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DOING SOME DIGGING Kyoto Taking Toll on Oil Sands

Prime Minister Jean Chrtien gave Canada an early Christmas present by signing the Kyoto Protocol on Dec. 16. Not e...



Prime Minister Jean Chrtien gave Canada an early Christmas present by signing the Kyoto Protocol on Dec. 16. Not everyone wanted it. The Canadian oil patch has been one of the most vociferous opponents.

People wanting to reverse the global warming trend point to the burning of hydrocarbon-based fuels as a major contributor to the problem. Canada’s oil sands producers are major suppliers of such fuels and desire very much to increase their market share. But if the Kyoto Protocol succeeds in reducing emissions of greenhouse gases by reducing the use of hydrocarbon-based fuels, the oil and gas markets will shrink.

Two major methods of cutting our reliance on oil and gas have been proposed. One would replace hydrocarbon fuels with renewable energy sources (solar, wind, hydroelectric). The other would be to make hydrocarbon-based fuels so expensive that no one can afford to use them. Either choice would shrink traditional oil and gas markets.

The long term uncertainty is having an effect on oil sands planning. This is an industry with capital spending plans routinely estimated in billions of dollars per project. Investors, however, are pulling back from these large commitments.

The same day the Protocol was signed, PETRO-CANADA, which has a 12% interest in SYNCRUDE, told a Financial Post reporter that the company is rethinking its $670-million spending forecast for oil sands. It has earmarked $255 million for Syncrude’s Stage Three expansion and $415 million for the Meadow Creek in situ project and related work at its Edmonton refinery. Those figures represent allocations for the current year only.

TRUE NORTH ENERGY has deferred its plans for the Fort Hills oil sands project. The company already has development approval from the Alberta Energy & Utilities Board. True North has spent $120 million on drilling and engineering at Fort Hills. Reserves are estimated to be 2.8 billion barrels. Total development cost is in the neighbourhood of $2 billion. That money will not be spent now due in part to the uncertainty of the impacts arising from the Kyoto Protocol.

SUNCOR, however, is bucking the trend. It has announced $496 million will be spent this year on oil sands expansion. This includes Stage I of the Firebag in situ project and a new vacuum unit for the upgrader. Suncor’s plan is to reach a capacity of 500,000 barrels per day over the next 10 years. By the end of 2003, production will be 260,000 barrels per day. An additional $215 million is planned for other strategic and sustaining capital projects. Making a multi-million-dollar commitment in the midst of all the uncertainty created by the Kyoto protocol is a gutsy move.

No one knows yet what the cost of implementing the Kyoto Protocol will be on a particular industry sector. The uncertainty will continue to influence business decisions. Readers who want to know all there is to know about the Protocol should go to the United Nations web site http://unfccc.int/resource/convkp.html

Suncor is holding a teleconference to review its 2002 Q4 results and the Q1 outlook for this year on Tuesday, Jan. 21 at 8 a.m. MT (10 a.m. ET). Those wishing to participate should call 800-273-6972 if they are in North America or 416-695-5806 if they are outside North America. To participate via webcast go to www.suncor.com and click the link to "Fourth Quarter Earnings Release".


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