The Canadian Press
Alberta’s new premier says an upcoming energy royalties review will focus only on the oilsands sector.
Ed Stelmach said the oilsands will be the focus of the review – expected to start early next month – because he thinks Albertans are satisfied with what they’re getting from conventional oil and gas business.
“At the end of the day, I just want to make sure that it’s open, transparent and on the table, so Albertans . . . can feel comfortable then that it’s either fair or it has to be adjusted.”
The premier wouldn’t say what he thought about the current oilsands royalty system.
Energy companies have saved billions of dollars over the years under a program that lets them pay just a fraction of normal royalties until giant oilsands projects are fully paid off.
But the royalty regime, which was agreed upon by the province, the federal government and industry, is attracting far more political attention these days – especially as Canada’s greenhouse gas emissions continue to be a key subject in Ottawa.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers (CAPP), said the Alberta premier hasn’t discussed any specifics of the royalty review.
But he warned that energy is a cyclical commodity where investments are made based solely on best returns. “The price of oil has gone from $70 (US) to $50, the price of gas has gone from $10 (US) a year ago to $6 and potentially lower,” said Alvarez. “I guess the message we delivered to the premier and to others is that in a very, very volatile marketplace right now, investors are looking very carefully at what the province’s plans are. “And we hope that they will be done in a way that’s positive from an investment point of view.”
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It may be possible for exports from Alberta’s oilsands to reach five million barrels a day, a five-fold increase from current levels, but only in the long term and after a massive investment of money and labour, industry sources say.
They were responding to a Radio-Canada report that said American and Canadian oil executives met in Houston in January 2006 and discussed ramping up daily oilsands production from the current 1.1 million barrels in a “short timespan.”
The report has raised the spectre that Canada is being pressured to dramatically increase production to meet the energy needs of the U.S., regardless of the environmental consequences – a concern that’s been dismissed by political and industry sources.
“There’s not political pressure, but there’s market pressure depending on what happens to commodity prices,” said Greg Stringham of CAPP. However, he said it will take many years before the oilsands could produce five million barrels per day.
“If labour is readily available, we could be at four million barrels a day by 2020,” said Stringham.
But an environmental think-tank says the oilsands reached its previous 2020 target of one million barrels a day in 2003, 17 years ahead of schedule. “One could speculate that with the right conditions they could do it again,” said Dan Woynillowicz of the Pembina Institute.
In fact, it’s not physically possible to rapidly ramp up oilsands production to five million barrels a day. Increasing production to two million barrels a day by 2010 is only possible because of projects that are already underway. n n n Alberta’s government appears to be conflicted on the issue of shipping raw bitumen into the U.S. for upgrading and refining.
Energy Minister Mel Knight says he’s not uncomfortable with large volumes of bitumen being exported, even though it means considerable value is being added to the product outside the province.
Bitumen is first upgraded into synthetic crude oil, which can then be piped to refineries for transforming into gasoline, lubricants or other petroleum products.
Knight said recently that Alberta should have enough capacity to upgrade about 80 per cent of its bitumen within about a decade. The message seems to differ somewhat from what Stelmach said last month after he won the Alberta Tory leadership race.
The new premier told reporters then that he wants more of the oilsands production to be processed within Alberta instead of being transported as a crude resource to the U.S.
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Alberta’s oilsands are also in the news this month for yet another reason. A consortium expects proposals by the end of January looking at the feasibility of using nuclear power and other alternate energy sources to develop the booming oilsands.
Meanwhile, four companies have expressed interest in using energy from nuclear reactors in three Alberta locations – including two in the oilsands, says Wayne Henuset of Calgary-based Energy Alberta Corp.
Henuset said greenhouse gas concerns have pushed nuclear power in Alberta from a pie-in-the-sky concept to a viable alternative. “It’s becoming more of an essential need because of global warming,” he said.
Almost all of Canada’s 20 nuclear power plants operate in Ontario, with one each in Quebec and New Brunswick.
Oilsands operators currently use natural gas to fuel boilers that produce vast amounts of steam that is pumped underground to melt thick oilsands deposits so they can be extracted to the surface using gathering pipelines. The long-term supply of natural gas in northern Alberta won’t last through the lifetime of the oilsands megaprojects expected to come onstream over the next decade.
The feasibility study is designed to look at other options, while acknowledging that any new energy sources are likely years off. The Alberta Energy Research Institute, the federal government and several unnamed companies have expressed interest in the feasibility study, said project co-ordinator Soheil Asgarpour, director of heavy oil and upgrading at Energy INet, a research organization that works with industry and stakeholders.
No nuclear plant has ever been built in Western Canada and Asgarpour admits it could be a longshot.
A feasibility study is expected to be completed late in the summer, he said.
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The federal government wants to go nuclear as part of its new green clean-energy plan.
Natural Resources Minister Gary Lunn has promised $230 million over four years for research into clean energy, but gave no specifics on how the money will be spent – it hasn’t been allocated yet.
The new research program, dubbed the ecoEnergy Technology Initiative, is similar to a Liberal research program now terminated, although annual funding will rise somewhat.
Lunn said one target area for the research money is “next-generation nuclear.”
“Nuclear energy is emission-free, there’s no greenhouse gases, there’s no pollutants going out (with) the energy,” he told a news conference. “There’s a great opportunity to pursue nuclear energy, something I am very keen on.”
Lunn suggested nuclear energy could be an ideal source of power for the massive oilsands project in Alberta. Although it is often touted as an alternative to fossil fuels because it doesn’t directly produce greenhouse emissions, nuclear power is still anathema to most environmentalists because of the issue of radioactive waste.
Lunn promised that the government will soon announce short-term emissions-cutting targets for industry, but did not say whether those will include a firm cap on total emissions.
Lunn got a cautious thumbs-up from CAPP’s Alvarez, who said improved technology is the only way to improve the situation. But Alvarez warned that change will take time and a lot more money than Ottawa is willing to allocate. “But what’s encouraging to us is that we’re now having the debate on energy technologies that for the last 20 years nobody has wanted to talk about.”
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Recent dropping oil prices have had energy producers reeling.
Companies that planned their 2007 budgets around a low-balled US$50-per-barrel oil forecast nervously watched as prices dipped to 19-month lows near that level last week.
“I think everybody is in a state of shock right now,” said energy analyst Martin Molyneaux of First Energy Capital.
After oil neared the dizzying peak of US$75 a barrel last summer, many of Canada’s oil and gas companies felt they were being conservative basing their budgets on an average US$50 a barrel for crude oil and US$6 per million British thermal units of natural gas.
“The longer it lasts or the lower it goes, the deeper the need for re-evaluation in some of those longer-term projects,” said CAPP’s Stringham.
That could mean delays in some of the billions of dollars in energy development in Alberta and offshore. In the short run, it’s more likely to get oil and gas companies tightly reining in their immediate expenditures.
The bigger problem would be significant volatility in the prices.
“There doesn’t seem to be any predictability of what’s going to cause it to go up or down in the future,” said Stringham.
