Abstract

During the past two years a number of very major political and economic events have dramatically altered the viability of future energy and resource development. This paper attempts to define and discuss the areas of change and the resulting impact on future projects. The Oil Industry is significantly different from other industries in methods used for financing operations, and in Taxation and Royalty structures. These differences make it very difficult to compare rates of return, profitability, and other measurements commonly used for economic evaluations. General resource and manufacturing type industries are compared in an attempt to pin-point these differences.

The paper then carries on to illustrate the impact which these factors have on future oil developments and in particular the Tar Sands Projects.

The paper concludes by discussing various methods which could be used to encourage and assist such developments.

It should be noted that the information contained in this paper has been derived from a large number of editorials and comments published over the last year by many organizations. The writer has tried to present only factual data and draw conclusions based on these facts. Calculations are approximate and are intended only to show relative impact of the variables.

OIL INDUSTRY DEVELOPMENT HISTORY

In order to understand the significance of the recent political moves it is necessary to go back and develop some of the features of the history of the oil industry.

The oil industry, as we know it today, has developed over the last 30 to 40 years. Prior to this time the industry was primarily a localized and domestic type operation with only small quantities of oil being imported and exported by various countries. Energy requirements for industrialization were largely supplied by coal and hydro electric power developments. The only relatively large consumer of crude oil and natural gas was the United States, which, at that time, had large reserves of easily obtainable oil and gas. This situation remained stable during the depression of the thirties but the Second World War demands for petroleum products and energy altered this pattern. The war methods required ever increasing quantities of sophisticated equipment that consumed large volumes of fuels. Oil sources became strategic objectives and shortages spurred development of new technology for geological exploration, interpretation of data, drilling methods and oil field development and production. After the war the demand for oil was sustained due to the rebuilding process in the war ravaged countries. Oil consumption for transportation of all types, industrialization programmes, electrical nergy production, and petrochemical complexes continued to increase. Coincident with this increase the oil companies were able to find immense oil fields in various under-developed areas of the world and world oil reserves rose dramatically. Environmental problems associated with burning coal were greatly reduced by switching co or designing new plants to use natural gas or heavy oils left from the refining operations. Coal demand was reduced while the usage of natural gas and oil rose at ever increasing rates.

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