Next president could make huge oil sands deal with Canada
Posted: October 10, 2008, 11:13 AM by Jonathan Ratner
Energy
With no silver bullets available to wean the U.S. off oil in the foreseeable future, the next President will likely take a good look at Canada’s oil sands. And this might lead to either Barack Obama or John McCain championing a massive North American oil sands deal, even if it means huge investments to reduce the negative environmental impacts, according to Pierre Fournier, director of research and geopolitical analyst at National Bank Financial. That’s what energy guru T. Boone Pickens has been telling President Bush to do.
Regardless of what happens in November’s U.S. Presidential election, it will be bullish for development of Canada’s oil sands, according to a new report from National Bank. With both candidates emphasizing that North American energy independence is the only possible response to an increasingly unstable political situation around the world, the recent sell-off in Canadian oil sands stocks appears overdone, Mr. Fournier said.
Outside of a severe recession, the development of the oil sands will probably be the most important economic and political issue for Canada. Meanwhile, the election of a Conservative majority would be the best outcome for the sector, he told clients. “A conservative minority government, on the other hand, will be facing three, potentially four, opposition parties, which have, to varying degrees, expressed serious reservations towards the development of the oil sands.”
But challenges such as the soaring costs of mining and upgrading pose a significant risk and the break-even point for profitability is now likely around $85 per barrel (WTI), Mr. Fournier noted. This, along with environmental and regulatory risks, has forced many companies to adopt a more conservative approach.
But do these factors and opposition to “dirty oil” spell the end for the oil sands? Mr. Fournier said the future depends on U.S. commitments to finance development and buy the oil.
“In the U.S. presidential race, energy independence has turned into a mantra and a national obsession, partly no doubt because of rapidly rising prices at the pump,” he said. “While George Bush paid frequent lip service to the concept during his tenure, there is every reason to believe that the next President will take aggressive steps to diversify sources of energy and to stop buying oil from ‘our enemies.’”
Jonathan Ratner
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/10/10/...
