Re: Canada's Oil Reserves Attract U.S., As American Media Ta
Reverend Blair said:
Of course you need energy to extract energy but the unit of energy to extract a unit of energy is small, otherwise it wouldn't happen.
It's actually not that small at all. That's why the gas is heavily discounted even when oil prices are high...to make it economical. That's without taking into account that nobody is being charged for the increased environmental damage.
The WCSB is one of the cheapest basins for gas in the world. Of course they're going to use gas. Would you rather they use oil?
That's not a real argument. Squandering a superior energy source to produce an inferior, but more profitable, energy source is not in the best interests of Canadians or the rest of the world.
It also pushes gas prices up for the rest of us, which means that Canadians pay more to heat their houses and businesses just so we don't die. Those costs, along with costs of increased pollution, and never factored into the conversations of the oil industry and the economists though.
That's not why gas is "discounted". It has nothing to do with "discounting". It has everything to do with economics. The cost of bringing gas out of the ground is about $1.50 in the WCSB. The cost per barrell of crude is around $15, give or take a buck or two. Thus, because the heat substitution ratio is roughly 6:1 gas to oil, the cost of using gas as an input is $9 per barrell of oil equivalent, more or less, 40% cheaper that oil. That's why they use gas, not for any other reason. The WCSB is a cheap source of gas and feedstock. Its why Nova has ethylene and polyethylene plants in Alberta. It makes perfect sense to use gas.
Now look at the prices quoted above. The total cost (and if there are any experts in the energy area here, please feel to correct me) for a barrell of oil coming out of Alberta is roughly $15, and gas $1.50. Let's tack on another 50 cents for tolling costs out of the country so that the cost of gas is $2.
These are all in costs. But you're selling oil for $60 and gas for $7. By this very definition, the amount of energy used to produce a unit of energy is small. It has to be, otherwise companies wouldn't make the money they're making now. That's simple math.
As for the argument that we shouldn't be using gas as an energy source to produce hyrdrocarbons, I guess we should use oil or coal then, right? But oil produced in Alberta is heavy and sour, which means it requires a more complex refining process, which is even worse for the environment.
This, of course, is a specious argument because its not an either/or proposition. Large consumers of energy such as utilities are able to switch from gas to oil, so that when one price gets out of whack, they switch. Hydrocarbons are hydrocarbons. Each, of course, has their own markets and peculiarities, but they're fairly fungible. To say that the cost of using nat gas is driving the price up ignores the fact that it drives the price of oil down, and using oil instead of gas in E&P in Alberta would mean decreased profitability and also less tax revenue for the government. That's not rational.
No, actually, you don't. I've read your posts and you relate wealth to money and material goods.
Oh I do, do I? Interesting. Funny, you should know Rev that conservatives place a great deal of emphasis on family.
Will there be? Our demand for plastics and other goods made from oil keeps on rising. Nobody is predicting that oil will be the fuel of choice today and disappear tomorrow. Given that most of the low-hanging fruit is gone when it comes to oil, and our incresing hunger for the almost magic products that can be made from it, any price correction is likely to be minimal.
And that's why at a certain price, demand will be destroyed. There's an old saying in commodities - nothing cures high prices like high prices. High prices will cause demand to slow and will spur technological innovation for energy substitution. It did in the 1970s and it will do so again.
