Course:ECON371/UBCO2011WT1/GROUP8/Article 6: Muck and brass
Muck and brass
Summary
The price of oil barrels has slowly been increasing towards the $100/barrel price. By 2035 the demand for barrels may be up to 110million per day says the International Energy Agency – which is 20% more than in 2009. Currently the oil sands only produce 1.5m b/d, which is less than 2% of the global supply. Not only has the thirst for fuel gone up, but also the cost of production has gone down making it easier and more efficient to produce oil. Canada has 70% of the worlds remaining oil – and half of it is “free-oil.” This makes Alberta the “flag-bearer” of the new oil age due to the fact that if 173 billion barrels were recovered, the tar sands would be worth $15.7 trillion dollars. These facts alone prove that Alberta is a “petro-state” as 31% of its GDP are accounted for in the oil-and-gas- sector. The Keystone Pipeline, worth $7 billion dollars, would pump 510,000 b/d of Alberta Oil to Texas refineries. The set back of this plan: it requires political approval. But recently the government has been very cautious after the oil spill in the gulf last year. Multiple people in the US also have expressed concerns about the environmental impact it may have on their state. Another area that is causing problems with going forth in the development is the first nations tribes in BC that are refusing to allow the pipeline cross over their territories because they wish to avoid inevitable spills that will threaten the annual salmon runs, and overall way of life. The movement to stop “dirty oil” has gathered momentum with lots of environmental groups protesting against the tar sands. A lot of the complaints directed at the tailing ponds and the emissions caused by extraction. Suncor is promising $1.2 billion to deal with its tailings. They believe that as companies share technology within a decade the tar sands will look like any other mining operation. Alberta has taken a laissez-fair attitude towards regulation, which many oil execs feel is a threat towards development.
Some of the environmental issues could be solved quite easily, such as requiring companies to fully restore their land before they are allowed to move on, or requiring off the shelf scrubbers to be attached to smokestacks to reduce sulphur dioxide. Globally the concern about the tar sands is the CO2 emissions with some critics arguing that it is three times more intensive then other methods, while others are saying it is only 5-15% dirtier. Andrew Leach calculates that the tar sands create about $500 of value added per tonne of CO2 compared to $20-30 from coal-fired power stations in America. If people are serious about fighting climate change this should be dealt with first.
Oilmen expect a pipeline to the Pacific, in effect to Asia, to come sooner then later, especially if the Keystone XL is denied. Chinese oil companies would happily take the oil. Many Americans, however, might ask why the State Department had allowed a rising economic rival into such a vast oil reserve.
Economic Analysis
Tar sands contain the second largest reserves of oil and consumption and prices of oil are increasing daily. It can be seen that there is a visible future benefit from developing the oil industry but on the sake of high risk to the environment. The cost of production as predicted by the international Energy Agency is going to fall and level of profits would be huge. Alberta has a great oligopoly over the oil market and it dominates the oil industry throughout the world. As the production caries on in Alberta the world dependence for oil from Alberta is going to increase which means a wealthier Province. Already the oil and gas sector is providing Alberta with 31% of the GDP.In view of the huge profits many international firms are now making their way to this project. The Chinese and French companies have already started and are expecting huge profits. It is clear that economic profits would boost up Canadian economy but on the sake of environmental degradation. Harper government seems not be concerned with the problems this project is creating on the land, air and water. The federal government has never been able to produce a plan to tackle the threat which the tar sands are imposing on the climate. Many different NGO’s are protesting against this project. Many Americans have started passing laws to stop the Albertan oil reaching them. Retailers are now stopping buying oil from Alberta. Campaigns such as “Rethink Alberta” launched by green groups are asking tourists of not visiting Alberta till the government stops the production of oil from the tar sands. On one hand the government and the firms are looking at huge profits in the future but on the other hand if the boycott of oil from retailers and Americans increase then the profits might turn into loss. Either the extraction is dome by drilling or heating the steam, it poses a great threat to the local rivers. The river Athabasca water level has fallen drastically and many fish species have already extinct. The water pollution in the river has led to the contamination of the ground water and the drinking water has turned really dirty. The fish species in the adjacent lakes are getting poisoned and therefore the local fish industry is also facing huge loss.1,600 ducks have been reportedly killed in the local rivers due to the harmful chemicals from this project. Huge areas of landscape have turned into open pits and clearing of forests have led to the killing of wildlife.
The Government policy of using Laissez faire is more damaging. Government should stop implementing such a policy because there is no intervention to the environmental threats the project is creating. Their needs to be strict regulations on the oil industries with the implementation of tariff, taxes, etc. The government needs to enhance its health care policy to protect the people who have greatly suffered from the tar sands development. Although the Canadian constitution is clear on how to deal with these environmental problems but implementation by the government seems nowhere. Rather than stopping the production and dealing with the environmental problems the government is subsidizing out the firms and is encouraging the international firms to invest in this project. The firms in this market are concerned with the profits and they don’t care what threats they are imposing to the environment. As we have seen that the Canadian government is highly interested in projects such as the keystone-XL pipeline and the northern gateway, the cost to the environment would be huge. If the production caries on this way than the damage to the air, water and land would be huge.
Prof's Comments
You have not done much analysis here, in terms of class concepts. Is the current situation efficient? If not, why not? What issues are not being addressed by the market? How can this be changed.
4/10