Solomon, oil and Saudi Arabia
Larry Solomon wrote an interesting commentary in Saturday’s Financial Post. He argued that the “world is awash in oil.” He claimed “some 40 countries in every continent in the world have 4.8 trillion barrels of shale oil, making oil a ubiquitous commodity that gives every region of the world the wherewithal to be energy self-sufficient.”
He added: “With the world awash in oil and gas and Western nations no longer dependent on energy exporting countries of the Middle East, the countries of the Middle East will revert to being exotic and backward curiosities in the eyes of Westerners, as they have been through most of the last 500 years. Accelerating the diminution in status will be a likely collapse in oil prices.”
Assuming Solomon is right, he does not address three important issues. First, since he is relishing the day when the oil exporting countries of the Middle East, and in particular Saudi Arabia, become insignificant players on the world stage as their oil revenues evaporate, then he should be leading the movement to establish substantial carbon taxes in North America and Europe. These taxes would hasten the collapse of oil prices and the decline of the oil exporting countries, including Venezuela and Russia, and encourage the more rapid development of shale oil technologies and alternative energy technologies. Yet I suspect that he is not a fan of carbon taxes.
Second, why do oil prices exceed US$100 per barrel today? Obviously speculators have played a role in driving oil prices to their current levels, levels in excess of what can be supported by the underlying demand and supply fundamentals. Yet, Solomon does not propose introducing regulations and/or taxes to limit the role and power of speculators.
Finally, given the scenario he describes, building the Keystone and Northern Gateway pipelines does not make any business or economic sense. Indeed, expanding production in the oil sands of Alberta looks like a losing proposition as well. No one will need or want this oil. These are obvious corollaries from his shale oil projections.
For example, Solomon noted: “China, another major importer, may also become an exporter, given that it has the world’s second-largest store of shale oil.”
So who will get stuck with the costs of the bad investments in the pipelines and oil sands? The Canadian taxpayer of course. Yet I suspect that Solomon supports the two pipeline projects even though this would be inconsistent with his view of the future of the oil industry.
Solomon may prove to be right, and for this reason Canada should be very reluctant to approve pipeline projects that are doomed to fail.
The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.