Developing oil sands to become even more costly: CERI

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Developing oil sands to become even more costly: CERI

By Cattaneo, Financial PostMay 12, 2009

Even as oil briefly crossed above US$60 a barrel Tuesday, what's becoming

increasingly clear is that Canada's oil sands won't be the Holy Grail everyone

expected to meet the energy supply needs of the future.

As shown in a report Tuesday by the Canadian Energy Research Institute, the cost

of complying with climate-change legislation that is being aggressively pushed

in the United States will make Canada's oil sands, already the world's most

expensive to develop, even more costly.

It will probably also make them the world's most regulated.

CERI, an independent research organization funded by Canadian industry and

governments, said oil prices would have to climb as high as US$105 a barrel to

pay for the cost of integrating technologies so greenhouse-gas emissions from

the oil sands are comparable to those of conventional oil.

And this would not be an overnight solution. The technologies, ranging from

widespread adoption of carbon capture and storage for plants using natural gas

as a power source, to replacing natural gas with gasification or nuclear

technologies, would take some two decades to implement fully. Newer technologies

would take even longer.

With many oil-sands projects already delayed or cancelled as a result of the

oil-price collapse and tighter credit, the new legislation " is going to squeeze

out even more projects, " said study co-author McColl, research director at

CERI. " [The oil sands are] not going to be the big boom that everyone thought it

was. "

Less oil from the oil sands means a smaller cushion to soften the next global

supply crunch, which is inevitable once the world economy recovers because of

widespread project cancellations that took place around the world in the past

year.

CERI estimates that during the next five to six years, capacity growth in the

oil sands will be 15% to 40% lower than expected.

In fact, CERI predicts there will be no production growth until 2013, with the

deposits eventually yielding 3.5 million barrels a day by 2030, rather than the

five or six million barrels a day that had been talked about.

Established operators will likely push forward and may even benefit from the

coming crunch that will lead to higher oil prices, but new developers may give

their oil-sands strategy a sober second thought.

Consumers should not expect a free ride. Higher oil costs will mean higher

prices at the pumps. To put it in perspective, the last time the price of oil

was about US$105-a-barrel was at the end of September, 2008, which translated

into an average gasoline price in Canada of about $1.215 per litre, according to

MJ Ervin & Associates, a firm that monitors gasoline prices.

Support from Canadian governments, similar to the $2-billion already pledged by

the Alberta government to get a handful of projects off the ground, will be

unavoidable. Moving to widespread adoption of carbon capture and storage will

cost tens of billions of dollars and involve aggressive construction of new

pipeline infrastructure. Those are billions that won't be available for such

programs as health care and education, nor to boost energy supplies so they are

affordable.

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