That is to say, the industry that encompasses the extraction, processing and marketing of Western Canadian Select has reached a stage in its development, which suggests that to continue business as usual, i.e., selling a natural resource in its most basic form and at its most basic price, seems less rational than the assessed risk of capacity building and diversification of the oil industry.
In the short term, capacity building consists of increased upgrading facilities in the form of more coker plants. Oil sands come out of the ground as bitumen. Bitumen must be upgraded to a lighter synthetic crude oil to be able to flow in pipelines, whether the pipelines run in an east-west or north-south direction.
Therefore, given Canada's proven oil sands reserves, the justification for an increase in upgrading capacity is self-evident.
In the medium range, capacity building equates to the ultimate diversification strategy, refining.
There are several factors that impinge on refining capacity. Currently, Canada refines approximately 25% of the oil it produces, while at the same time, Canada exports more refined oil products than it imports.
As a result, any increase in refining capacity would be to satisfy an export market.
In addition to often daunting environmental considerations and legal challenges in the courts, refineries are highly costly facilities to build. The cost of a new refinery is nearly 10 billion dollars.
And, although new refineries are at various stages of development in Michigan and Illinois, it has otherwise been decades since a refinery was built either in Canada (1984) or the United States (1976).
However, the enormous costs of refinery construction must be seen in the context of the national economy as a whole.
If, we consider the cost differential between Western Canadian Select and the Brent Crude oil that Eastern Canadian refineries process, the difference in price, averaged over the past several years, costs the Canadian economy some 20 billion dollars a year.
In other words, the cost differential alone is equal to an amount of money that would pay for the construction of two new refineries each year.
The number of jobs and the types of employment opportunities associated with an industry are known to change as the industry goes through various stages of development and its technological base matures. Dislocations are inevitable and the need for retraining is ongoing, and the costs associated with these eventualities ought to be planned for, and should never have to invoke crisis type interventions.
Governments involve themselves in the affairs of business not only to protect workers and the environment and to collect taxes, but also to maintain a domestic as well as an international trade environment that is conducive to its national interests.
Often governments provide a source of funding for long-range projects to create opportunities in emerging technology markets and to help industry make transitions and assist workers when insufficient reserves are in place to address dislocations and the economic hardships that might result.
Government also stands as a regulator, which not only involves government in setting production standards, but when the need arises, to set limits on the amount of a resource that can be brought to market at any one time to help support prices, when markets are unable or unwilling to regulate themselves in the national economic interest.
There is much controversy surrounding government's attempts to regulate markets. And, naturally the loudest voices in this argument are those who wish to be wholly unregulated. At the same time, industries are more than willing to accept loans at highly favorable rates and long-term investments from governments which the financial markets are unwilling to venture into.
There are equally influential external factors that drive large industries in the direction of both profit and ruin, which originate with international money movements and often rather obscure trading instruments. Those in the auto industry in Ontario have become painfully aware that hedge funds with automotive manufacturing plants attached to them do not always lead to splendid profits, continued growth and stable employment opportunities.
And, so it is for Alberta's oil industry at a crossroads.