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Wins and losses for sands sector Industry gets boost from study estimating employment, economic spinoffs; runs afoul of chemical producers, who demand single standard Gary Park For Petroleum News
The Alberta oil sands, as is so often the case, are being pulled in opposite directions, quietly ramping up production, while unease builds as the sector awaits greenhouse gas regulations from the Obama administration and a loosely knit coalition in Canada challenges any attempts to give the resource special treatment under Canada’s GHG legislation.
On the positive side, oil sands output this year has edged up by 200,000 barrels per day to 1.4 million bpd from average levels in 2007 and 2008.
All of that incremental growth is being shipped to the United States for refining, bolstering Canada’s leading role as the largest external source of U.S. crude at 2.1 million bpd.
Peter Tertzakian, chief energy economist at ARC Financial, noted in the Calgary Herald that this expansion comes at a time when U.S. oil demand has dropped by 2 million bpd, underscoring the fact that Canada is taking market share away from Mexico and Venezuela, where production has been declining due to lack of investment, political issues and inefficient exploration and production practices.
Employment positives Injecting further momentum into the trend is a new report by the Canadian Energy Research Institute, commissioned by the American Petroleum Institute.
The major element of the study is the positive employment and economic spinoff for the U.S. from the oil sands, which are projected to create 343,000 new jobs between 2011 and 2015 and add $34 billion to the U.S. Gross Domestic Product by 2015, provided investment on new projects starts to ramp up in 2013, triggering an increase in demand for U.S. goods and services to $40.4 billion in 2020 and $42.2 billion in 2025.
The study forecasts output of raw bitumen will climb over the 2009 to 2025 period to 4 million bpd, within a range projected at 1.9 million to 2.9 million bpd in 2015 and 3.5 million to 5.1 million bpd in 2025.
Total investments over the study period on new oil sands projects are calculated at $218 billion, while combined capital spending and operating costs could reach $379 billion over the 16 years.
“What is often not clearly understood is that the large investment in the oil sands industry contributes to increased economic activity in the rest of North America by stimulating demand for goods and services across a wide range of industries,” said the report.
While manufacturing will reap the greatest rewards, finance and insurance sectors also benefit, with professional, scientific and technical services in the U.S. seeing an average $4.2 billion a year increase in output, it said.
CERI’s projections are based on oil prices remaining at current levels for the next year, but averaging $100 for West Texas Intermediate crude over 2009-25.
It said the billions of dollars needed to develop the oil sands over the next several decades will give rise to a “long-lived, robust period of increased economic activity in Canada. Due to the deep and rich trading relationship between Canada and the U.S, the U.S. derives significant benefit …”
Doer: too much criticism Gary Doer, the former premier of Manitoba and now Canada’s new ambassador to the U.S, reinforced that message, arguing the oil sands face a “disproportionate amount” of criticism in the climate-change debate, telling CanWest News that North America risks missing the “big picture” on global warming if Canadian crude is singled out as the chief carbon emissions culprit.
Noting the oil sands represent only a “small amount” of North America’s greenhouse gas emissions, he said concentrating too much criticism on the resource and failing to deal with all sources of emissions will prevent governments from developing a comprehensive solution.
“You’ve got to look at everything,” he said. “How do you reduce emissions from coal? How do you increase the use of renewables? How do you increase energy efficiency? All of these items have to be on the agenda.”
But there is concern that the future of the oil sands could unravel as President Barack Obama travels to China and India in November to seek a global climate deal before the Copenhagen summit and as the U.S. Senate debates legislation to create a cap-and-trade system.
EPA regulations threatened John Podesta, the former head of Obama’s transition team, told an Ottawa conference Oct. 22 the administration has threatened that failure by U.S. lawmakers to pass climate-change legislation will result in the Environmental Protection Agency regulating emissions.
He said that is a “bold shot across the bow” of opponents in Congress and the U.S. business community, who are ready to fight legislative moves.
Podesta said the status quo is not an alternative, warning that the oil sands could find themselves in the cross-hairs of any White House plan to reduce U.S. reliance on “dirty oil” if a low-carbon fuel standard is adopted by Washington, arguing a clean energy agenda could benefit the planet and drive productivity growth and job creation.
Harper government in bind The Canadian government of Prime Minister Stephen Harper, while attempting to head off any U.S. actions that would stifle oil sands’ growth, has put itself in a bind by withholding its own plan to set GHG caps on large emitters until it knows how the U.S. will proceed and what an international treaty would look like.
As a result, Environment Minister Jim Prentice said the chances of a historic deal being reached in Copenhagen are fading.
“I have to take a realistic view that, given the amount of work that remains to be done (before the December summit), we’re running out of time,” he said.
A setback for the oil sands sector has come from DuPont Canada and Dow Chemical Canada, Canada’s two largest chemical companies.
They have allied themselves with other companies and environmental groups in demanding a national regulatory system with “common definitions and standards” that would overrule any moves by governments to allow the oil sands to operate under an “intensity based” system, tying emissions to units of production rather than imposing absolute limits.
“The cap-and-trade system should place an absolute, national cap on emissions,” the group said, arguing intensity measures are unsuitable for setting caps for large emitters, such as oil companies, chemical producers and power generators.
Different types of caps would create “equity issues” and undermine the efficient trading of emissions credits.
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