Discard the old cartoon image of the oil and gas industry as a monolith of might. An annual performance survey of the top 100 Canadian publicly traded producers generates a paint-by-numbers portrait of diversity – and, for the 2008-09 period of global financial and energy price contraction, vulnerability.

Ranked by revenues, the top Alberta-based fossil fuel company is 2,675 times bigger than the “junior” firm on the bottom rung of the industry ladder. In oil production, the number one operation is 455,000 times larger than the smallest. The top natural gas performance leads the back of the pack by a margin of 2,840 to one.

As in other branches of Canadian livelihoods from banking to vehicle manufacturing, energy resources wealth is concentrated in a clutch of senior enterprises.
The 10 leading oil developers own 77 per cent of production. Despite a widespread image of natural gas as a more open and democratic field, the distribution of supplies differs little from the concentration of oil in a handful of senior operations. The 10 biggest gas producers have 72 per cent of production.

Translated into money, energy wealth is even more concentrated than the resources and production. The economic slump amplified the uneven distribution of financial returns. In 2009, the 10 most profitable oil and gas producers had $9.8 billion or 88 per cent of the sector’s total $11.2 billion in net income.

As in other Canadian economic fields, the international recession had devastating effects on the energy industry’s financial performance. When year-end 2009 statements trickled out to investors over the winter and spring annual reporting season, 62 of Canada’s top 100 oil and gas companies showed red ink on their bottom lines. Net losses added up to $2.9 billion.

Measured as a collective enterprise, by subtracting all the negative scores from the positive total, the Alberta fossil fuel industry suffered a steep drop and a hard landing last year. Overall net income plummeted by 78 per cent to $8 billion in 2009 from $36 billion in ’08.

Last year’s pinch was felt at the top of the industry ladder. Although that $9.8 billion in 2009 net income scored by the top 10 earners was nothing to sneeze at, it was 68 per cent below their big league score of $30.3 billion for the previous year.

Also as in other economic sectors, wholly owned subsidiaries of international companies play strong roles in Canadian energy. Year-end production disclosures by the dozen American, Dutch, British, French and Norwegian firms with substantial operations from Alberta’s bitumen belt to the Grand Banks of Newfoundland add up to about one-fifth of Canadian oil and gas output.

But the energy industry remains the apple of economic patriots’ eyes compared to wholly foreign-owned mainstays of Central Canada such as auto manufacturing. International oil and gas firms are on growth courses across Canada. But so are Alberta firms that followed the 2009 slump’s cues to toughen up organizations and improve technology.

Every spring, industry and government notables gather in downtown Calgary for a display of environmental conscience that attracts zero publicity. There are no red carpets, glamorous stars or paparazzi at the Stewardship Awards, sponsored by the Canadian Association of Petroleum Producers. The event celebrates group labor, more often by oilfield grunts than executives, on measurable contributions to keeping fossil fuels respectable.

Among this year’s 21 nominees and winners, ARC Resources Ltd.’s field hands, for instance, proposed 40 “eco-efficiency” ideas, obtained management approval for 23 of them and completed a first batch of six projects that to date pared 3,200 tonnes off the firm’s annual carbon emissions. BP Canada Energy Co.’s engineers cut land use, water consumption and carbon emissions by using new drilling methods, storage techniques and solar power for the Noel
gas project in northern British Columbia.

Canadian Natural Resources Ltd.’s Horizon Project staff prevented any bird flocks from landing on oil sands tailings ponds with an advanced deterrent system that evokes Star Wars images. Radar, sonar and lasers guide precision use of devices for warning migrating waterfowl to stay in the air such as propane cannons and air horns.

Elsewhere in the oil sands, Cenovus Energy Inc. cut annual carbon emissions by 46,300 tonnes and saved 397 million cubic feet of natural gas with efficiency adjustments. ConocoPhillips Canada, Total E&P Canada Ltd., Nexen Inc., Statoil Canada Ltd., Suncor Energy Inc. and Alberta Pacific Forest Industries Inc. started a long-range bitumen belt cleanup scheme titled Aggressive Reclamation by planting 180,000 tree seedlings in the Fort McMurray region.

Devon Energy Canada Corp. has cut widths of access roads to forest production sites by up to 50 per cent, and paves them with reusable wood mulch that supports vehicles weighing more than 45,000 kilograms. In northern B.C., EnCana Corp. prevented 39,800 tonnes of carbon emissions and conserved 741 million cubic feet of natural gas in 2009 alone with a special drilling technique that cuts waste flaring and converts diesel motors to run partly on the cleaner fossil fuel from the new wells.

Increasing attention is paid to the human as well as the natural environment, although results of community relations efforts such as good will and time saved in obtaining regulatory approvals are less easy to count than the hard numbers generated by engineering improvements. In northern B.C.’s shale-gas drilling hot spot, 11 companies have tempered traditionally secretive industry rivalry, such as competitive mineral rights bidding and production growth scheming, with co-operation to form the Horn River Basin Producers Group.

The members, a who’s-who of Alberta-based firms led by Apache Canada Ltd., reveal enough to each other for their coalition to collaborate on communicating and adapting development plans to regional aboriginal, worker, business and environmental interests.

Such efforts are more like low-budget independent films than Hollywood blockbusters. But decent local accomplishments are the reasons international blasts of hostile green publicity fail to shame or embarrass anyone into quitting fossil fuel jobs.

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Watch for the fog to now rapidly lift off Canada’s Arctic pipeline plan compared to its 66-month regulatory ordeal to date. There is a precedent for the National Energy Board to clear up the haze of 176 recommendations for adapting northern society to a new industrial age that the socio-economic and environmental joint review panel tacked onto the Mackenzie Gas Project last winter.

In April 1989, a dress rehearsal was held in Ottawa and Inuvik for this month’s final board hearings on the $16-billion production and pipeline scheme. The Mackenzie group – then known as the Delta Project team of Imperial Oil Ltd., Shell Canada Ltd. and ConocoPhillips Canada’s ancestor, Gulf Canada Resources Ltd. – filed an export application and swiftly obtained the key policy ruling for Arctic gas development in an August 1989 decision.

At the time, energy deregulation and free trade with the United States were in early trial stages. The case asked: did the 1985 federal-provincial Western Accord truly set aside an 80-year heritage of holding gas off international markets to protect inventories for future Canadian needs?

Yes, said the board. Under the then-new “market-based procedure” of monitoring supplies, Canadian consumers could only demand interference with exports if they proved they were denied gas on equal terms with American buyers.

Arctic reserves are too big and costly to tap for only the home market, and exports are a must for northern development, the board added. The 1980s versions of the Northwest Territories’ tangled aboriginal politics as well as health, education and welfare needs were referred to higher government authorities, as beyond the power of the specialized energy court to resolve.

After much study, the Delta group postponed a production and delivery project. The cost estimate for the pipeline to Alberta alone was $4.9 billion ($7.4 billion in today’s money, little different from the current construction forecast).

In 1989 and well into the 1990s, there was a nastier gas glut than now. Prices stagnated in a hard-times range of $1 per thousand cubic feet. An industry standing joke called the era “the bubble that stretched into a sausage.”

A physical obstacle prolonged the ’90s Canadian glut after U.S. markets revived. If a northern pipeline was built to Alberta, there was no way to ship Arctic gas the rest of the way to buyers. The old grid was full. It took a decade of multibillion-dollar pipeline additions to end the bottleneck.

Today the long-range outlook is brighter. Depletion of old conventional wells, possibly faster than supplies can be added by high-technology shale drilling, is leaving pipeline vacancies. Greenhouse gas regulation only has to cause modest fuel switching to ignite a market rebound, energy board research says. The one billion tonnes of high-emissions coal that U.S. power plants burn every year is equivalent to 31 trillion cubic feet of gas, or 20 per cent more than all North American use of the cleanest fossil fuel. The emerging big picture of environmental energy makes Arctic development look like a prospect again.

Gordon Jaremko

When Premier Ed Stelmach and Energy Minister Ron Liepert last week unveiled results of their "competitiveness review,” they steered Alberta onto a course advocated by markets-rule purists like University of Calgary economist Jack Mintz.

"I never liked 'fair share' as a concept - I don't know what it means," Mintz told an event staged in February by the U of C School of Public Policy for blue-chip business chieftains and the media to unveil a paper that called for an end to treatment of the oil and gas industry as a "cash cow."

The economist, with enthusiastic support from big-business interests like the Canadian Association of Petroleum Producers (CAPP), insisted "you need to give the industry a competitive rate of return."

Fair share ‑ the slogan that described the hotly contested New Royalty Framework enacted in 2007 ‑ faded into history as Stelmach and Liepert made their announcements.

The official vocabulary is now all about investment and job creation, supported by a substantial lowering of the government's revenue-sharing sights.

Besides well publicized royalty reductions, the government made permanent a five-per-cent rate for the first year of production by all wells that was introduced last year as a temporary counter to slumping prices and field activity.

Stelmach and company also gave industry until May 31 to present arguments in favor of extending the period of the five-per-cent rate for as long as it takes to recover extra costs of deep, complex horizontal wells and "frac" injections required for the new generation of shale gas production.

Much of the competitiveness review focused on changing a pattern which alarmed a government that has relied for more than 10 years on natural gas to be its biggest revenue source. Canada's share in new unconventional shale drilling across North America has to date skipped Alberta and gone into northern British Columbia. But it's not for want of supply.

"Geological estimates show Alberta as possessing a shale gas resource in place ‑ 1,000 trillion cubic feet (Tcf) ‑ that is comparable to that of B.C.," the competitiveness review report says.

"Combined with its remaining conventional natural gas resources of 82 Tcf, coal-bed methane resources of 500 Tcf and tight-gas resources of 400 Tcf, Alberta is certainly well positioned with good long-term prospects," the review observes. "However, realization of this opportunity is not guaranteed. Deliberate action will be required on a variety of fronts."

The review's second recommendation is to "Develop programs if necessary to support strategic initiatives focused on specific resources or technology." Target areas proposed for special action include shale gas and deep drilling.

At the government's current conservative price outlook total royalty reductions for conventional oil as well as all gas types are forecast to rise gradually to be worth an annual $785 million to the industry as of the province's 2012-13 fiscal year commencing April 1.

The projected revenue gain is 28 per cent less than forecast by the partially abandoned 2009 royalty hikes, but still $2.1 billion more than the province's take would have been under the pre-reform old regime.

About $1.7 billion of the anticipated gain comes from increased net-profit royalties on growing oil sands production that was excluded from the competitiveness review.

But the government price forecast, while calling for oil's annual average to reach US$89.50 per barrel in 2012-13, officially sees gas languishing at CDN$5.50 per thousand cubic feet.

Saying prices and production levels are impossible to forecast with any strong confidence, the government refused to estimate the value of the reduced gas royalty rate if markets recover. Another notable gap is the absence of any attempt, at least publicly, to estimate the value of the five-per-cent initial royalty to shale projects; they follow a pattern of very high early production followed by a long, slow tapering off.

The industry is too polite to claim victory and make politicians eat crow publicly. But at the downtown Calgary announcement ceremony, little doubt was left that the business community felt considerable gains had been made.

"It had to be done. It's positive. It's an improvement," said Dave Yager, chairman of the Petroleum Services Association of Canada and an ally of the emerging threat from the political right to the ruling Tories, Wildrose Alliance Party leader Danielle Smith.

"They did what they promised ‑ they engaged with the industry," said Don Herring, president of the Canadian Association of Oilwell Drilling Contractors, who also predicted that field activity will likely start showing fresh signs of life by this fall.

In private industry briefings on the adjustments "everybody expressed a view that the process has gone a long way towards establishing a new level of understanding, dialogue and a way of keeping it going," said Gary Leach, executive director of the Small Explorers and Producers Association of Canada.

"The government has made ‑ both in substance and in tone ‑ a significant change," said David Collyer, president of the Canadian Association of Petroleum Producers.

"These changes will help us use innovation to unlock our energy resources, create opportunities and jobs . . . and strengthen Alberta's economic recovery," predicted Stelmach.

It was left to his energy minister to acknowledge that the 2009 royalty hikes backfired because they were adopted on the eve of the global economic and energy contraction. "We can't pretend that oil and gas investment levels haven't eroded or that we don't have a responsibility to current and future generations of Albertans to address that,” Liepert said.

In the fashionable theory of innovation, an embarrassment of riches stunts the growth of Canada, and especially Alberta. Abundant natural resources are said to stifle creativity. Energy price drops provoke disparaging comparisons to countries with other livelihoods and notably, nowadays, information and communications technology (ICT).

A commentary by the Canada West Foundation recites the view in vogue under the title The Albatross: Natural Resources and Western Canada’s Economic Future. “The traditional emphasis on natural resources perpetuates our overreliance on the bottom end of the economic value chain. Pulling stuff out of the ground, whacking down trees and growing grain all contribute to the western Canadian economy, but they also rely on highly volatile commodity markets and do not capture the value that can be added to them down the line.”

Similar thinking inspires a 268-page report – titled Innovation and Business Strategy: Why Canada Falls Short – by the Ottawa-based Council of Canadian Academies. The staples thesis, a university economics mainstay for 80 years, explains why. Canada is held back by a colonial past of importing technology to export resources, which breeds exposure to global market risks and a timid business culture. Breaking old habits is the formula for catching up with higher productivity in ICT-rich countries, notably the United States.

The theoretical critiques ignore realities of ICT use and 21st-century resource development.

In the U.S., digital tools are cornerstones of industries that look hugely productive on statistical charts of revenues per employee: health care, financial and insurance services. Texas billionaire Ross Perot, an ICT pioneer whose feats included a credible run as an independent presidential candidate against the first George Bush in 1992, made his fortune as a health-care computer contractor. Before the bubble burst in 2008, the financial sector’s share of U.S. gross domestic product doubled to eight per cent, or more than $1 trillion.

But big ICT users are vulnerable to market risks. Perot is also famous as the biggest individual loser ever on the New York Stock Exchange because the value of his shares in his computer firm fell $450 million on one bad 1974 day. The U.S. financial sector is forecast to lose at least $100 billion a year and 700,000 jobs in the current market spasms.

Economists are starting to question whether the natural resource sector deserves its dinosaur image. “Innovative firms are found across all industries,” says a research paper in the winter edition of Statistics Canada’s Canadian Productivity Review. The study proposes including resource exploration in national ledgers of wealth generation. “An expanded definition of innovative activity is necessary to analyze fully the role of scientific knowledge creation in advancing economic growth.”

Fashionable opinion needs to take Statistics Canada’s cue and quit ICT worship. To open minds, a wide streak of creativity is obvious in the energy industry. It lives and grows by mastering – partly with ICT – adversities from gyrating prices and costs to increasingly difficult resource deposits and regulation.

Gordon Jaremko

What is it about thinly populated places like Saskatchewan? The royal jelly that feeds great careers is abundant where making a living is notoriously hard. Five of six recipients of Alberta Oil’s first annual C-Suite Stars awards [p. 29] are from the Prairies or small centers.

Saskatchewan roots have always been common in the drivers of Canada’s economic locomotive, from entrepreneurs to regulatory agency chiefs. Among energy industry pillars with Prairie pedigrees are Daryl (Doc) Seaman, Ken Vollman, Gerald Maier, Doug Baldwin, Bob Peterson, J.R. (Bud) McCaig, Bill Mooney, Murray Edwards, Hank Swartout and Charlie Fischer.

Bonnie DuPont bumped into the shared heritage all along her route from a Swift Current farm to Enbridge Inc.’s executive floor and a breakthrough term as the first woman president of the Calgary Petroleum Club. “I was struck by the number of people in senior positions who come from small towns, the Prairies and farms.”

She has a theory. “After you left the farm, nothing that you did was as hard as farm work. Going to school was easy by comparison. Working in an organization wasn’t like slogging away out in the fields and barns.”

Rural and small-town upbringings on farming or industrial frontiers forge character – the right “values,” DuPont says. “In part it’s the work ethic, the feeling that you always have to give an honest day’s work. It’s just required in farming. Do anything less and you’ll have nothing to harvest.”

She expands on her theme as a role-model speaker at events such as a Women of Influence luncheon sponsored by Deloitte. “Farm life means quite literally reaping what you sow and it means not always having complete control of the situation. It means continuous preparation, but it also means the tremendous satisfaction of seeing the direct results of your labor, the sense of community that comes from neighbors helping each other,” DuPont says. “It was on the farm that I learned about the bedrock values that underpin a successful life: integrity, personal accountability, resiliency, involvement in the community and productivity.”

Instincts formed in the country transfer well into urban industry. DuPont describes strong firms as consciously collective successes where employees know how their livelihoods intersect. “High performance is not a solo act.” Rejecting popular caricatures of industrial and business leaders as prima donnas puts her in good company. Qualifications for rising to the top include an ability to set aside a big ego and work in groups as the only way to have enough expertise for tasks that simultaneously raise issues in multiple fields from geology to finance and law. All of the Alberta Oil C-Suite Stars executives emphasize they are team members, not stars.

“This is not a mechanistic model. This is an organic system. In fact, it sounds a little bit like a farm,” DuPont says. “On the farm, you don’t succeed in isolation. Your fate is tied to the fortunes of your family and friends, the health of your livestock and fields, the wisdom of your parents and grandparents.”

Industry can’t afford to coast if Preston Manning is right. The father of modern Canadian conservatism believes a political turning point has been passed.

For the first time, an economic slump has failed to knock the environment off the public agenda, Manning says. As author of an autobiography titled Think Big, founder of the Manning Centre for Building Democracy, and aspiring leader of a fledgling movement called green conservatism, he advocates creating national conservation watchdog agencies.

He is a star speaker in arenas such as the Fourth National Stewardship and Conservation Conference, an event for chiefs of environmental organizations that was held at the University of Calgary this summer. By way of confirming that Manning is onto something with his take on the political scene, the event also lured out Alberta Premier Ed Stelmach, Lieutenant Governor Norman Kwong, provincial cabinet ministers and Liberal leader David Swann.

But outside urban ivory towers, the other side of the political coin is face up. All the festivals of concern over carbon emissions and waste management have failed to dim the desire for decent livelihoods.

As in Alberta’s oil sands, visions are big in the emerging natural gas belt of northern British Columbia. Although development is in the trial stages of working bugs out of new drilling and production technology, the beginnings already make a difference.

“It’s probably over 50 per cent of our economy,” reports Chetwynd Mayor Evan Saugstad. “The gas industry is by far the biggest [tax] contributor to the municipality.” Talisman Energy, ConocoPhillips Canada, BP Canada Energy, EnCana Corp. and Shell Canada are household names in his rugged area 160 kilometers west of the Alaska Highway’s first milepost at Dawson Creek.

Gas inherits its role as a budding B.C. economic mainstay partly by default. Forestry mills are mothballed or running below capacity. Coal mining is uneven. The first wind power project on breezy northern ridges, built by Calgary’s AltaGas Income Trust, is starting up with federal help, but bigger plans by other green energy entrepreneurs stalled.

In private life, Saugstad works for a rare stable economic fixture of the region, doing community relations for Spectra Energy’s B.C. gas pipeline and processing network. He voices the perennial hopes of northern communities to develop permanent industrial operations that free them from boom-bust resource extraction cycles. He is under no illusions that economic nirvana will be easy to attain.

“When things shut down, it’s the highest cost operations that shut first,” says Saugstad, who is also a veteran of Yukon cycles. “We should all work together to have the lowest costs. We’re competing on world markets. If they can produce gas cheaper in Texas, they will. Nobody really has a solution.”

One clue that might point to a magic formula is the title of Manning’s autobiography. Part of Saugstad’s job is teaching urban corporate personnel to think big about adapting industry and communities to one another, starting with basics like allowing enough time to develop relationships by measuring travel in 100-kilometer legs instead of city blocks.

Alberta industry has recruited a star communicator. Pat Nelson, the province’s first woman energy and finance minister back when she held a Calgary seat from 1989 to 2004, has stepped up as vice-chair and chief voice of the fledgling In Situ Oil Sands Alliance

Nelson delivered a strong performance in her first practice run as an industry advocate in a brief speech to TD Newcrest's annual unconventional oil forum for investors. For the Canadian industry and investment audience, her talent will be on display again Oct. 6, when she will address a popular annual Calgary event called the PLS Playmakers Symposium and E&P Summit.

In case there were any doubts left, the industry's need for a master of political communications showed on Aug. 20 when the U.S. State Department granted a permit to Enbridge Energy for the American leg in its $3.7-billion Alberta Clipper oil export pipeline project. Publicity agents for a California-based environmental coalition immediately fired off a press release that was loaded with misinformation, ignored Washington's explanation and threatened a protest lawsuit.

Virtually all the construction will be in an existing pipeline right-of-way that has made Alberta a mainstay supplier of U.S. energy needs for half a century. The state department called the project "a positive economic signal, in a difficult period, about the future reliability and availability of a portion of U.S. energy imports." The announcement added that "this shovel-ready project will provide construction jobs for workers in the United States." The approval followed a review of greenhouse gas emissions, which the Obama administration believes "are best addressed through each country's robust domestic policies and a strong international agreement."

But the green groups the Sierra Club, Earthjustice, Indigenous Environmental Network and Minnesota Center for Environmental Advocacy called the permit support for "the dirtiest oil on earth." They recited a disaster image that protesters work hard at spreading: "Tar sands development in Alberta is creating an environmental catastrophe, with toxic tailings ponds so large they can be seen from space and plans to strip away the forests and peat lands in an area the size of Florida."

Nelson's job is to spread truth on behalf of IOSA, which represents the next wave and long-range future of oil sands development. She has plenty of facts at her fingertips.

Just for starters only one-fifth of the oil sands are close enough to the ground surface for mining. All of that is concentrated in a 3,450-square-kilometer area north of Fort McMurray which is just two per cent of the 142,000-square-kilometer, Florida-sized northern bitumen belt. In 42 years of production, mines to date have disturbed 500 square kilometers. Of 91 projects in the long-range oil sands development lineup, 85 are in-situ or underground extraction projects with wells, pipelines and comparatively modest above-ground plants. The in-situ processes involve around one-tenth as much land disturbance as the open-pit mines, mostly use undrinkable and recycled water from geological deposits in steam-injection processes, and have no tailings ponds.

But Nelson does better than talk up facts in vivid political style. She isn’t just acting. She speaks with genuine personal feeling.

"I started out in the oil sands," she said when I talked with her for the latest Alberta Oil. "It's an absolute passion for me.It's just a dream. You can go up there and with your bare hands pick up the richest crude in the world. You pick up the sand, squeeze it, smell it and realize that's the richest crude in the world. That's the jewel of Alberta."

The market upset that cut western Canadian drilling by 45 per cent and gutted the Alberta government's biggest revenue source this year is no mere bump on the energy cycle. Natural gas and oil prices are on separate paths that are liable to keep on diverging for the foreseeable future, says the National Energy Board.

Gas takes the low road while oil goes high in a revision of the NEB's supply and demand outlook through 2020, which was crafted in consultation with industry. Changes on both sides of the energy market since the last report in mid-2007 altered traditional economic relationships, in the board's new view.

On the demand side, the NEB says the link between the two commodities has broken. The ability of industrial and power generation plants to switch quickly between fuel oil and gas in response to price movements has weakened.

"Over the years the amount of this dual fuel-capable capacity has eroded to relatively insignificant levels," the new forecast says. The change is "due to several factors including high maintenance costs, environmental restrictions and siting issues."

On the supply side, surging development of "tight" and shale sources is reversing the mentality of scarcity that used to drive gas market spikes, most notably following 2005 hurricanes that damaged conventional production sites in the Gulf of Mexico. This summer the U.S. Potential Gas Committee announced the biggest supply estimate in its 44-year history. Earlier, the U.S. Energy Information Administration released its biggest-ever count of annual American reserves additions.
The emerging new supply of unconventional gas "has the potential to expand the traditional discount that North American natural gas prices have received relative to world oil prices," the NEB says.

During the early years of energy market deregulation and free trade in the 1980s there were expectations that gas would achieve parity with oil. If energy equivalence determined prices, six MMBtus of gas would be worth the same as one barrel of oil, the NEB points out. But, parity did not happen. Geopolitical issues and anxieties that fire up markets for oil but not gas at first widened the value gap to 10 MMBtus per barrel, and lately left no discernible relationship between the two commodities, the board says.

In the NEB's forecast of the most likely future, the annual average gas price takes until 2011 to recover from the current hardship range of US$3-$4 per MMBtu to $6.70, then only rises by baby steps to US$7.50 in 2020. Oil surges to US$90 per barrel by 2020 or enough to buy 13 MMBtu of gas more than double what the relationship would be under energy parity.

"As a result of the severe slowdown in conventional gas drilling activity and only gradual increases in unconventional drilling, Canadian production is projected to decline significantly," the NEB says. "At the same time Canadian natural gas demand is likely to grow as use for oil sands production and power generation continues to increase. This combination of declining production and rising Canadian gas requirements results in a lower net surplus available for export."

By 2016, the NEB's projections show Canadian gas exports to the U.S. falling to about five billion cubic feet per day or half the peaks hit in 2001 and 2006.

"If you're a poor nation and all you have is natural resources you'll tend to extract them at the greatest possible rate in order just to stay afloat." That was the bottom line to a complex address that Michael Moore delivered to peers gathered amid oil company towers in downtown Calgary for a biennial meeting of the Canadian branch in the 25-country International Council of Academies of Engineering and Technological Sciences.

Concentrating solely on corporate profits and government royalties sets up an energy-producing jurisdiction to occupy the losing side of an "exploitive" relationship with consumers, Moore warned. He urged adoption of more complete yardsticks of costs of satisfying markets. Measurements should cover the full value of resources by taking into account the life cycle of development and effects on the natural environment and the community, he suggested. "We act as though we're still living in a cowboy economy" where unlimited raw materials are ready to hand and only have to be picked up, he warned.

Like it or not, that freedom era is about to end for Alberta, former premier Peter Lougheed told the same meeting of international scholars.

Fossil fuels will still be tickets to wealth, Lougheed predicted. "I see $100-a-barrel-plus oil . . . fairly soon." Natural gas prices will rise again too, although more slowly and not so high, he added.

But at the same time as energy markets recover, Lougheed expects the United States and Canadian governments to take actions that affect Alberta's ability to make resource fortunes. He predicted that although the U.S. Senate is bound to water down commitments to strong restrictions on carbon emissions in legislation passed by the House of Representatives, Washington will eventually enact a compromise environmental bill that affects fossil fuels.

"The small print will be critical," Lougheed said. In addition to a practical need to stay in step with the U.S. as the nation's main trading partner, Canada's federal government will face emotional public opinion favoring action to curb emissions blamed for climate change regardless of whether Conservatives or Liberals are in power. A national election is coming soon, the environment will be an issue and leaders will have to deal with questions about the pace of energy development especially in the oil sands, Lougheed predicted. "Alberta is going to have to be prepared to amend some of its positions to fit into the Canadian consensus."

Gord
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Gord Jaremko, Editor, Alberta Oil

Oil sands postponements account for $150 billion or 88 per cent of $170 billion in worldwide project delays or cancellations recorded by the Paris-based International Energy Agency in a report titled The Impact of the Financial and Economic Crisis on Global Energy Investment. The stalled Alberta projects represent production of 1.7 million barrels a day. That is 85 per cent of the total, planned additions of two million barrels per day to global supplies that the IEA calculates to have been put in limbo by the international credit crisis and energy price slump since mid-2008.

The recital of project setbacks is the flip side of the stature Alberta's bitumen belt gained in the flush years before the onset of the global recession. The region stood out as the best hope for new supplies outside the Organization of Petroleum Exporting Countries starting in about 2002, when the United States government as well as previously skeptical industry agencies officially recognized 175 billion barrels in reserves as available for production with currently known technology.

The province has kept its stature as a potential engine of global supply growth through the economic tumult since mid-2008. A new five-year forecast by the IEA, released June 29, highlights Alberta's prospects. "Despite delays, Canadian oil sands are the single largest source of growth," the projections say. The only other significant candidate for additions outside OPEC, the resource-rich but politically unstable states of the former Soviet Union, is fading due to worse headaches than any facing oil sands developers.

IEA suggests much is at stake for the entire world in the oil sands industry's struggle to control project costs and ensure that it is allowed to survive by the coming new generation of environmental regulation on fronts from water use to carbon emissions.

"Falling energy investment will have far-reaching and, depending on how governments respond, potentially grave effects on energy security, climate change and energy poverty," the IEA warns. "There is a real danger that sustained lower investment in supply . . . could lead to a shortage of capacity and another spike in energy prices in several years time, when the economy is on the road to recovery. The faster the recovery, the more likely that such a scenario will happen."

No one will gain if prolonged economic and environmental confusion leaves the industry unable to mount projects, IEA executive director Nobuo Tanaka said in a statement on the agency's new five-year forecast. "A return to razor-thin crude oil spare capacity and resultant price volatility are in the interests of neither producers nor consumers."

IEA's reports describe a potentially pivotal world role for Alberta: "Providing the current [cost and environmental] challenges can be overcome, Canadian oil sands have the potential to make a significantly greater contribution to global energy security for decades ahead by increasing diversity of supply. As it represents one of the few growth areas among non-OPEC countries, many countries particularly the United States and China will be looking for a bigger share of the oil sands' output in order to reduce their dependence on Persian Gulf oil."

Canadian Natural Resources Ltd. will likely begin reviving its Kirby project south of Fort McMurray late this year or in early 2010, company president Steve Laut told an annual investment symposium held in Calgary by the Canadian Association of Petroleum Producers. The company's board of directors will be asked for approval to start spending on drilling and construction, a procedure known as "sanction" in the industry.

By oil sands standards, the first stage of Kirby is modest. The plan calls for developing 45,000 barrels per day of production for an estimated $600 million to $700 million. But for CNRL, going ahead on Kirby affirms that an ambitious growth strategy will survive the global financial crisis. The program calls for staged development of 285,000 barrels per day of output from an estimated 5.6 billion barrels that can be recovered with current technology from a vast spread of bitumen leases that the company owns between Fort McMurray and Cold Lake. Laut described the holdings as CNRL's "hidden gem." Unlike the company's open pit mining Horizon Project north of Fort McMurray, Kirby is one in a series of thermal in-situ projects that use pairs of wells for steam injection and production to tap oil sands deposits which are too deep to mine. Instead of the high-grade synthetic crude oil that comes from other mining projects that include "upgrader" plants, the in-situ operations pump out raw bitumen that has to be thinned with "diluents" to flow in pipelines.

Excluding the value of the additives, bitumen alone has traditionally fetched only about half the price of upgraded oil sands production. But market changes are ending that incentive to build plants, create jobs and increase government revenues by processing Alberta resources in Alberta which has been a cornerstone of provincial economic policy since the 1970s.

The old price discounts against low-quality oil are fading, reported Laut. In recent months the "differential" between light and heavy grades has shrunk to 10 per cent or less from the formerly standard range of 30-40 per cent. The change appears likely to be permanent, agreed Baytex Energy Trust president Tony Marino, whose firm produces heavy crude in the Peace River oil sands region.

The trend is credited largely to Enbridge Inc’s and TransCanada Corp.’s export pipelines, which are extending Alberta deliveries all the way to Texas. The province's exports were previously confined to oversupplied markets in the Chicago region. At Gulf coast refineries equipped to process heavy oil, Alberta bitumen is replacing dwindling output from Venezuela and Mexico. Laut disclosed that CNRL is supporting its oil sands growth program by booking capacity to ship 120,000 barrels a day to the Gulf coast on the second stage of TransCanada's new Keystone Pipeline.