Prospects for the World Petroleum Market and Implications for Canadian Policy

The recent slackness in world oil markets stems from much more than short-term cyclical factors. Stagnating demand and widespread production expansion are likely to lead to lower real oil prices over the next decade or two. Yet the magnitude of this decline remains quite debatable, and although it is not probable, the possibility remains that massive, politicallyinduced supply disruptions could cause a third oil-price shock. The shift to a scenario of lower, uncertain international oil prices creates severe difficulties for efficient negotiation of major Canadian energy projects. In particular, the possibility that governments might later unilaterally alter the terms of any negotiated pricing/revenue agreement represents a political risk which companies must consider in addition to the problem of generally less favorable world market prospects. Calculations given in the present paper suggest that these political uncertainties may have been strong enough to scuttle the Alsands oil project, even if the proposed development remained a potentially sound investment for Canada. The use of competitive production contracts should be considered as a way of minimizing such political risks and therefore of improving the efficiency with which major Canadian energy development decisions are made

Business · Economics · Natural resource economics · Petroleum · Global Financial Crisis and Policies · Market Dynamics and Volatility · Natural Resources and Economic Development · Geology

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