I’ve waited three years for this to happen.
When Bush signed the Energy Independence and Security Act of 2007 into law, something didn’t sit right with me. A good chunk of my readers weren’t too keen on it, either…
At the time, I had a feeling that it wouldn’t last.
But what really surprises me is that most investors were completely unaware of it in the first place.
I’m talking about Section 526.
What, exactly, is Section 526?
It’s a small clause hidden deep within the Energy Independence and Security Act of 2007.
According to Section 526, all federal agencies — with the exception of NASA — are prohibited from purchasing carbon-intensive unconventional fuels:
No Federal agency shall enter into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from non-conventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the life-cycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources.
In other words, the United States military cannot get its fuel from areas like the oil sands.
Not surprisingly, our military is the world’s largest purchaser of crude oil — using about three-quarters of it for mobility.
The problem with this, though, is that restricting access to the Canadian oil sands could lead us back to our addiction to oil from the Middle East.
Energy security: Pick your poison
Think about it…
Where would you rather have the government get its fuel from?
You’ve got three choices: Mexico, OPEC, and Canada.
Those are our largest sources for oil.
We can already discount our neighbors to the south. Mexican oil production has been on the brink of collapse for years. I think that Mexico could even become a net oil importer within the next ten years.
And let’s be honest, do you really want to see an increase in our country’s addiction to Middle Eastern oil?
Even after Iraq’s recent announcement that its oil reserves jumped 24% to 143.1 billion barrels, I’m still not holding my breath for more Iraqi oil.
When was the last time you heard a public outcry for more OPEC oil?
That leaves us with one option…
No matter how bullish you are on our domestic production — and believe me, nothing has been more profitable for my readers — we’re not going to replace the 12.6 million barrels we import on a daily basis…
It makes up a staggering 75% of our demand.
Currently, the U.S. imports 2.6 million barrels per day from Canada; more than one million barrels of that is from the oil sands.
Renewing the fight against Section 526
House Republicans Lindsey Graham and Saxby Chambliss have introduced a new bill that would repeal Section 526.
One of the issues is with the greenhouse gas emissions from oil sands development.
Depending on which report you’re reading, the oil sands operations emit between 1.4 to 3 times more greenhouse gases than conventional production. According to Environment Canada, the oil sands only make up 4.6% of Canada’s total emissions.
The wrong way to trade the oil sands
Even if Section 526 is successfully repealed, it’s still easy for you to get caught up in the wrong investments.
In fact some of the biggest names in the oil sands have been stagnant all year.
Take a look for yourself:
Not too impressive.
Each of these four companies has a stake in Syncrude Canada Ltd., the largest oil sands producer.
I’d even bet that most pessimistic views of oil sands operations stem from the environmental footprints of those very operations.
Although in-situ projects only make up roughly 540,000 bbls/d of production — compared to the 1.1 million bbls/d from mining — that ratio is about shift…
If you’re invested over the long run, be on the lookout for some of my upcoming plays.
I’m putting the finishing touches on a new report that has several in-situ projects on the horizon.
Until next time,
Energy and Capital