Behind the Alberta oil producers' pipeline dilemma in 2014 -- the stalled Northern Gateway and Keystone projects -- are three simple obstacles. Alberta oil is the "swing" supply for the United States. The tap is turned on full or throttled back depending on regional needs south of the border. Alberta producers are price takers, not price makers. They dance to the music that the market makes, and the market doesn't serenade swing producers with high prices. The province is a long distance from major markets, so its oil production depends on expensive delivery systems. Distance from market delayed development of the oil resources of the Mackenzie and Athabasca basins from 1875 to 1965, except for wartime shipments from Norman Wells via the Canol pipeline to the Pacific coast. Before the discovery of Turner Valley in 1914, oil on the prairies came by train from Montana. After the Leduc discovery in 1947 the province produced more oil than the first pipeline to Eastern Canada could ship. The Oil and Gas Conservation Board rationed each well to ensure a fair share of markets for all producers. The political bravado about Alberta being an energy superpower is based on the long overdue recognition of 167 billion barrels of oilsands reserves that can be produced with current economics and technology. A more relevant measurement is that Alberta's daily oil production is equivalent to only 2.5 per cent of the world's daily consumption. That amount is normal evaporation and spillage and can be replaced. It has been an economic achievement for Canada to become a net exporter of oil; 30 years ago Canadians depended on oil imports. However, we aren't even in the room where the real global energy big shots transact business. When environmental and First Nations grassroots politicians choke off new pipelines, they cloud the future of Alberta oil. Keystone is dead, but new pipelines to the Pacific and Eastern Canada are the future of the oilpatch in Alberta. If, at year-end, pipeline projects are still deadlocked, investment in new production will begin to dry up.
