Lougheed advises slowing oil sands pace

Gary Park

For Petroleum News

It’s almost a quarter of a century since Peter Lougheed stepped down as premier of Alberta, after a distinguished 14 years when he laid the foundations for what remained a world model of oil and gas regulation until the government started overhauling its royalty system in 2006.

Once outside politics, Lougheed carefully avoided commenting on public policy or government decisions until the last couple of years when he has vigorously entered debate on the future directions of oil sands development.

As the most trusted voice in Alberta, he has quickly found himself on safe ground.

Without overplaying his hand, he periodically takes to the podium to deliver his increasingly popular message that the costs and environmental impact of oil sands projects can be better managed by slowing the pace of expansion.

For now, that pace is being dictated by the price of crude (with $80 per barrel seen as the minimum economic threshold), tight credit and unease over the future of North American greenhouse gas regulations — all resulting in at least C$100 billion worth of mining and in-situ projects being shelved.

Mining projects one at a time

The old master showed, if nothing else, he hasn’t lost his sense of political timing.

If anything can be done to slow things down it’s surely now as oil sands developers start eying an economic recovery later this year or early 2010, even though most are still adopting a “wait and see” stance.

But a surge in spot oil prices, nudging US$60 in recent weeks, and a 30 percent drop in capital costs since mid-2008 are firing up speculation that cash-rich companies might be ready to revive projects at oil prices of US$60-$70 per barrel WTI, while banks probably need confidence that prices will remain above US$50 over the long term.

But, before Alberta heads into a fresh round of growth, Lougheed suggested there should be acknowledgement that the oil sands “have created in our province, because of the rapid growth that has occurred in the past decade, a very high-cost economy.”

“That means we have a built-in cost factor here that is very difficult for people in other businesses and I see a growing pressure on the current government to revisit this issue.”

Modestly suggesting that he holds a “minority” opinion — though he is widely viewed as the most trusted voice in Alberta — Lougheed did concede the government is well aware of his position on the oil sands.

Speed up underground recovery

“What the past policy of the Alberta government has been is to have a number of projects going on concurrently,” he said. “What I’ve been suggesting is that one project should be done and completed before the next starts.

“That will be hard to accomplish in the short term, because so many commitments have been made, but I would hope, in due course, the new government in Alberta would move themselves to a more uniform development,” he said.

“I think public opinion is changing and there’s a possibility that, when the current slowdown comes to an end, they may reassess their view.”

On the pricing front, Lougheed tossed his 10 cents into the mix, predicting oil will return to US$100 per barrel “fairly soon … whether that is November or next April, it’s going to come.” The Alberta government, for budget purposes, is predicting US$55.50 this year, US$64.50 in 2010 and US$72.50 in 2011.

He said demand will return to growth in the United States as the economy recovers, but won’t be met by traditional sources such as Venezuela (hostile to the U.S.), Saudi Arabia (declining output) or Nigeria (unreliable).

Lougheed was far less upbeat about natural gas, where demand in North America will take longer to recover than oil, “but it will and I see it competing very much in terms of electric power with coal.”