Canada: the New Superpower to the North

09/26/2007 12:00 am EST

Focus: COMMODITIES

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Gordon Pape, editor and publisher of Internet Wealth Builder, says Canada has emerged as an energy superpower-and the world hasn't caught on yet.

Although Canada has always been an oil producer, we were a second-tier player on the world stage until relatively recently. It was only when the price of crude rose above US$40 a barrel and stayed there that we began the serious transformation into a major force.

That was the price level needed to make the production of crude from the Alberta Oil Sands profitable enough to warrant the investment of hundreds of billions of dollars in development. (Canadian Oil Sands Trust reported operating costs of $30.13 per barrel in the second quarter.)

Now we apparently possess the world's second largest oil reserves, with only Saudi Arabia ahead of us. Once the Arctic opens up to serious exploration, we may some day be number one. I suspect that most Canadians (or Americans for that matter) still have not come to grips with the fact that in energy terms we have become a superpower.

What makes our oil even more valuable is our proximity to the United States and the fact we are who we are-a stable, pragmatic, democratic, capitalist country, remarkably free of demagoguery. With so many oil-producing nations experiencing internal problems, from guerrilla attacks in Nigeria to runaway nationalization in Venezuela, we stand out like a beacon of light.

Some people scoffed when Jeff Rubin and his team at CIBC World Markets predicted last year that $100 a barrel oil was on the horizon. They aren't scoffing now. After oil cracked through the $80 a barrel level, Rubin predicted that the oil price would average $90 a barrel in 2008, hitting the triple-digit mark by year-end.

[Any] slowdown would only be a temporary setback. As new production facilities come on stream and more pipeline capacity is added, Canada's role as an oil producer and exporter will continue to expand.

Rubin estimates that we control 56% of the world's investable oil resources, because so much of the rest is located in countries that prohibit or discourage foreign investment. Rubin says that Canadian oil production could reach four million barrels a day by 2020. We're currently at just over one million barrels a day.

Of course, the price of crude isn't going to go straight up, nor is the price of oil stocks. But barring an international depression, it's hard to imagine a return to the boom/bust patterns Alberta experienced in the past. [Secondly,] the rise of the loonie is not a passing phenomenon. As long as the oil keeps flowing, the [lows] won't come close to the US62c level we saw just a few years ago. The few economists who forecast parity with the US dollar by the end of this year now look pretty smart.

The fact is that we're just at the beginning of our oil superpower stage. It's a reality that will dominate our economy for the rest of our lives.

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