As global populations keep rising, so does energy usage. With some analysts predicting that the world will require an extra 36 million barrels of oil a day, prices for crude have continued to climb in the face of this higher demand. New unconventional oil fields begin to make economic sense as crude prices continue upward. Perhaps one of the most unconventional is the vast Athabasca region of northern Alberta. It is here that an estimated 175 billion barrels of oil lie locked within the sand and clay. Extracting it is expensive and dirty, but with demand and oil prices rising, this vast region could be an oil bonanza.
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Fighting for Reserves
Canada already produces nearly 1.5 million barrels per day from the Alberta oil sands region, and that number is expected to grow exponentially in the face of worldwide demand. Analysts estimate that by 2035, that number will be closer to 7 million. These alternative bitumen deposits currently represent 97% of the country's proven oil reserves. Extracting the oil-rich bitumen is extremely costly, both on the mining front and in the environmental cleanup. However, with crude prices rising back toward $100 a barrel, exacting oil from the Canadian oil sands is more of a priority for a host of nations.
Overall, Canada produced 22% of America's oil imports in 2010, and that number is set to grow as the United States begins it economic recovery. As the U.S. has continued to reduce its reliance on "foreign" oil, imports from our friendly neighbor to the north have increased. Most recently, the oil sands industry saw a big win as TransCanada's (NYSE:TRP) $13 billion Keystone XL pipeline received a favorable environmental reading from the U.S. State Department. Overall, the 1,700-mile pipeline will send crude oil from Alberta to refineries in Oklahoma and Texas. With the potential to create nearly 120,000 jobs, the pipeline's creation is almost assured.
However, U.S. involvement might not matter with regard to the growth of Canada's oil sands projects. China has set its sights on oil sands gold. Partnering with Enbridge (NYSE:ENB), China has proposed The Northern Gateway Pipeline, which would take crude westward from Alberta to the Pacific Coast. It would then be exported to the Far East. China isn't just waiting for the pipeline to be built. The nation has continued to purchase acreage with the region. In 2009, PetroChina (NYSE:PTR) paid $1.9 billion for acreage owned by private firm Athabasca. More recently, Sinopec (NYSE:SHI) purchased from ConocoPhillips (NYSE:COP) a 9.03% interest in Alberta's Syncrude partnership for $4.65 billion.
Playing the Potential
With two major superpowers vying for Canada's energy reserves, the growth of its oil sands industry is almost assured. For investors, playing the region can provide gains for years to come. The Guggenheim Canadian Energy Income Fund (NYSE:ENY) follows a basket of 34 Canadian energy producers, many of whom have oil sands operations. The fund could be a good overall play on the nation's energy growth. However, there are ways to hone in on oil sands production.
Small-cap construction firm North American Energy Partners (NYSE:NOA) could be a stealthy way to play the Athabasca region's growth. The company was recently awarded a $127 million contract to construct roads, grade and complete civil works for the Syncrude partnership in Alberta. The company is also working with Canadian Natural Resources' (NYSE:CNQ) Horizon oil sands project.
Both Suncor Energy (NYSE:SU) and Canadian Oil Sands Limited (OTCBB:COSWF) offer investors direct plays on the oil sands fields. Canadian Oil Sands receives all of its production from oil shale, and Suncor was the first company to develop the oil sands, giving birth to the industry. Each will remain a major player in the sector going forward and represent the cream of the crop.
The Bottom Line
With oil prices once again on the rise, unconventional fuel plays begin to make economic sense. The vast Athabasca oil shale region of Alberta is one such play. With both U.S. and Chinese interest in the region growing, companies that supply this crude oil will ultimately benefit. The previous picks, along with firms like Nexen (NYSE:NXY), make ideal selections. (For additional reading, see A Guide To Investing In Oil Markets.)
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