April 22, 2010 – Beware of Canadians Bearing Gifts


Featured Trades: (CANADA), (FXC), (EWC), (TAR SANDS)

2) Beware of Canadians Bearing Gifts. Anyone who has any illusions about the Canadian tar sands business should take a look at the March issue of National Geographic, not normally a prime source of financial and economic news for me. I'm not a fanatic, sandal wearing, organic bean sprout eating environmentalist, but just looking at the glossy, eye opening pictures tells you that this is an eco disaster of Biblical proportions. A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion was headed north before prices crashed last year. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single miserable barrel of oil. This gives you the world's highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch's brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We're not just talking about a few sick geese here. Canada is the largest foreign supplier of oil to the US, accounting for 19% of our total, and half of that is coming from tar sands. One can only assume that the whole industry was built as a hedge against some Third World War, Armageddon type total cut off of all foreign crude supplies that would drive prices to $500/barrel, making all of this hugely profitable someday. Maybe the owners think they can get away with this because it is in the middle of nowhere. An army of lawyers hitting these projects with a tidal wave of litigation think otherwise. After looking at these pictures and analyzing the numbers, you have to ask if it is really worth it, just so I can drive my Hummer to Wal-Mart.

TarSands3-1.jpg picture by madhedge