When did the oil sands in Alberta become a “national treasure”?

According to Brian Ferguson, the CEO of the newly created Conovus Energy, EnCana’s oil sands and refining spin-off: “The Alberta government and its federal counterpart must step up to defend the oil sands both at home and abroad, pushing the economic and energy security arguments.”

I don’t remember anyone in the Alberta oil patch suggesting, when oil prices were tripling in the fist half of 2008, that perhaps the oil companies should give Canadians a break and cap their prices. That was supposedly the free market at play, and why should the oil companies sacrifice when the market was pushing up oil prices?

I do remember there being a feeding frenzy as scores of billions were being thrown into the oil sands for both acquisitions and new projects. Amazingly, the prices of new projects seemed to mimic oil prices, doubling and tripling overnight. For an industry that prides itself on long-term planning, it can’t seem to do a good job at forecasting costs. Indeed, there has long been a strong positive correlation between energy project costs and oil prices. Coincidence?

Why is Ferguson now worried and asking for government help? Because the oil industry finally has taken its head out of the sand and has realized that environmental policy is progressing rapidly towards making oil, and especially oil extracted from the oil sands, very costly, and much less competitive. This is just another example of myopic behavior by this industry. How can any company, including Conovus, commit to mega-billion dollar projects with 20 to 25 year life spans and totally ignore the direction of government policies?

There are three possible answers. This industry is incestuous. The people in the industry hang out primarily with others in this industry, and as such, they prefer to believe in self-serving drivel such as peak oil and $200 a barrel oil. They do not tolerate different points of views.

Secondly, they operate under the PP principle. That is, when profits are gushing, they are solely responsible for their good fortune. When the industry is threatened and performing poorly, governments are to blame. They still trot out the National Energy Program (NEP) as a warning to governments not to skim the periodic economic rents and resulting windfall profits. Even in the absence of the NEP, the Alberta oil industry would have suffered greatly as oil prices plummeted in the 1980s. But better to blame government than their own irrational exuberance and myopia.

Finally, the industry believes itself to be so important that they expect governments to do their bidding for them.

Regardless of one’s views on global warming, what would be wrong with throwing the oil sands to the wolves? Why should we care if the oil sands are shut out of the U.S. market and/or oil prices tumble again?

Energy security sounds like the old mercantilist arguments in favor of self sufficiency. If we want energy security, why not greatly reduce the energy intensity of our economy?

And surely there are better ways to invest the fortunes being spent on developing the oil sands to benefit the Canadian economy. At a minimum, the collapse of the oil sands would lead to a depreciation of the Canadian dollar which in turn would benefit the manufacturing sectors. However, if you are a resident of Alberta, you will be upset because this would tilt the benefits of confederation once more in the direction of Ontario and Quebec. Too bad Alberta never diversified its economy. Now live with the consequences!