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Originally Posted by Americano
OPEC strategy has been highly dependent on increasing high cost production such as Canadian tar sands oil by keeping overall production as close to demand as possible while factoring in USD devaluation to drive pricing. The last numbers I read put Candian tar sand exploration/production costs at close to $30/barrel, unthinkable even a decade ago. Those costs will actually be reduced as production increases, but new exploration/production costs will offset any savings. The market entry of tar sand oil from Canada, coming in Venezuela and other reportedly vast fields in other countries actually played the major role in helping the Sauds reduce their production, saving for a rainy day as they term it.
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The oil sands produce barely 1 million barrels a day, and it will be years before it produces anywhere close to 2-3 million bpd that they are aiming for. Also, the oil sands uses unbelievable amounts of water and natural gas to produce just one barrel of oil. It is not sustainable by any stretch of the imagination. And even if it were, it would never produce any significant amount of oil to offset the declines in existing fields, especially the declines of huge fields in Russia and Saudi Arabia.
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Australia's largest trading partner is China and China has supported Australia's Nigerian efforts (of which Canada is involved as rig drillers and operators) and their efforts to become a major player in refining lower grade crude from Venezuela and other producers. China has the capital and they aren't afraid to spend it on commodity exploration/production, and not just oil.
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And they have the benefit of not being america as well.
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That's a foregone and reasonable conclusion. All that's holding it back now is US fiscal desperation with military threats and the ongoing calculations of what will replace oil for food production and transportation requirements. Once that product(s) is identified, oil will immediately shoot up to that price and then far beyond. I'd like to see crude at $250/barrel immediately with a portion dedicated to capitalize emergency alternative energy research and development programs. I'd actually be surprised if some OPEC producers haven't already suggested same, what an investment opportunity, but US politicians aren't going to willingly allow that to happen. If future markets do it, they can rationalize why soccer moms have to park their SUVs by blaming someone else. Since many oil producers are currently facing a US gun barrel with regard to production they must tread lightly. 2008 is going to be an interesting year.
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The only realistic replacement to oil is hydrogen. (and its not even that realistic as far as replacements to oil go). It would take decades to convert this oil economy into a hydrogen economy, and in those decades oil will continue to decline, leaving more chaos and less capital with which to convert the economy in the first place. We are far more likely to go back to coal as a replacement, and that is extremely unlikely given the state of the climate.
In other words, the good times that started rolling for the west in the 50s after the war have pretty much come to an end over the last few years and people are just waking up to it.
Andrew