Government foot-dragging on rules blamed

Two major infrastructure projects in Alberta in holding pattern due to uncertainty over future environmental rules in Canada, U.S.

Gary Park

For Petroleum News

Uncertainty over future environmental rules in both Canada and the United States has slowed progress on two major infrastructure projects in Alberta — an oil sands upgrader by StatoilHydro and a coal gasification plant by Sherritt International.

StatoilHydro is postponing by two years the planned 2014 completion of a C$16 billion upgrader near Edmonton, part of its larger strategy to produce more than 200,000 barrels per day from the oil sands by 2020.

Sherritt’s plans for Canada’s first plant to convert coal into synthetic gas at a cost of C$3.3 billion have also entered a holding pattern.

While rising construction costs are a factor, both companies say they need greater clarity on government regulations for greenhouse gas emissions and carbon capture and storage.

Robert Skinner, a Canadian senior vice president for StatoilHydro, told the Financial Post the industry needs policy clarity, alignment and stability among Canadian and provincial governments on climate change legislation.

He said the unresolved matters create a “very uncertain climate” and require urgent clarification.

Sherritt Chairman Ian Delaney told reporters at his company’s annual meeting that until the governments table guidelines for carbon emissions, the economic viability of the gasification plant is unknown.

The plant would generate significant volumes of GHGs in turning coal into gas at an equivalent energy cost of US$5 per barrel from reserves estimated at 11 billion metric tons of coal.

“One way or another if we don’t produce (synthetic gas), you just keep driving the oil price higher,” Sherritt Chief Executive Officer Jowdat Waheed told shareholders. “If we can produce the $5 per barrel resource, you will have some ability to keep the prices low and maintain a standard of living.”

“The absence of clear and articulated rules and solutions for greenhouse gases has the effect of absolutely stopping investment dead in its tracks,” Delaney said.

“I think there has been an absolute lack of leadership … they’re sticking their heads in the sand.”

Carbon plan due this fall

Skinner said the fiscal and political outlook is also complicated by indications that, if Barack Obama becomes the next U.S. president, he will reopen the North American Free Trade Agreement, which is the key to future oil and gas investment in Canada.

Also in doubt is the future of a new U.S. federal law that could ban crude derived from the oil sands for use in government vehicles and by the military.

However, a StatoilHydro spokeswoman said in March the Norwegian-based company is ready to work with new Canadian rules on carbon emissions at its oil sands operation.

“We have known for a long time that something on CO2 would come from the Canadian authorities and we think we are well prepared,” she said.

StatoilHydro made its major entry into the oil sands a year ago with a C$2.2 billion acquisition of North American Oil Sands Corp. and is scheduled to launch a 10,000 b/d demonstration project by early 2010.

The spokeswoman said the planned upgrader is “designed to be carbon-capture ready from day one.”

France’s Total has also delayed the startup of its planned Edmonton upgrader by two years to 2015 to better coordinate the facility with its upstream development.