STOP: Stop Tar Sands Operations Permanently

Just another weblog

Reining in oil sands

Posted by mhudema on February 28, 2008

Election Day in Alberta is six sleeps away and the fight has been mostly quiet, not even generating front-page news every day in the province, which pretty much means investors outside Alberta aren’t paying attention at all.

But they should. For years, Alberta has allowed energy development to proceed at a breakneck pace, basically as fast as possible. This was accepted by the citizenry at first, given the boom-bust history of this place and the general sentiment of not messing with a good thing. But with a lack of government planning, that good thing has turned bad: overcrowded hospitals, a shortage of housing, the highest inflation rate in the country. And Albertans know it all stems from the unbelievable building boom in the oil sands, so many billions of dollars being poured in each year, bringing high-paying jobs to some but distorting life for many.

The pace of development, never questioned by the Conservative government, is now a serious front-page issue. Savvy investors should take note. Yes, the topic is still simmering, rather than exploding, but for investors pegging X barrels a day in their spreadsheets, set to start producing in 20XX by ABC Oil Sands Corp., the pace of regional development around Fort McMurray is now a business risk.

That’s why some big oil companies are actually calling for a slowdown, asking the government to restrict the sale of new exploration leases in three fringe areas. The slowdown is an obvious smokescreen, which my colleague Derek DeCloet explains in greater length in Tuesday’s Report on Business. The oil companies are trying to head off something worse, so they offer three non-prospective areas for “protection” for a couple years while continuing to mine and develop everything else with abandon.

The news stems from a scoop by my colleague Norval Scott, breaking the story on Monday of a broad coalition including Suncor Energy Inc. sending a letter to Alberta’s departments of energy, environment and sustainable development, calling for a “balanced suite of regional outcomes.”

If the oil companies are clearly worried, investors should be thinking about these matters as well. It seems hard to believe that the current pace (as fast as possible) can possibly last, given external and internal pressures. (A January poll by Strategic Counsel done for The Globe and Mail showed that 61 per cent of Albertans feel that the oil sands have a negative effect on the environment, more than Canadians in general at 55 per cent. Three out of five Albertans feel the pace of development has been too fast.)

This has percolated for months. Today, Tuesday, it’s on the front-page of the Calgary Herald, a big bold headline reading: “Tories resist call to slow oil sands.” Mr. Stelmach, a farmer turned premier, has consistently said he would not “touch the brakes,” going back to his farmer roots: Don’t mess with good times. But Albertans clearly want some intervention. Opposition parties want better planning, saying the current “free-for-all” is foolish.

Mr. Stelmach, if he wins a reduced majority, which appears likely, will unlikely be able to resist the will of Albertans much longer. A Herald columnist said the Premier took a “real thumper from Big Oil.” And if the opposition parties make big gains, the tide could shift quite a bit quicker.

For Albertans, the owners of the oil, the wisdom of breakneck development using last-generation technology will percolate, too. It is a question the government has completely failed to deal with, a failure that could become a disaster. The long-term market for bitumen looks good, in some ways, given the demand for oil, but already in the United States (the biggest customer), there are rules emerging that disadvantage the dirty oil sands, whose emissions of greenhouse gases per barrel produced is much higher than any other source of crude on Earth.

If the oil sands are to be a viable long-term money maker for Albertans, issues such as requiring carbon capture on a new oil sands plant will jump to the fore as well, which turns us back to the general question of the pace of development, how many barrels, and when. For investors -and Albertans -these are questions that are suddenly far more serious than ever before.

Finally, Pembina Institute, an Alberta research group that wants a real moratorium on oil sands development to get a handle on myriad problems (such as collapsing health care in Fort McMurray), put out the results of a poll of candidates ( on pertinent questions on Tuesday. I notice most Tories didn’t bother to answer. However, of the 20 who did, 15 think the pace of development is too fast. Mr. Stelmach is clearly out of touch with a significant chunk of his own party. Alberta’s changing. The extreme laissez-faire era of Ralph Klein, when government was “not in the business of business” is coming to an end. Mr. Stelmach, a long-time minister in Mr. Klein’s government, on Tuesday echoed his predecessor, telling the Herald: “Governments do not control the economy.”

Well, actually, you know, governments might be able to wield some influence, especially if they’re encouraged by the electorate. Governments of course have tremendous control over economies, making laws, passing budgets, spending billions and even -gasp! – regulating the pace of development (though not in Alberta, yet).

Interested observers, again, take note.

Last, when three major oil sands mines were approved in four months between late 2006 and early 2007, regulators found that the plans were in the “public interest” but warned – in language as extreme as a regulator could manage – that there are “critical challenges” facing government in the oil sands, that there is an “absence of long-term solutions,” that there is only a “short window of opportunity” to do something. Last February, a separate report commissioned by the provincial government, said the Fort McMurray health care system could “collapse” if nothing is done.

It appears not touching the brake is no longer an option. Mr. Stelmach, take note.

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