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OIL: U.S. Looks to Canada to Undercut OPEC

Emad Mekay

WASHINGTON, Jun 27 2006 (IPS) - Faster development of Canadian oil is another way the United States can lessen its reliance on energy sources from Middle Eastern or Latin American countries now deemed unfriendly to the U.S., according to a new congressional study.

The Joint Economic Committee (JEC) of the U.S. House of Representatives estimates that Canada’s proven oil reserves rank second only to Saudi Arabia, and are possibly even larger.

Strong economic incentives would exist, even with oil prices at half the current level, to ramp up oil sands production and more than double output in 10 years, eroding the power of the 11-member Organisation of the Petroleum Exporting Countries (OPEC).

The study released by the committee’s chair, New Jersey Republican Jim Saxton, titled “Canadian Oil Sands: A New Force in the World Oil Market”, says that Canada’s oil sands production in the province of Alberta already equals the oil output of Qatar, a major OPEC member.

Alberta sands would bring potential reserves to 315 billion barrels out of a total resource base of 1.7 to 2.5 trillion barrels. This is more than 40 times the current annual U.S. oil consumption.

However, the environmental costs are steep. For every barrel of oil produced, more than 80 kilogrammes of greenhouse gases are released into the atmosphere and between two and four barrels of waste water are dumped into tailing ponds that have flooded about 50 square kilometres of forest and bogs.

Currently, Alberta oil sands production is just more than one million barrels per day (b/d), an amount that would place Canada 21st among the world’s oil-producing nations.

The analysis forecasts that over the next decade, Canada can be expected to move from 7th to 5th place among the world’s oil producers.

Saxton, who has been criticising OPEC for alleged price fixing, said he hoped that Canadian oil will in the future undermine the cartel.

“The large Canadian reserves of unconventional oil and their rapid development is very good news for consumers in the U.S. and around the world,” Saxton said. “While these reserves can supply only a limited amount of oil at the current time, their development is exactly the kind of thing the OPEC cartel has hoped to avoid.”

But the report also says that large increases in Canadian oil sands output will take time as they require huge investments and progress in managing costs.

Saxton acknowledges that the oil sands will not solve the energy problem, but said that “they will help to undermine OPEC’s power to increase oil prices and will thereby enhance U.S. energy security”.

The Canadian American Business Council (CABC) is pushing for further energy cooperation between the two North American neighbours. Later this week, it will host a dialogue on “increases in available energy supply”.

Alberta Premier Ralph Klein will deliver a major address on energy policy at the U.S. Department of State.

Some U.S. lawmakers have accused OPEC of failing to invest in expanded capacity, leading to severe limits on the oil supply in the face of an unexpected increase in Asian demand.

But OPEC has blamed unforeseen demand surge, refining bottlenecks, geopolitical tensions and speculation for the recent rise in oil prices, which reached more than 70 dollars a barrel in August 2005.

Recent concerns about a possible U.S. military strike against Iran have also compounded the situation in the United States.

The United States, the world’s largest consumer of oil, has been feverishly working to replace foreign sources of energy with domestic ones, or to secure new sources from countries deemed less hostile to U.S. interests.

This week, June 26-30, has been billed as “Energy Week” in the House of Representatives. Republicans, who dominate the U.S. legislative body, are likely to authorise offshore drilling for oil and natural gas.

The moves come warnings escalate in the country over future energy supplies.

A Pentagon document leaked to the Financial Times showed U.S. concerns that future supplies from Latin America could be at risk because of the left-leaning, populist trend sweeping across the region. The report, which was prepared by the U.S. military’s Southern Command, warned of U.S. vulnerability to threats from President Hugo Chavez of Venezuela that he will cut off oil exports if his country is attacked.

But environmentalists, who have spearheaded the push to end reliance on oil as an energy source, fault the congressional step. They say that shifting from one foreign source to another will not address serious issues like climate change.

The Natural Resources Defence Council says that instead of pushing for further drilling to feed U.S. addiction to oil, Congress should start working in on a bill that sets real deadlines for reducing oil imports by promoting efficiency in passenger vehicles, and by boosting transportation alternatives.

The Worldwatch Institute notes that bio-fuels such as ethanol and bio-diesel can significantly reduce global dependence on oil. The group said in a report released earlier this month that bio-fuels could provide 37 percent of U.S. transport fuel within the next 25 years, and up to 75 percent if automobile fuel economy doubles.

Bio-fuels could replace 20-30 percent of the oil used in European Union countries during the same time frame, it added.

The Sustainable Energy Network, which represents several hundred organisations and businesses, says if the U.S. Congress is serious about the environment and about ending dependence on OPEC oil, they should restore funding for the federal geothermal energy research and development programme.

The White House has proposed to zero-out funding for geothermal development for 2007 while the U.S. House of Representatives has approved a funding level of only five million dollars.

The group, which says that the near-term development potential of geothermal energy could be at 13,000 megawatts of capacity, the equivalent of about 15 nuclear power plants or 30 coal-fired plants, wants to see funding for geothermal research restored to at least the 2006 level of 23 million dollars, if not more.