Tue, November 25, 2008
Oilsands surviving downturn
Projects benefit as economic crisis makes contractors and suppliers hungrier for work
By MARKUS ERMISCH, SUN MEDIA
While delays of several oilsands projects have again raised the question whether it is cheaper to upgrade bitumen in the U.S. rather than in Alberta, the sagging loonie, easing inflation and lower demand for labour could be working in the oilpatch's favour.
Neil Shelly, executive director of the Alberta Industrial Heartland Association, said although there are no firm estimates by how much costs in the oilpatch have cooled, anecdotal evidence suggests they have cooled significantly in recent months.
He pointed to comments by Petro-Canada executive Neil Camarta, who said last week the company is renegotiating deals with contractors and suppliers for the Fort Hills oilsands project, who, because of the economic slowdown, have become "much hungrier" for work.
A decision on the $24-billion Fort Hills oilsands mine and upgrader have been delayed until next year. Other oilsands projects have also been pushed back as companies are waiting for the market turmoil to subside and commodity prices to rise again.
"A slowdown in projects is not necessarily such a bad thing," Shelly said yesterday at an oilsands conference, noting a slower pace in the patch will help ease inflationary pressures in Alberta and cut costs relative to the U.S.
The diving loonie, which had soared to par with the greenback last year, can also work in Alberta's favour because U.S. investment dollars now stretch about 20% farther. But the question remains what, and how much, the government can do to help promote upgrading in Alberta.
The current upgrading capacity in the Edmonton area is 155,000 barrels a day, which will be pushed to 250,000 barrels by about 2010. The near-term capacity potential for upgrading is about 1.6 million barrels a day, provided various projects, including Fort Hills, proceed.
Opinions diverge when it comes to the government's level of involvement.
Debbie Pietrusik, an official with Alberta Finance and Enterprise, said although Premier Ed Stelmach's government is committed to promoting value-added industry in Alberta, there's only so much the government can do because of the constraints imposed on Canada by the North American Free Trade Agreement.
Pietrusik said offering tax incentives could cause problems under NAFTA.
Shelly, on the other hand, said the government could offer incentives, through taxation or royalty concessions, to help retain industry and promote upgrading.
He said Prime Minister Stephen Harper's election campaign comment to eliminate or restrict bitumen exports to countries with lower environmental standards show Alberta has Ottawa's attention.
Another factor speaking against upgrading bitumen in the U.S. is the sheer cost of shipping the tar-like substance south, Shelly said.
