Canadian Oil Sands Sector Seeks New Markets

Source:

". . .U.S. environmental legislation threatens the industry's sole external market."

The Canadian oil sands sector is searching for renewal based on consolidation, lower costs and a firmer crude price.

But U.S. environmental legislation threatens the industry's sole external market. As a result, interest in alternative markets has been reignited, but as each option is explored new challenges emerge.

An early showdown between producers and those opposing a shipping route to Asia seems likely.

An enforced time out from the breakneck pace of oil sands expansion in Canada is not all bad, giving the sector a breather while it sorts out some fundamental changes of direction.

It has a chance to shuffle the ownership deck, casting aside those whose ambitions are greater than their financial backing; to figure out where North American climate-change legislation is headed; to rein in out of-control costs; and perhaps above all, to take a serious look at opening up markets beyond the United States.

In answer to an inflationary cycle that has sideswiped mega-projects over recent years, with budget overruns commonly ranging from 50% to 70%, operators are leaning on labor unions and suppliers, forcing them to reopen contracts - apparently with some success.

At the same time, there has been one clear message from the industry that there is strength in numbers - fewer, that is.

A climate change bill unveiled by Democratic Congressmen Henry Waxman and Edward Markey would establish a cap-and-trade system to help industry achieve the GHG targets by imposing low-carbon standards for gasoline and other fuels. This would make it much harder for U.S. refineries to sell fuel derived from the carbon-intensive oil sands.

U.S. President Barack Obama signaled his desires in a new budget by proposing that companies buy 100% of their carbon allowances in the form of tradable credits as a way of raising $650 billion over the next decade.

"This is not a ban on tar sands oil, but it is definitely a disincentive," said Susan Casey-Lefkowitz, Canadian program director of the U.S. Natural Resources Defense Council.

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