Billionaires Bet Big On Oil-sands

Alberta Tar-sands Could See Growth from Demand for Plastics.

Major oil companies have been fleeing the oil-sands. Huge companies like Devon Energy and Shell Oil have sold their Northern Alberta oil-sands interests and projects at fire sale prices. HSBC has formally stated that they will no longer invest in the oil-sands. Does that mean Fort McMurray is dying and will soon be a ghost town?  That’s just the way the oil-sands cycle has peaked and fallen so many times in the past. If the oil-sands are dead, it could be bad news for Alberta real estate investors…

Guess what, not everyone thinks the oil-sands are dead.  Smart guys like Murray Edwards of Canadian Natural Resources Ltd. and the Li Ka-Shing family/group have been buying up those oil-sands assets and really paying peanuts. Did I mention that Murray Edwards and the Li Ka-Shing family are billionaires a few times over? They don’t make investments like this without a very good sense that those investments will pay off big time in the future.

And why do they think that? Great article by Andrew Willis in the July 7, 2019 issue of the Globe and Mail. Here are some quotes from Andrew’s article.

Why the show of faith from Mr. Edwards and the Li clan? As Dustin Hoffman’s character was told in the film The Graduate, in one word, plastics.

Research from the International Energy Agency (IEA) and other non-partisan groups shows that “petrochemicals are the fastest growing source of oil consumption, and we believe this is not well known among the investment community,” said energy analyst Phil Skolnick at Canadian investment bank Eight Capital in a recent report.

This new demand will come at a time when traditional energy suppliers such as Venezuela and Iran face significant headwinds to production. Venezuela’s economy is collapsing, and Iran faces geopolitical headwinds from its adversaries, including the United States.

There has been a long and difficult battle over plans to build new North American pipelines. And increasing awareness of climate change is shifting consumer sentiment away from gasoline-fueled cars and single-use plastics, trends seen as curtailing future demand for oil.

The contrarian thesis, quietly embraced by Mr. Edwards and the Hong Kong-based Li family, is that over the long term, global demand for heavy oil will increase, supply will tighten and many of the problems facing Canada’s producers can be solved. Mr. Skolnick expects an increasing amount of Alberta oil to be transported by rail, which will help shrink the difference between the price paid to Alberta producers and those in other regions.

The bullish case for the Alberta oil sands grows stronger if federal government moves ahead with the long-delayed expansion of the Trans Mountain pipeline. The best-case scenario is the controversial project will be finished by 2022. Coming close to that schedule means Trans Mountain could be moving oil to Asian customers just as China becomes the world leader in refinery capacity, an event that’s expected in 2024, when the country finishes a complex on its northeastern coast that rivals anything on the Gulf of Mexico.

Continued Oil-sands Investment Could Stimulate Alberta’s Provincial Economy, a Boon for Real Estate Investors.

The world is going to need petrochemicals for a long time. I like the notion that the oil-sands are coming back. Smart real estate investors need to consider broader economic trends, and in Alberta that means keeping an eye on the market for our oil.