Blaming labor for peak oil problems

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?

Salon.com