- GE and COSIA are working together to solve the environmental problems associated with oil sand production.
- Environmental concerns have already delayed key pipelines such as the Keystone XL.
- COSIA may announce greenhouse gas emissions standards for new oil sands within the next few weeks.
In a very interesting column from Diane Francis in the Financial Post, General Electric (NYSE:GE) and its CEO, Jeff Immelt, were mentioned as crucial players in developing Canada's oil sands. This article is a must-read for many investors, especially if you own stock in a pipeline MLP, bitumen producing E&P, or GE itself.
As noted in the article, one of the biggest mistakes coming from the oil sand industry are claims that oil sands are not dirty. However, this is demonstrably not true. Compared to modern natural gas and light oil production, oil sand production comes with a much higher environmental toll, both in its carbon footprint and waste byproducts such as tailings.
Due to these environmental concerns, activist group have successfully stifled development on several pipeline infrastructure projects such as TransCanada's (NYSE:TRP) (NYSE:TCP) Keystone XL Pipeline, and are threatening to do the same with Kinder Morgan's (NYSE:KMP) (NYSE:KMI) Trans Mountain Pipeline expansion.
These pipelines are crucial to getting the oil sands production out of Western Canada and on to other markets (Asia, the US Gulf Coast, the Atlantic Coast) where they can fetch much higher prices.
In addition, once new pipeline capacity comes on line, transporting this sort of crude via railroads will become less viable, avoiding disasters such as the one in Lac-Mégantic Quebec, where a 74-car train derailed, killing 47 people.
Where does General Electric come in?
"We, in terms of the oil sands, need to peg a greenhouse-gas target that would make us competitive with any other fuel source in the world. I think that more or less takes it off the table as an excuse."
- Jeff Immelt via the Globe and Mail
Simply put, General Electric can help make oil sands "cleaner". Mr. Immelt has said that he would be willing to share GE's environmental technology as a way to win over critics.
As noted in the article, Mr. Immelt noted that the industry needs to collaborate and work together to establish lower emission targets. Doing so should help remove political opposition and abate environmental concerns.
Canada's Oil Sands Innovation Alliance, or COSIA for short, and General Electric are working together to find solutions to solving the environmental problems related to oil sands production, announcing over $18 million in new investment, towards reducing water usage, improving steam efficiency, developing new mining techniques, and reducing greenhouse gases.
Furthermore, with an eye towards the innovations from Tesla Motors and its CEO Elon Musk, Mr. Immelt and COSIA hope to deploy the power of crowdsourcing, announcing $1 million in seed money for the winners of a global competition for ideas to cut carbon emissions.
Besides Suncor, members of COSIA include: BP Canada (NYSE:BP), Canadian Natural Resources (NYSE:CNQ), ConocoPhillips (NYSE:COP), Imperial Oil (NYSEMKT:IMO), Devon Canada (NYSE:DVN), Nexen (NXY), Shell Canada (NYSE:RDS.A), Statoil Canada (NYSE:STO), Syncrude Canada, Teck Resources (NYSE:TCK), and Total E&P Canada (NYSE:TOT).
Oil sands production clearly has an image problem. However, considering the only alternative source of heavy crude comes mostly from Venezuela, it is vital for this production to continue to grow.
However, pipeline delays and other transportation bottlenecks have caused the price for this heavy crude to trade at a large discount to WTI, as large as $30 per BBL in late 2012, early 2013. According to some estimates, this discount has cost the Canadian government billions in lost tax revenue, $8 billion in 2012 alone.
General Electric and COSIA are correct in noting that there needs to be a greenhouse target. Once in place, we will have the numbers to compare this production to other sources, such as US shale production. However, if the industry does not unite, the environmentalist fear-mongering will only become more effective.
Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.