Economist charts new oil realities

Manitoba in strong position


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JEFF Rubin says he believes that regardless of the scientific debate about how much oil might be left in the ground, its price will continue to escalate -- maybe even back to $100-plus per barrel level in a matter of weeks.

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Hey there, time traveller!
This article was published 25/10/2010 (4365 days ago), so information in it may no longer be current.

JEFF Rubin says he believes that regardless of the scientific debate about how much oil might be left in the ground, its price will continue to escalate — maybe even back to $100-plus per barrel level in a matter of weeks.

For 26 years Rubin was chief economist for the CIBC, until he published a book in 2009 (recently revised and updated) called Why Your World is About to Get a Whole Lot Smaller about how world economies are going to change as the price of oil goes up.

Not surprisingly, the publication of that book required his resignation from the bank.

WAYNE.GLOWACKI@FREEPRESS.MB.CA Jeff Rubin writes about the future of expensive oil.

Rubin, who was in Winnipeg last week promoting his book, argues the energy issue will be the most important factor affecting economies — and politics — around the world, including Manitoba’s.

“Political divisions in the country will have a strong energy flavour,” he said. “It’s going to create strange bedfellows like Ontario and Quebec teaming up because they do not have carbon. All of a sudden Newfoundland and Alberta see eye-to-eye on a lot of things.”

He said Manitoba and Quebec are the only regions in the country with significant potential to develop hydroelectric generation and its potential for sale to the United States will be substantial in the years to come.

Although he is well-versed in the geological data, it’s the economic dynamics around the peak oil scenario that he is engaged in.

Rubin said the discussion has moved beyond the debate about how much oil is left in the ground. “Now it’s an issue of how do we grow,” he said. “Now it’s an economic issue.”

For instance, the 170 billion barrels of oil trapped in the Alberta tarsands is a massive amount that may actually never be completely tapped.

But if the price of oil goes back over the $100 per barrel mark — something Rubin says is a virtual certainty — it will have a significant and serious impact on how the global economy works.

“The very prices needed to be able to lift that oil out of the tarsands will translate into gasoline prices that will take millions of driver off the road,” he said. “What we are running out of is not oil in an absolute geological sense. What we are running out of is oil we can afford to burn.”

Rubin said he believes expensive oil extraction in northern Alberta and the deep-water drilling that resulted in BP’s Deepwater Horizon disaster are examples of the oil industry being forced into more extreme oil extraction exercises that are more technologically complicated, dangerous and expensive, because the easily accessible oil is in the process of being tapped out.

But the fact the price of oil is again on the way up — $82 last week, twice the price it was selling at five years ago — is the motivation to go after those difficult reserves.

“When oil was $20 a barrel the tarsands was a marginal economic resource,” he said, noting that the knowledge that oil was soaked into the northern Alberta hinterland has been around since the 1920s.

“This is not news,” he said. “What is new is that it would be commercially viable. When oil prices fell to $40 a barrel in the recent recession, it cancelled $50 billion of capital spending on tarsands development because it no longer made economic sense.”

Among other things, Rubin argues that it was $147-per-barrel oil that caused the recent recession and since he also believes that those prices will happen again, economies will have to figure out ways to grow with expensive oil or there will be an endless series of inflation and recessions.

“Economic recovery will mean triple-digit oil which will then snuff out growth and oil will go back down to $40 as demand falls,” he said. “The only way to get out of that cycle is to find a way to grow at triple-digit oil. We have to re-engineer the economy. I’m pretty optimistic that will happen not because Harper or Obama get it. But because at the end of the day we will not have any other economic choice.”



Martin Cash

Martin Cash

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

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