INVESTMENT OPPORTUNITIES are always around us, even in a recession. All depressions, wars and other disasters have given some people the opportunities to increase their wealth. These times we are experiencing now, are no different. We hear of the threat to our civilization through global warming, carbon footprints and other assorted environmental hazards. Yet the wealthy are still getting wealthier, while the poor are getting poorer. There is really nothing new under the sun.
In spite of all the media frenzy about global warming, the major oil companies are still setting their strategies on us using oil based products for a long time to come. Do they know something the rest of us don't? Very likely they do. They see global warming is a fad at present, which will die off in time, just like the idealists of the hippie movement of the 60s, went on to become conventional citizens. Shell invested in alternative energy, which, since it was great for their corporate image, they advertised with fanfare, but they lay low when they shelved one of their alternative energy wind farm initiatives recently.
One of their secrets is that there are more oil reserves on the American continent than in the Middle East. In fact, under the soils of Canada, the United States, and Brazil, there are 2½ (two and a half) times the combined known conventional oil reserves in the world. There are over 3 trillion barrels of oil reserves in ‘them thar shales 'n sands.’ Canada has seven times more oil than Saudi Arabia. Why haven't we heard of it? Simply put, they cost too much to extract. That was until the recent skyrocketing trend in the price of crude oil. These oil reserves are found in rock (oil shales), and in vast basins of oil sands. Unlike the conventional oil reserves which flow spontaneously, or can be relatively easily pumped, these deposits have to be extracted.
In those balmy days before George W became president of the United States, the price of crude lay under $20/barrel, and the price of gasoline was under $2/gallon, there was no chance of even fantasizing about recovering oil from these vast deposits. Now, eight years on, the oil price has shot up to an unrealistic high of over $120/barrel, which we notice when we fill up our cars with liquid gold. What we haven't noticed is that the the magic limit where extraction from, not only oil sand, but even oil shale is a lucrative proposition. The average cost of extracting a barrel of oil in the Alberta tar sands is now between Can$20 and Can$25. It is a truly amazing coincidence that the oil price has increased exponentially since the oil lobby had one of their own sitting in the Oval Office.
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China, Brazil, and . . . . Estonia have had oil shale industries for a long time already. Estonia stands for about 70% of the world's production at present, generating 95% of their electrical output from oil shale fueled power plants. There oil shale deposits have been used as fuel for power generators, heating, and as a raw material in the chemical industry, as well as in road construction. These are countries which either don't care too much about environmental aspects, or have economic survival as their priority, and see environmental issues are a luxury the industrialized West can afford. Oil shales require energy to extract their energy resources. Yes, the extraction methods are energy intensive, and end with that environmentally Non-U product, carbon. Not something to state in an advert in Time Magazine or Newsweek, to an environmentally aware West. Big Oil do like to show themselves as the bastions of the environmental movement.
Oil shales and sands are still far less economically viable than crude oil, but together with the insecurity of the Middle East and other third world suppliers, the current price for crude oil, makes these deposits interesting. Big Oil's insecurity is further driven by the, at least for commercial companies, irrational behavior of some of the major oil producing countries. In spite of the fact that the oil price has risen by over 250% in the last five years, countries like Venezuela, Ecuador, Nigeria and even Russia, are slowing down their production.
This goes against the lessons taught in Economy 101. Another thing not taught in Economy 101, is expropriation, as carried out in recent years by Bolivia, Ecuador and Venezuela, and maybe in the future, Nigeria as well. That's not something to give Big Oil a feeling of security. Oil exploration is a risky business. Geological surveys are followed by infrastructure development, roads and housing, setting up what is in effect industrial complexes. All this costs money, which is “up front”. The benefit are later reaped over many years.
Since the current oil price is a recent development, extraction techniques have not been developed yet to the level that the oil industry would like. They don't invest in dreams, but in hard reality.