Alberta Oilsands Enough to Move OPEC Prices- Part 1 of 3

							?Analysing the potential impact the Alberta's oilsands reserves could have on the
world oil market requires one to clarify what volumes regarding available reserves
and output will be used in discussion. Determining the size or clarifying which data
sets are used is largely dependant on a variety of variables and measures a particular
firm or institution incorporates. According to The Alberta Energy and Utilities Board
(EUB), current oilsands reserves are estimated to contain approximately 174 billion
barrels oil (as of 2003). 174 billion barrels of available reserves producible at current
technology. Many advocates of the oilsands production and expansion, that is
producers and Alberta politicians alike, are eager to divulge a resource value closer to
315 billion barrels. This ultimate recoverable volume is attractive to proponents of
oilsands production because of its size. The ultimate recoverable estimate is greater
than the current conventional proved oil reserve estimate for Saudi Arabia, OPEC's
biggest member and producer. However, using the ultimate resource figure when
describing the current potential for Alberta oilsands output is presumptuous. The
value cannot be supported with current technology and thus should not be considered
when determining the size of the resource. The more accurate estimate suggests
Alberta holds the world's second largest reserve of oil deposits at 174 billion barrels.
Although the ultimate potential of the oilsands is comforting to Albertans, due to their
dependency on the energy sector, the value of current recoverable reserves is
nonetheless staggering when compared to the remaining conventional reserves within
Alberta and abroad as well.

This is the primary reason why the oilsands have generated significant interest, the
volume of reserves will meet Alberta's appetite for oil revenues and America's
appetite for oil consumption for years to come. Thus the question is: are the reserves
large enough to meet and impact the world oil market prices and can this supply
reduce America's need for Middle East oil? Without a doubt the oilsands deposits are
large enough to support an increase in production and consequently an increase in
exports to the world market (the closest market being America). Will producers be
able increase oilsands extraction technology to make it less costly to lift and more
efficient, thus increasing output? One would assume they can, the energy industry
increases their own longevity by repeatedly devising new and efficient techniques and
protocols. Although this theory sounds simple, it is missing an integral component
that can ultimately dictate whether oilsands production will hit boom or bust, and that
is the dependence on world market price. The likes of Shell, Suncor, Nexen, to name a
few, are continually expanding their operations to accommodate the growing world
demand, and to exploit the resource, however, these firms will only expand if it
remains profitable for them. Oilsands production is very capital intensive and requires
ideal market conditions to render them appealing to investors. Regardless of world
supply depletions, increases in world demand, or size of Alberta's reserves, market
price is what will plot the future of oilsands development and production. Thus the
only item holding the emergence of oilsands 'dominance' on the world market is the
level of output and dependence on market price. What do we experience today? (2006)
Record crude oil prices with no indications they will relent. Supply is tight and OPEC
is happy with this state. If Alberta and oilsands are to have any substantial impact on
the world stage they must increase technology (reducing costs) and production
(increasing volume).

Three essential items are required for successful integration of oilsands products into
the world market. Firstly, oilsands producers need to increase production technology
to reduce lifting costs. Attributed to costs is the ability for producers to locate
dedicated and cost efficient transportation methods to place their product on the world
market. The second item will hinge upon the world price of oil. Currently the oilsands
developers are price takers. It is imperative that a costly venture such as oilsands
production continue to exploit a high world oil market price to justify their production
and expansion. Current market conditions, the high market price for crude, make for
an ideal setting for expansion and development. Expanding technology will reduce
costs of production thereby shielding producers from lower market prices and
increasing their overall productivity. A strong and predictable price will provide the
foundation for continual expansion of oilsands production, and thus building Alberta's
position in the world market. The last item depends on both technology and price-that
is the quantity of output. Currently, Alberta produces approximately 352 million
barrels of crude oil a year from the bitumen reserves. The current production volume
is not enough to have even a minimal impact on OPEC's world market share. If the
entire volume from 2003 output was exported to the United States market, this would
account for less than 30 days worth of their yearly imports. Although this may be a
large quantity, the potential is greater still.

This article is continued in Part 2 which is readily available now available.

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