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Is the Future Bleak for the Alberta Tar Sands?

Richard Levangie | Monday May 18th, 2009 | 0 Comments

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US cap-and-trade legislation will have widespread ramifications, not only for Americans, but for America’s largest trading partner, too.* Canada’s Conservative government has placed all its financial eggs in one basket in making the Alberta tar sands the center of the country’s economic policy.** As a result, the recession in Canada is deepening, and with depressed prices for oil, tar sands companies are facing a bleak and uncertain future.
And so is Canada.
The unconventional heavy oil from Alberta is difficult to access and expensive to produce, and cheap oil prices make the industry unprofitable. In fact, some analysts have suggested that oil needs to head north of $60 US ($71 Cdn) a barrel before Alberta’s oil industry starts humming.


The recent price spike has helped Alberta, but any respite is likely to be short-lived. According to a new report by the Canadian Energy Research Institute, strict environmental regulations forming the backbone of the American Clean Energy and Security Act will make oil sands projects even more expensive, and producers might need the price per barrel to spike above $105 to keep profits flowing.
With the economy still languishing, it might be years before oil hits triple digits again, and study’s authors say that tar sands growth might be 40 percent lower than conservative estimates made just a year or two ago. Many oil-sands projects have already been delayed or cancelled by a weak market and tight credit, so any new emission legislation “is going to squeeze out even more projects,” says David McColl, research director at CERI. “[The oil sands are] not going to be the big boom that everyone thought it was.”
This huge uncertainty has turned Canada into a trade bully, according to the Natural Resources Defense Council. The Conservative government seems to think that Canada should be allowed to pollute with abandon, and Canada’s Environment Minister, Jim Prentice, forgets his portfolio by arguing long and hard for weak environmental standards.
Interestingly, Greenpeace has chosen this uncertain time to attack. The environmental campaigners are targeting Norway’s StatoilHydro with a shareholders resolution asking the company to divest itself of tar sands projects. StatoilHydro – which is partly state-owned – is a new player in Alberta, having bought 257,000 acres of oil sand leases in 2007.
But tar sands oil is heavy with carbon. According to Greenpeace, StatoilHydro would emit 60-180 kg of CO2 per barrel from oil sands projects versus the 7.8 kg per barrel emitted from Statoil’s North Sea fields. The Environmental Defense Fund calls the Alberta Tar Sands a toxic moonscape, and the world’s worst environmental disaster (PDF), so Greenpeace isn’t lacking for ammunition.
At the moment, the Norwegian government and Statoil executives are suggesting that the Greenpeace initiative is falling on deaf ears, and they plan no changes in policy. But some notable investors have been shocked by the Greenpeace campaign, and the oil industry’s poor record in Alberta, especially at protecting First Nations’ communities.
Swedish pension fund KPA – with $7 billion under management and a stake in StatoilHydro – is taking Greenpeace’s side at this week’s shareholders meeting.
“We will back the motion,” says KPA environmental manager Kerstin Gronwall. “We feel that if Statoil cannot protect the environment it should withdraw from Alberta – this goes with our criteria for environmental investments.” Another Nordic investor, Danske Bank, which owns StatoilHydro shares worth $68.1 million, said it was checking whether the oil-sands engagement breached its responsible investment rules.
With President Obama moving mountains during his first months in office, Canada is now undeniably the planet’s Colossal Fossil – the world’s worst climate change villain. It remains to be seen if Canada’s mild-mannered denizens will accept the status quo with polite acquiescence, or take responsibility for repairing the country’s tarnished reputation.
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*The Waxman-Markey cap-and-trade plan includes a provision for a carbon tariff on countries that don’t take steps to cut their emissions. Carbon capture technology probably won’t work in the tar sands, and even if it does, it’s 15-25 years away from widespread inplementation.
** Liberal Leader Michael Ignatieff, Canada’s Prime-Minister-in-Waiting, also seems to believe that the tar sands are the key to a bright economic future.


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