High oil prices halt growth

The man who predicted five years ago that $100 US a barrel oil was here to stay is now saying that “triple-digit oil prices” will keep the brakes on global economic growth for as long as oil remains the lubricant of the world economy.

And Jeff Rubin, economist and best-selling author of The End of Growth, says that will be a long time, despite what the prophets of peak oil – who predict the imminent and permanent decline of oil production – are forecasting.

“You are in the midst of nothing short of a revolution,” Rubin told delegates at the Williston Basin Petroleum Conference in Regina Wednesday. “And this conference is a testament to that.”

Ten years ago, the conference used to attract a couple of hundred geologists, engineers and oil industry types to talk about the Williston Basin, a sleepy corner of the North American oilpatch shared by Saskatchewan, Manitoba, Montana, North Dakota and South Dakota. This year’s conference – the 21st annual – had more than 2,000 registered delegates. And far from being a forgotten part of the oilpatch, the Williston Basin is the hot spot of the North American oil industry, thanks to the development of the Bakken formation starting about 10 years ago.

“U.S. oil production increased the most in over a decade,” Rubin said. “We’re seeing place like North Dakota producing 700,000 to 800,000 barrels a day. We’re seeing 70,000 BOPD coming out of Saskatchewan,” Rubin said, referring to the province’s Bakken light oil production.

In fact, Rubin noted the U.S. Department of Energy is forecasting that in 20 years the U.S. may be self-sufficient in oil production.

“But is energy independence really the issue? Last year, retail gas prices in the U.S. were the highest ever. Last year, Brent, the world oil price, averaged $112 (US per barrel), more than it did in 2011. The problem is not where the oil comes from; the problem is what the oil costs.”

Rubin said the danger isn’t running out of oil or being dependent on foreign oil. “The economic question is: Are we going to produce oil that we can afford to burn … and grow at the kinds of growth rates that we’ve become accustomed to?

And the reason the global economy grew so rapidly in the last three to four decades is “cheap oil and cheap coal.”

But as the era of cheap energy is coming to an end, so too is the era of globalization, Rubin said. “In a world of $20 oil, transportation costs are incidental. But … when oil costs $100 a barrel, importing everything you consume from some place half way around the world just because the labour is so much cheaper can quickly become penny-wise and pound-foolish.”

The good news is that industries, like manufacturing and agriculture, could enjoy a renaissance in North America. “Tomorrow’s economy (may) resemble a lot more the economy of 30 or 40 years ago than the global economy (of today).”