Quick Sand: Credit Crunch and Falling Oil Hit Oil-Sands Projects
October 24, 2008, Wall Street Journal
Posted by Keith Johnson
From Canada, more signs that the oil industry is starting to feel pinched.
Two big Canadian oil-sands producers are delaying oil-production projects and scaling back capital expenditure. Suncor and Petro-Canada both pushed back plans to install “upgraders” that can turn tar sands into crude oil.
It’s unclear whether the pullback owes more to the financial crisis or to falling oil prices, which make exotic oil fields such as tar sands less economically-appealing. Either way, it shows how oil-gathering efforts that were said to make sense a year ago no longer seem so economic.
Suncor chief executive Rick George seemed to point to the credit crunch as a driving force behind his decision. By pushing back the upgrade a year, Suncor can finance more of the project out of cash flow rather than turning to increasingly skittish debt markets:
“Following a thorough review in light of current financial market conditions, we’ve modified our capital plans for 2009, reducing targeted spending by more than a third” said Rick George, president and chief executive officer. “Our aim is to ensure we are living within our means during a time of market uncertainty, while also making the strategic spending decisions that will allow us to continue on our growth path.”
But many analysts see it as the first sign that oil prices are low enough to discourage new investment. Deutsche Bank said Suncor’s move “underlin[es] that we are close to the long run marginal cost of supply,” or the point at which tricky new oil-production projects don’t make sense anymore. That’s the risk that International Energy Agency boss Nobuo Tanaka recently warned about—and which could mean sharply higher oil prices in a few years’ time.
http://blogs.wsj.com/environmentalcapital/2008/10/24/quick-sand-credit-c...
