The Rising Influence of Rising Affluence

[DewDiligence]

Alberta Is Losing the PR Battle on Oilsands

[I have a question about the light-heavy differential in the penultimate paragraph. Can anyone here help explain it? T.i.a.]

http://www.ft.com/cms/s/0/a917b8d2-2a0d-11df-b940-00144feabdc0.html

›By Bernard Simon
March 7 2010 18:25

Just as oil price has recovered to levels that make many of Alberta’s oil sands projects profitable again, a new threat to the region’s development has emerged.

The intensifying scrutiny of the projects’ greenhouse gas emissions, water pollution and other damage to the environment has led to a backlash against the heavy oil from the region.

The industry has belatedly started to fight back against a campaign by environmental activists to curb the market for oil produced from the bitumen-like oil sands, especially in the US.

The industry is working hard to remind critics that open-pit mining, which makes up about half of production, is being overtaken by the less unsightly steam-assisted gravity drainage (SAGD), or in situ recovery method, under which bitumen is extracted by injecting steam down wells.

But these efforts have not blunted the activists’ campaign, not least because of the greenhouse gas emissions from the extraction process itself, including the energy-intensive steam injection technique.

Two prominent US retailers – Whole Foods Markets and Bed Bath & Beyond – said in February that they would boycott fuel produced from the oil sands. [This is retarded, IMO.] Numerous initiatives are under way in the US to impose wider curbs.

Alan Knight, a UK-based expert on sustainable development, says that if Canadian oil sands producers wish to repair their reputation, they will need to close mining operations and set water use and greenhouse gas emission targets for SAGD projects to match conventional oil production.

“They have the technology, to do this,” Mr Knight says. “It does not make the oil ‘green’ but it puts it on a par with other oil sources.”

Canada’s environment minister, Jim Prentice, an Albertan whose Conservative government is normally sympathetic to oil sands development, threw down the gauntlet to the industry. “There are still many misconceptions that need to be corrected,” he said. “This is a task that cannot wait.”

Apart from the environmental challenge, the mood in the industry hovers somewhere between the gold-rush mentality that prevailed when prices soared towards $150 a barrel, and the shell-shocked daze that followed the collapse in late 2008.

“It very much depends on the individual project”, says Mike Dunn, analyst at FirstEnergy Capital in Calgary.

Imperial Oil, Exxon-Mobil’s Canadian subsidiary, announced last May that it was going ahead with the first phase of its C$8bn (US$7.8bn) Kearl mine project, with production due to start in late 2012 at 110,000 barrels a day.

A narrowing gap between heavy and light crude prices has improved the economics of these projects. [OK—this part is clear.] The bad news for Alberta is that the narrower differential has narrowed the margin for upgrading bitumen into light crude. [I need help understanding why this is a problem. T.i.a.]

Whatever the attractions of oil sands, the costs and risks remain relatively high. Peter Voser, Royal Dutch Shell’s chief executive, said earlier this year that the group – one of the region’s biggest investors – was slowing its growth plans in the region. “Over the past two years...I’ve taken the pace out of that because we have enough other growth opportunities.”‹