The Canadian oil sands are dirty, remote, expensive to produce and at the same time plentiful and in short supply. Whatever your feelings are on the topic the fact is the oil sands represent an increasingly critical component of the bridge that must be built to the often prophesied clean-energy future.

That’s one clear point to take away from a pair of reports out during the past couple weeks. Another is that the Canadian oil sands represent an opportunity for investors to build wealth through steady, reliable income and what could be–if recent research and forecasts prove even remotely accurate–significant capital upside.

By whatever measure, and even overweighting the most favorable studies, full life-cycle oil sands production results in more greenhouse gas emissions than conventional methods of developing crude. Oil sands concentrations in north central Canada require significant infrastructure investment to make their exploitation more economic. Even assuming completion of prospective pipelines such as Keystone XL, for example, the extraction process, done on a massive scale, is capital-heavy and energy-intensive.

But while it’s basically true and a comforting notion in the short term that the Canadian oil sands are in the same ballpark with Saudi Arabia’s massive fields in terms of crude reserves recent research, looking at the problem from different but parallel perspectives, suggests we still may not have enough oil to fuel the global economy until really viable alternatives arrive.

Two reports–a research paper from the Department of Civil and Environmental Engineering at the University of California, Davis, and the International Energy Agency’s (IEA) World Energy Outlook–could provide the starting points to reframe the energy security question as follows: How long until viable alternatives to oil emerge, and do we have enough to get there?

The Canadian Oil Sands: Big Drops in a Big Bucket

If you believe in markets and that they can accurately reflect expectations for the future, you’ll be fascinated by Future Sustainability Forecasting by Exchange Markets: Basic Theory and an Application by Nataliya Malyshkina and Deb Niemeier. If you’re interested in knowing how long it might take until a real alternative to oil emerges, it is essential reading.

And if you’re curious whether we have enough oil to get us to that point, you’ll want to know that in its most recent annual report the IEA concluded that production of conventional crude oil probably topped out for good in 2006, at about 70 million barrels a day, and that production from oil fields now in operation will drop sharply in coming decades. “The size of ultimately recoverable resources of both conventional and unconventional oil,” notes the IEA in its 2010 annual report, “is a major source of uncertainty for the long-term outlook for world oil production.” The IEA predicts that oil demand, prices and dependence on OPEC will rise through 2035, and that global oil supplies will be near their peak in 2035. Shrinking supplies and rising prices mean that oil sands output is not only economic. This dynamic makes the Canadian oil sands a defining characteristic for the Great White North and a major component of the bridge to the clean-energy future.

Malyshkina and Niemeier make no claim to a definitive conclusion, only that theirs is a tool for what is a critical debate. Their research is rooted in the theory that markets are strongly influenced by the laws of supply and demand, and, that over the long term “market forecasts are effective in pricing traded securities.” They apply a pricing model to publicly traded securities whose future cash flows depend on the appearance of both oil and oil-replacement technologies to find out what the market believes about when relevant innovations will emerge.

The market-based model pushes out into the 22nd century the emergence of a technology capable of replacing oil in the economy. The theoretical framework established by Malyshkina and Niemeier suggests that “the time horizon until the appearance of new technologies related to replacement of nonrenewable resources, for example, crude oil and oil products” such as gasoline and diesel is 131 years.

That’s a lot longer than previous studies, which have pegged the timeframe at basically a generation or two, 20 to 50 years. Estimating the time for the introduction and spread of new technologies into the economy is subject to a lot of complex variables, which accounts for the wide variation in conclusions produced by equally compelling research. But it is important to understand, particularly in light of the relative accuracy shown by applications of similar models in different competitive environments, what the 131-year time horizon means in the context of current oil reserves and consumption patterns.

The bottom line is this: Available data suggest the peak of oil production will occur anytime between now and 2035. But we need to make it last until 2141, which means there is the very real possibility that crude oil will be depleted before alternatives replace it. The Canadian oil sands could play a role in mitigating potential economic and social dislocation wrought conventional crude shortages.

Canadian Oil Sands and Continental Politics

Present politics reflects old paradigms. Looking at the energy security problem and the role of the Canadian oil sands in ensuring it for North American requires sacrificing utopian ideas in favor of solving a real problem. And at this stage the game gets complicated. A change to the timeline suggested by Malyshkina and Niemeier in the future sustainability forecasting study could result from policy choices; their model incorporates only that information available right now. It tells us what the market expects.

Crude oil and the problem of its life-cycle emissions will be no more, a lot sooner than pretty much everyone thinks and even including, perhaps, clear-eyed environmentalists, for reasons that can be boiled down to the fact that most economic development in human history has taken place during the last half-century. Our consumption of resources–particularly oil, the essential element for industrialization–has accelerated exponentially in that time and has been supercharged recently by emerging Asia. As things stand we’re likely to burn it all before the state makes it fade away.

At the same time, putting a price on carbon dioxide could be one mechanism that extends the life of what will remain, based on existing infrastructure and the types of  fuel consumed by the mass of the general vehicle fleet, to take one obvious example, a critical piece of the 21st century energy puzzle. A federal carbon solution, though clearly no threat to be legislated before 2013, might finally provide regulatory certainty–something at least a few major energy-industry CEOs would favor at this point. And it would, in the absence of wiping out all visible-hand mechanisms, at least offset the government-supported competitive advantage oil producers still have over renewable-focused companies.

One way to extend the life of known recoverable crude reserves is to make the price of a barrel of oil more expensive. That might spur capital flows to companies that could offer solutions on comparable economic terms, reducing the length of the bridge to the clean-energy future from both ends.

Republican victories in US Congressional elections should relieve at least some pressure to curtail American consumption of dirty oil sands crude. But at least some regulatory power still resides at the state level, and Democrats control governor’s seats in key, highly populated coastal jurisdictions. Nevertheless, the tone on the Canadian oil sands has shifted lately; it’s a gentler chorus that includes Secretary of State Hilary Clinton, who will give final word on the Keystone XL pipeline that will bring Canadian oil sands output to key refining hubs in the US Midwest and around Houston.

The market-expectations approach described by Malyshkina and Niemeier may help politicians better understand the importance of crafting energy legislation that takes account of long-term supply and demand and the potential for innovation to alter the present course of things. Until then, the Canadian oil sands will remain an important piece of the global energy puzzle and a great way to build wealth.