Blaming labor for peak oil problems

Costs are booming in the Wild West oil sands territory of Alberta. Fie on those workers spoiling the party for everyone else

Published August 15, 2007 9:43PM (EDT)

A labor shortage is "wracking" the province of Alberta, Macleans tell us, brought on by the mad rush to exploit the vast reserves of petroleum locked in the fabled oil sands of Canada's Wild West. The jobless rate in Alberta is a "historically low" 3.4 percent even with net inward migration in 2006 hitting 62,000.

Labor shortages mean workers have leverage, a fact that appears to be inspiring some dismay among the oil companies operating in Alberta. In July, five trade unions authorized a strike mandate, setting the stage for a showdown in which oil sands workers demand a larger piece of oil sands profits.

As Macleans describes it, labor's demands are just one more factor making life hard for oil companies. The price of steel, driven by Chinese demand, is also surging, and government officials are making noises about reducing some of the incentives that originally aimed to encourage investment in the region. Just three years ago, it cost $35 dollars to extract a barrel of oil from the tar pits. Now the price is $50.

Higher material costs, inflation, labor crunches, uncertain government policy -- while none alone breaks the bank -- are in aggregate damaging, narrowing profit margins to the point where companies will pass on future endeavors. "Expected rates of return on these projects for the most part are probably sub-teen now," says Friesen. "When you consider cost and risk of executing a project -- that begins to become marginal." If no new projects are breaking ground in five years, the impact on Alberta's economy (and on Canada's) will devastate.

What's missing from this picture?

Could it be the lack of any mention of how extraordinarily energy intensive the process of extracting oil from the bitumen deposits of Alberta is? So much so that there's been talk of building nuclear power plants just to provide energy for the oil sands industrial complex. Or what about the problem that as the low hanging fruit -- the deposits that are reasonably close to the surface and accessible -- gets picked, the cost of going after the harder-to-reach stuff explodes?

And not one word about the immense environmental costs of oil sands extraction, which usually involve the wholesale destruction of vast tracts of land, along with the diversion of huge quantities of water. (And we won't even bother to complain about the failure to internalize the long term costs of the greenhouse gas emissions produced by Alberta's heavy industrial activity. That would just be silly.)

Does it cross anybody's mind that the rising price of doing business in Alberta constitutes clear proof that cheap oil's days are over? That this is, in fact, a textbook case illustrating the principle of peak oil? As supply tightens, the pressure to go after more difficult-to-exploit sources of energy will rise, and so, accordingly, will the cost of that energy.

Nope, much easier to blame labor for picking a bad time to demand a bigger piece of the action.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Globalization How The World Works Peak Oil Unemployment