about the Alberta oil sands, and have even personally witnessed the massive surface mining operations.
Here are a few of the uglier facts floating around:
It takes up to four barrels of water to produce each barrel of oil.
The amount of natural gas used each day in oil sands operations could heat nearly 3 million Canadian homes.
One barrel of oil extracted from the oil sands produces two to three times more greenhouse emissions than a barrel of conventional oil; it's become the single largest source of greenhouse gas emissions in Canada.
Two tons of oil sands are needed to produce one barrel of oil. To date, just one of the oil sands operations has excavated more soil than the Great Pyramid, the Suez Canal, the Great Wall of China, and the world's ten largest dams combined.
The Alberta oil sands emit more greenhouse gases than Denmark.
The tailing ponds encompass 50 sq. km and can be seen from space.
And yet, my confidence in Alberta's oil sands operations still hasn't wavered in the slightest.
The future of oil sands production isn't in those huge mining operations.
One of the least known facts about the Alberta oil sands deposit is that 80% of the bitumen is too deep to be surface mined.
Ever since the first commercially viable operation began in 1967, surface mining has been the dominant form of production.
Back in July, I briefly explained how the oil sands operations were headed underground, as well as why China was making a play for Canada's oil sands resources.
Three million barrels or bust
Canada is about to break another import record.
So far, our Canadian imports of oil have only reached as high as 2.73 million barrels of oil, according to EIA data.
That was two months ago.
Over the next six months, I wouldn't be surprised to see Canadian crude imports break that mark. At that level, that would make up approximately one-quarter of our oil imports.
You can bet the flood of Canadian oil is coming...
And as I mentioned before, the oil sands industry will be forced to evolve.
In other words, companies will continue to perfect their in-situ recovery methods to increase efficiency. Within the next five to ten years, we can expect in-situ technology to overtake surface mining as the main source of bitumen production.
I'll take a closer look at those methods next week, and give you a rundown of which stocks are worth your attention.
Until next time,
Editor, Energy and Capital
Energy Demand will Increase 58% Over the Next 25 Years
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