INTRO: Time and time again, we’ve seen how oil
can transform an entire country.
Just a hundred years ago, for example, the middle east was more or less just a desert
wasteland.
But, today, many of these countries have become more modern than even western countries.
I mean, when your police are using lambhorghinis and mercedes for patrol, clearly you’ve
got money.
But, ironically, a few of the countries with the most amount of oil in the entire world
don’t actually benefit from it all that much.
One of these countries is Canada which has 170 billion barrels of oil.
This makes them the country the third largest oil reserves in the entire world.
The only countries that have more oil are Saudi Arabia and Venezuela.
Saudi Arabia literally has a $2 trillion oil company, so clearly they’re using their
resources to the max.
Meanwhile, Venezuela is a third world country filled with hyperinflation and corruption,
so it’s not surprising that they haven’t leveraged their resources.
But, what about Canada?
Canada is a well respected western country with plenty of intelligent and ambitious people.
Yet, before the pandemic screwed up oil prices, oil and gas only accounted for $128 billion
worth of Canda’s GDP.
For perspective, there were years where Saudi Aramco’s profits alone were nearly $128
billion.
So, why doesn’t Canada exploit their gigantic oil reserves?
ECONOMICAL DISABILITY: One of the biggest challenges that Canda has
faced in terms of oil is competing in the global market.
You see, there’s several different types of oil and not all oils are created equal.
Onshore Middle Eastern oil for example is one of the easiest to extract and refine.
Meanwhile, the type of oil Canda has, Oil Sands, is one of the hardest to extract and
refine.
The reason for this is that oil sands aren’t even a liquid form of oil.
Oil sands are actually a combination of oil, sand, clay, and water that create this tar
like substance.
So, you can’t just setup a bunch of oil pumps and ride these to the moon.
Instead, you have to engage in one of two complex mining and separation processes.
For deposits found on the surface, the oil sands first have be strip mined.
Then, they have to be run through hot water to isolate a substance called bitumen.
From there, you have to convert the bitumen into oil.
This process itself is already quite complex and expensive, but the worst part is that
this process can only be applied to land based deposits.
And 80% of oil sands are not land based.
Usually, the majority of oil sands are buried more the 75 meters under the ground which
requires in situ production.
This is when you pump bunch of hot steam into the ground to separate the bitumen from the
oil sands.
From there, an extraction well will collect the isolated bitumen which can then be converted
into crude oil.
As you would guess, thanks to the complexity of this process, oil sand production is naturally
way more expensive than traditional oil drilling.
But, that’s just the first problem for Canada.
Given that Canada is a developed Western country, they actually have standards when it comes
to wages and working conditions.
In Alberta, for example, the average wage for oil and gas workers is 36.52 CAD per hour
which works out roughly 75,000 CAD per year.
Even if we look at the lowest 5% of oil workers in Alberta, they’re paid 15 CAD per hour
or 31,200 CAD per year.
In terms of US dollars, this is equivalent to roughly $24,000 per year.
Now, most westerners probably wouldn’t classify this as a high salary per se, but compared
to Saudi Arabian standards, this is insanely high.
The average laborer in Saudi Arabia only makes 36,000 riyals per year or about $9,500 per
year.
This means that Saudi Aramco can hire 2 and half workers for every employee Alberta hires.
Also, I suspect that Alberta likely has better benefits and fewer working hours per week.
So, the ratio is even more skewed in Saudi Arabia’s favor.
Considering all this, it’s simply impossible for Canada to compete in terms of price.
And this is why Canadian oil is the most expensive in the world.
The average barrel of oil from Canada has a breakeven cost of $74 per barrel.
Meanwhile, the average barrel of oil from the Middle East has a breakeven cost of $29
per barrel.
With these numbers, it’s not even a competition.
Canada would have to lose $45 per barrel just to match Middle Eastern prices.
Meanwhile, the Middle East only has to lose $29 per barrel to offer their oil for free.
With such a massive pricing disadvantage, it’s no wonder why Canada’s oil industry
isn’t that lucrative.
LOCATION LOCATION LOCATION: While Canada can never reach the profit margins
reached by the Middle East, this doesn't mean that can never turn a profit.
You see, oil prices are oftentimes way higher than $74 per barrel.
Between 2004 and 2014, for example, oil prices were regularly over $100 per barrel.
So, Canada had plenty of time to run a profitable operation, but this never really came to fruition
due to their location.
The Middle East is literally located in the perfect place to serve a global market.
On one side, they have Asia.
On another side, they have Europe.
On another side, they have Africa.
And on their last side, they have the ocean.
This gives them a massive advantage when it comes to building robust freight networks,
trucking networks, railroads, pipelines, and so on.
Meanwhile, Canada has the United States and that’s pretty much it.
If they want to export oil to any other country, they’re only option is to use the sea.
And Canada has basically completely neglected this option given that 99% of their oil ends
up in the North American market.
Honestly, there doesn’t seem to be any clear reason as to why they haven’t grown their
freight operation.
The main bottleneck seems to be that their oil infrastructure is heavily underdeveloped
which has made it extremely difficult to transport oil from Alberta to the pacific coast.
There have been a few projects that have attempted to solve this issue but, more times than not,
these projects were plagued with issues and setbacks.
Take the Trans Mountain Pipeline for example.
This project was designed to help transport oil from Alberta to the coast of British Columbia
and it was commissioned way back in 1951.
Work on this project progressed pretty quickly and the Candians had the pipeline up and running
by 1953.
But to this day, this pipeline is the only pipeline that connects these to areas.
For nearly 10 years now, Canada has been trying to add a parallel pipeline to this project,
but due to politics and environmentalists, this project has been constantly delayed.
The latest delay has pushed the completion date into Q3 of 2023, but who knows if that’ll
actually play out.
In the meantime, Canada’s oil industry is basically 100% dependent on the United States.
Fortunately, the US is the world’s largest oil consumer, so Canada has plenty of demand
for their oil, but this also puts them in a super awkward position.
The US is well aware that they can single handedly make or break Canada’s oil industry,
so they’re not exactly motivated to play nice.
In fact, they prefer to essentially black mail Canada into giving them a significant
discount of up to $20 per barrel.
Factoring in this discount, Canada’s breakeven price for oil isn’t just $74 per barrel,
but more like $94 per barrel.
Really, they need oil to be over $100 per barrel to have any shot at making a profit.
Hopefully, the Trans Mountain Expansion project will be completed soon and Canada to start
exporting to Asia as well.
But, in the meantime, Canada is not only cursed by the type of their oil, but also by their
location and dependence on the US.
ENVIRONMENTAL HAVOC: At this point, you might be thinking that
things can’t get any worse for Canada, but the reality is that they can and they have.
Aside from having fight this massive uphill battles with oil sands and their location,
Canada also has to put up a serious fight with environmentalists.
Now, it’s natural for any fossil fuel based operation to gain some opposition, but oil
sands garner especially high opposition because they’re especially harmful to the environment.
You see, the process of converting oil sands to usable oil is not only a long, expensive,
and complex process, but also a water and energy intensive process.
To make things worse, the process doesn’t exactly release the kindest byproducts either.
In fact, oil sand extraction emits up to three times more global warming pollution than traditional
crude oil extraction.
It’s not just air based pollution either.
Oil sand production not only depletes freshwater sources, but it also creates gigantic ponds
of toxic waste.
Considering this, it’s not surprising that environmentalists are all over this.
In fact, environmentalists are one of the main reasons that the Trans Mountain Expansion
project has had so many delays.
They argue that the original pipeline itself is already extremely destructive, so it makes
no sense to build yet another pipeline.
And honestly, they do have a point.
Since 1961, Trans Mountain has reported 84 oil spills which is more than 1 spill every
single year.
Also, it’s not just the environment that’s at stake either.
There have already been red flags that sand oil production is taking a toll on local residents.
Researchers have scientifically proven that areas with oil sand production have been correlated
with higher cancer rates.
Now of course, correlation does not mean causation, but honestly the link is clear as day.
Taking a bigger picture view, it’s not just Canada’s environment that would be hurt
by oil production.
The goal of producing oil is to sell it to countries that need it.
And when these countries use said oil, they’ll be polluting their own ecosystems as well.
Now of course, you could make the argument that if these countries didn’t buy from
Canada, they’ll just buy from somewhere else and that’s absolutely true.
But, from an ethical perspective, it wouldn’t be Canada thats supporting said pollution.
Now, you might be saying, how does that change anything?
Well, the thing to note is that Canada doesn't need to sell oil to do well.
They’re already doing well.
The same however cannot be said most of the middle eastern countries that are like 90%
dependent on oil revenue.
So, it makes sense to leave the polluting to countries that have to do it and avoid
polluting yourself especially when you don’t have to.
A POTENTIAL OPPURTUNITY: In the end, Canada doesn’t just have one
of the world’s largest oil reserves, but also one of the world’s most problematic
oil reserves.
Oil sands are expensive to extract, they’re super harmful for the environment, and Canada’s
doesn’t have the infrastructure transport large amounts of oil.
Despite all these obstacles, it seems like Canada may actually have an opportunity to
grow their oil industry substantially in the coming years thanks to Russia.
As y’all probably already know, sanctioning off Russian oil has created a massive oil
shortage across the world.
This is one of the main reasons that oil prices rocketed to over $100 per barrel just a few
months ago.
Also, it should be noted that much of Europe hasn’t even stopped consuming Russian oil
yet.
Their plan is to stop by 2023, so as Europe continues to pull back from Russia, they’re
demand for other sources of oil will simply grow.
In fact, Canada’s oil production is not enough to offset Russia’s.
So, Canada should have plenty of demand for their oil.
But, if Canada isn’t able to build up their oil and freight infrastructure, all of that
demand will mean nothing for Canada.
On the other hand, many feel that this is actually the best case scenario for Canada.
They feel that there is no reason for Canada to get more involved in the oil game.
Just because they have oil doesn't mean they have to ruin their ecosystem, put communities
at risk, and become more dependent on oil revenue.
Canada already has one of the largest economies in the world and one of the happiest populations
in the world.
So, why put all of that at risk just for a bit of oil money.
Do you guys think Canada should leverage this opportunity with Russia?
Comment that down below.
Also, drop a like if you’re glad that Canada hasn’t become corrupted by oil atleast not
yet.
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