How Will Greenhouse Gas-Related Costs Affect Oilsands Players?

As Canada’s provincial and federal governments move to cut down greenhouse gas emissions, the oilpatch is left trying to calculate the financial pain that may be inflicted in order to comply with new regulations. The trouble is, the plans are sketchy, and the lack of detail has analysts churning out a sweeping range of guesstimates.

In a note to clients on Wednesday, Justin Bouchard, an analyst at Raymond James, said:

The one thing we can say with absolute certainly is that the lack of visibility obfuscates the entire issue. Dueling regulatory frameworks, uncertain timing and costs, how exactly these abatement initiatives will be funded and the interpretation of the rules as they stand today are among the key unknowns.

But that’s no reason not to churn out some numbers. The result, as Mr. Bouchard puts it, is an “extremely wide range” of estimated costs of complying with greenhouse gas legislation and frameworks at oilsands facilities. So, consider yourself warned.

For steam-assisted gravity drainage projects (also known as: in situ), the cost range could be anywhere from C$0.14 to C$9 per barrel of bitumen, depending on the scenario employed, according to Mr. Bouchard’s math. For integrated mining projects, the costs could range anywhere from C$0.23 to C$15.60 per barrel of synthetic crude, the analyst calculated. Suddenly, the bitumen spread doesn’t look so dramatic.

Mr. Bouchard said:

The inherent uncertainly necessarily needs to be priced into the stocks until a clearer path is forged.

Over at Blackmont Capital, analyst Menno Hulshof has also done some greenhouse gas arithmetic of his own. Based on his estimates, he believes costs could range from C$2.34 to C$3.90 per barrel for integrated SAGD projects, and between C$1.95 to C$3.25 per barrel for integrated mining projects. Timing is a big factor.

Certain projects planned by UTS Energy Corp. [UTS/TSX], Petro-Canada (PCZ), Suncor Energy Inc. (SU), OPTI Canada Inc. [OPC/TSX], and Synenco Energy Inc.[SYN/TSX], could face additional costs as they are slated to come on stream near 2012, and will then likely have to consider carbon capture and storage compliant processes, Mr. Bouchard said.

Mining projects like those at Canadian Oil Sands Trust, Petro-Canada, Suncor Energy Inc., Synenco and UTS “are less sensitive than in situ projects to [greenhouse gas] taxes,” he said. Pre-2012 projects will feel less pressure than post-2012 projects, he said.

Comments

[caseevaluator:]

Why the large disparity?
Not even in the same ballpark
ml

2008 Apr 11 07:48 AM

[erniem:]

The issue is far from resolved, and the question will end up being whether the Canadian government wants to, or has the will to enforce greenhouse rules that will hinder the development of one of the largest hydrocarbon pools in the world. And it is a serious question. This is exacerbated by the huge pollution problem presented by tailing ponds. Syncrude's tailing pond is the largest earthen dam in the WORLD, and that is 13 miles long. This is a tailing pond that has resulted from modest production of oil sands. If the production reaches the 20 million barrel a day plateau, the question of what to do with the waste water, and further, where to get water will become an even more serious question than greenhouse gas.

2008 Apr 11 10:25 AM

[Ames Tiedeman:]

I would not worry too much about this. Oil over 100 makes them A-OK.

2008 Jul 18 07:52 AM