Wednesday, August 20, 2008

Buffett Buzz on the Oil Sands is Building...Better Fasten Your Seat Belts Alberta

I love how the communications media works. It has been 40 years of oil sands development that has been going on in Alberta. There is over $100B of oil sands investment committed and in the mill. We have envoys in Washington working diligently to get some attention amongst American energy sector influentials but only with middling to moderate success.

Then one visit by Warren Buffett and he is going to generate as much attention as the 500 dead ducks did. If the goal of the promoters of the Buffett visit was to neutralize the 500 dead ducks they will be disappointed. He will draw attention to the oil sands but it will not draw attention away from the ecological issues in oil sands development as the same time. The economic and ecological aspects will both be in play and there will be voices demanding reconciliation of these two aspects. Buffett will be amongst those voices I expect.

Buffett's junket will no doubt generate lots of media and market interests. It will also start to make Americans much more aware that they have a real solid solution to their dependence on Middle East and Hugo Chavez for energy supply tight here in little 'ol boring Canada. The Alberta government can also save its $25,000,000 for an advertising campaign to try and buy respect now that Warren Buffett is in the media mix. He will generate more positive publicity and buzz for the oil sands than any high paid pandering program would ever do.

There are other consequences of the Buffett Buzz. The oil addicted American energy consumer will soon go beyond being profoundly ignorant or passively indifferent to the potential of oil sands. They will wake up to the fact that Alberta is a peaceful, stable, secure, friendly, reliable and an already enormous energy supplier to the lower 50 States. They will soon be insisting we aggressively ramp up oil sands production to meet their growing needs. That is a more serious problem. We can't go faster that we are. We also have to develop the oil sands in the most integrated and sustainable way possible. We must not just push the development in the most rapid way possible without careful planning. We need to figure out how to optimize economic outcomes and avoid or effectively mitigate the inevitable ecological damage. We also have to ensure we have the necessary public infrastructure in place and on time so we don't destroy the social fabric of Alberta at the same time.

We can't go too fast for many reasons including realistic limiting factors like the skills and labour shortages, material shortage, insufficient upgrading, refining and transportation capacity. We have not even talked about the impact on land, air and water plus the growing natural capital deficit due to the unrequited reclamation requirements.

Besides that we have many other international players already involved in oil sands projects including Japan, France and Norway to name a few. China is here too but will be investing even more aggressively soon. Ireland just arrived I understand. There is a constant back and forth of Middle East oil industry players visiting Fort McMurray. They too are no doubt kicking tires looking for investment opportunities. India is even scouting the oil sands possibilities.

What if they all want oil sands for security of energy supply too? Alberta may need its own foreign policy before too long now that Buffett has blown the lid of the secret of the oil sands. I wonder how Ottawa is going to react to that? Harper is keen on providing more provincial powers. Alberta may have to press him on providing them as part of the pending election.

Buffett is not a spin-meister. He is listened to and highly respected. He is on NBC television on Friday talking oil sands. What he says will have a significant impact on the industry and the future of Alberta for years to come. Albertans better fasten their seat belts. It could be a rough and tumble ride depending on what Warren Buffett says.