Sunday, June 25, 2006

Canadian Oil Sands - the Next El Dorado in North America?

Dr. Michael Economides, a petroleum engineer and Professor at the University of Houston, has recently suggested that the Canadian oil sands could be the next El Dorado in North America.

This comment comes, interestingly, from a gentleman who believes peak oil won't hit until roughly 2050 and that both Saudi Arabia and Russia will eventually increase production substantially. His other views: He's bullish on natural gas, believes that Venezuela's Hugo Chavez is the biggest threat to the United States and it's oil needs, and is convinced that Chinese demand, geopolitics and OPEC's inability to raise production in the short term are the main cause of high oil prices, not an imminent Hubbert's Peak of global production.

While his views thus differ substantially from peak oil proponents including Boone Pickens, Kenneth Deffeyes and Matthew Simmons, in seeing huge potential in Canadian oil sands, Dr. Economides joins a chorus of oil industry types, analysts, and investors.

On the potential of Canadian oil sands I highlight, in no particular order, the comments of:

Boone Pickens, Jim Rogers & Charles Maxwell
Donald Coxe
Peter Thiel
Raymond James
Leigh Goehring
Stephen Leeb
Martin Whitman
Henry Groppe
Jim Cramer
BMO Nesbit Burns
CERA (yes, them)

For a list of stocks and a little bit of back story, here's my take.

In terms of technical analysis, the main oil sands stocks [Suncor, Canadian Natural Resources, Canadian Oil Sands Trust, Nexen, Imperial Oil, as well as to a lesser extent Encana, PetroCanada, Opti Canada, Husky Energy] held up well recently and continue to have some of the stronger charts in the energy sector.

For Dr. Economides' recent viewpoints, please see:

Resource Investor: Peak Oil Debate Digresses Into Global Warming Argument.

Resource Investor: Energy GeoPolitics: The Impact on Prices and Supply of Oil and Gas.

PS. After posting this, I went over to The Oil Drum and the top article turned out to be the con argument on oil sands, the problem of the natural gas input requirements. This is a legitimate concern. If you are worried about that, then I would focus on Encana, Canadian Natural Resources, Nexen and Opti Canada. The first two have substantial natural gas production themselves [not necessarily in the same region, but it helps offset the cost pressures if they produce the same product], and the last two are working on a project where they should be able to produce gas they can use from the oil sands itself, thus reducing their need for natural gas input and lowering their costs substantially.

PPS. There's also a water issue, but that never stopped anybody. For reference, see Chinatown.


Noah Cross: Either you bring the water to L.A. or you bring L.A. to the water.


Walsh: Forget it, Jake. It's Alberta Chinatown.