Kyoto could be billion-dollar boon for U.S.

Former U.S. cabinet secretary warns planned Canadian investments could spill over border into U.S.; Canadian Natural and EnCana talk of relocating oil sands upgraders

Gary Park

PNA Canadian Correspondent

James Schlesinger, a former United States secretary of defense and secretary of energy, warned Canada that adopting the Kyoto Protocol would be an “act of pure folly” and could see billions of dollars of capital spending lost to the United States.

Try C$4.2 billion for openers.

Schlesinger, now a senior adviser to the New York-based investment firm of Lehman Brothers, made his remarks Sept. 29 at a global business forum in the Rocky Mountain resort town of Banff, the same conference where a director of Canadian Natural Resources Ltd. warned that the upgrader portion of his company’s planned C$8.2 billion oil sands project could be built in the United States.

Murray Edwards said confusion over the actual costs of implementing Kyoto could force Canadian Natural (better known by its stock symbol CNQ) to seek refuge south of the border.

“Our preference is to build in Canada ... where we have worked hard to become a meaningful player on the international stage,” he said.

“It would be a major loss to this country to have Canadian companies moving their operations to the U.S.,” but the Canadian government must understand “that uncertainty is causing this kind of result,” Edwards said.

CNQ’s Horizon project in northeastern Alberta is scheduled to come on stream in 2007 and grow over four years to the point where it is extracting 270,000 barrels per day of bitumen from a 6-billion barrel lease and converting that to 233,000 barrels per day of synthetic crude.

The surface-mining operation carries a current price tag of C$4 billion and the upgrader C$4.2 billion. The upgrader is more energy intensive than the mine and would produce more greenhouse gas emissions, making the United States (likely Montana) a more attractive location for a refinery so long as the United States refuses to sign Kyoto.

EnCana project in question

Edwards said relocation by CNQ would result in the loss of 100,000 man-jobs during the construction phase and about C$5.2 billion in taxes and royalties to the Alberta and Canadian governments over the projected 42-year operating life.

“We need from governments certainty as to rules, so that we can define the economic cost of Kyoto relative to building in Canada or the United States,” Edwards said.

Noting that Canadian Prime Minister Jean Chretien has said it could take 10 years to develop a Kyoto implementation plan although the treaty is expected to be ratified by Parliament before Christmas, Edwards said he was not prepared to trust the government “as they muddle through this one.”

He said CNQ’s studies on the costs of meeting the Kyoto targets range anywhere from 50 cents to C$7 a barrel for the Horizon operation, highlighting the difficulty of planning for an oil sands project.

In a July filing with the Alberta Energy and Utilities Board, CNQ predicted operating costs before factoring in Kyoto would be between C$8.65 and C$10.60 per barrel when Horizon is fully commissioned.

“The problem right now is that there are no defined rules (for implementing Kyoto),” Edwards said. “As a businessman, if you don’t have defined rules, you have to make decisions in the absence of them and therefore you go where the certainty is.”

Alberta Premier Ralph Klein said the “ramifications of the uncertainty surrounding Kyoto” are reflected in the comments by the chief executive officers of oil sands operators such as CNQ, Syncrude Canada, EnCana, Petro-Canada, Nexen and ConocoPhillips Canada, whose investment decisions have either been placed in limbo or have warned that Kyoto could trigger a flight of investment capital out of Canada.

Petro-Canada CEO Ron Brenneman said his company, which plans to spend up to C$7.2 billion in the oil sands over the next decade, is positioned to re-deploy its spending to the North Sea, North African and South American properties acquired in its takeover of Germany’s Veba Oil & Gas.

“Most of the players in the oil sands are actually large companies with international operations and therefore we have other places to invest,” he said.

Brenneman said he has “exhaustively and repeatedly” told Chretien and other cabinet ministers that Canada should abandon Kyoto and find a less disruptive way to tackle greenhouse gas emissions through a made-in-Canada approach.

EnCana chief executive officer Gwyn Morgan, the most outspoken oil patch opponent of the climate-change treaty, said talk of oil sands delays and possible cancellations are the first signs of the “real chill that will affect all of us.”

“I predict we will hear more of these decisions, but there will be many more we won’t hear about, as investors silently move their money elsewhere,” he said.

In the three weeks since Chretien announced his intention to put Kyoto to a vote in Parliament, the Canadian oil patch has formed a common front with Canadian manufacturers and exporters to drum up nationwide opposition to Kyoto, drawing on internal government estimates that the accord could cost 200,000 jobs and wipe C$16.5 billion off economic growth.

“I call upon the prime minister to launch a new climate change business plan to save our country ... not tear it apart,” said Morgan. The anti-Kyoto campaign broadened Sept. 26 from the Alberta-based petroleum industry with the launch of a new coalition, drawn from 25 national organizations. The Canadian Coalition for Responsible Environmental Solutions brings under the one umbrella manufacturers, exporters, trucking firms and even consumer advocacy groups to fight the ratification plans.