Canada's oil sands draw new interest

PUBLISHED : Monday, 08 August, 2005, 12:00am
UPDATED : Monday, 08 August, 2005, 12:00am

Price surges, supply uncertainty spur investment in Alberta's huge reserves

Rising oil prices and increasing uncertainty about world supplies have sparked investment interest in the development of massive oil sand reserves in the Canadian province of Alberta.

Last week, Kinder Morgan paid US$3.1 billion to buy Terasen, giving the United States energy firm a network of natural gas and oil pipelines that also offers it access to crude from Alberta's oil sands.

A day later, Total of France bought out Deer Creek Energy with a pledge to spend another US$12 billion to develop the Deer Creek project further in the next decade.

In recent months, several smaller firms have sold stakes in their oil sand projects as global developments made investment in this energy source increasingly attractive. The key reason is security of supply, principally for the United States, due to the Iraq war.

The rise in oil prices to more than US$60 a barrel has made development of oil sands much more attractive for investors who previously had seen little prospect of an immediate return on investment.

More recently, the death of King Fahd of Saudi Arabia, the world's biggest oil producer, caused a rise in crude prices, as traders fretted over the stability of the new regime.

In the somewhat uncertain realm of oil-reserve estimates, the vast oil sands of Alberta are either the largest or the second-largest reserves in the world. The contrast with Saudi Arabia is that the extraction of crude from oil sands is a massive and expensive undertaking. It takes two tonnes of oil sands to produce a barrel of oil.

It has been estimated that US$34 billion has been spent on oil sands development in the past three decades and two or three times that much will be spent in the next decade. The result, as a Toronto newspaper reported, is that Fort McMurray, the main oil sands site in northern Alberta, is 'home to one of the greatest concentrations of investment on the planet'.

The expectation in Alberta is that China will be a source of particular interest in oil sands investments. In April and May, companies such as CNOOC, PetroChina International, and China Petroleum and Chemical Corp (Sinopec) all invested in oil sands development or pipeline projects. CNOOC is expected to further invest in the sector after being blocked by the US from buying oil giant Unocal.

There have not been similar concerns expressed in Canada about Chinese interest in the oil sands, but it was noted last month that US Treasury Secretary John Snow visited oil sand facilities.

It is assumed that Mr Snow was in Fort McMurray to signal US concern about possible further Chinese investment.

Sinopec's purchase of a stake in Synenco Energy was regarded as significant because it would give the firm control of its share of the crude produced and enable its direct shipment to China.