US Gulf oil spill may help boost Canada's oil sands industry

05 May 2010 20:52  [Source: ICIS news]

TORONTO (ICIS news)--Prospects for development of Canada’s oil sands in Alberta could receive a boost from the massive US Gulf oil spill, Canadian analysts and industry officials said on Wednesday.

The deadly accident at BP's Deep Horizon offshore rig near Louisiana and subsequent massive oil spill that threatened much of the US Gulf coast has triggered a debate over the safety of offhore drilling, which could now become more expensive amid rising insurance and enviromental costs, relative to the oil sands, they said. As a result, the development of Canada's oil sands could be an attractive alternative.

The development of Canada's oil sands are of interest to the country’s chemicals industry, which was looking to the olefins-rich off-gases that are generated from upgrading oil sands and bitumen as a feedstock for chemicals production and new plants.

"It [the accident] brings everybody's focus back to how difficult and costly it is to find that incremental barrel of oil," Ari Levy vice president with Toronto-based financial firm TD Asset Management said in a webcast media briefing.

"If you increase the regulations, which is the likely outcome [of the safety debate], that's effectively a cost that will be borne by the offshore industry, but will be passed through to consumers," Levy said.

The increased cost would raise overall oil prices, to the benefit of the relatively costly oil sands sector, Levy said in remarks that echoed similar comments from other analysts here.

Analysts also said that both the US and Canada may now be less willing to grant licenses for future drilling off their coasts and in the Arctic.

The results would be increasing US oil imports, with Canada's oil sands offering the only secure and reliable source to supply the volumes needed to meet US requirements in coming years, they said.

Rick George, chief executive of Canadian oil sands major Suncor, said his company was on "a very clear path" in its oil sands businesses, using technology to reduce the industry's environmental footprint.

Speaking on the sidelines of Suncor's annual meeting in Calgary on Wednesday, George responded to reporters' questions about the oil spill's effect on the oil sands.

However, George said he would not jump to the conclusion that the BP accident could kill off offshore drilling. 

More likely, the accident would result in an increased focus on safety in the oil industry, he said.

Other observers pointed out that the oil sands sector itself was facing many environmental challenges.

Craig Stewart, director with World Wildlife Fund Canada (WWF-Canada), said in a media briefing that the US Gulf coast oil spill should not be allowed to play down the significant environmental issues posed by the oil sands.

While there would not be a spill such as BP’s in Alberta, the oil sands remained “intrinsically destructive” in terms of their environmental impact, Stewart said.

“From our perspective, the oil sands aren’t attractive at any rate, at any time,” he said.

While a number of oil sands projects stalled during last year’s recession, the industry has also come under increasing pressure for its environmental record. During a visit to Canada last year, even US President Barack Obama highlighted the oil sands' environmental challenges.

Stewart also warned that in the Arctic, where BP and other oil majors have big exploration and production plans, it would be even more problematic to contain spills, given the harsh conditions there.

Making things even more complicated was that some of the Arctic offshore drilling would take place in disputed areas, raising the spectre of varying, or conflicting, safety standards, he said.

Canadian Prime Minister Stephen Harper said a spill on the scale of BP's in the US Gulf was not possible in Canada, given the country's more stringent safety standards.

“The behaviour of the companies in question [in the US Gulf spill] is completely unacceptable and would be completely unacceptable in this country,” said Harper.

“[Canadian energy regulator] National Energy Board does not allow drilling unless it is convinced that the safety of the environment and the safety of workers can be assured. Let me assure all members of the House [parliament] that we will continue to enforce stronger environmental standards in this country,” he said during question period in parliament.

Some analysts also said the problems faced by the US Gulf coast may be specific to BP.

They pointed to BP's safety record in past years, including the 2005 Texas City refinery explosion, which killed 15 workers, as well as problems at its Thunder Horse platform in the Gulf.

But Andrew Miall, a petroleum geologist at the University of Toronto, said the BP accident should be put into perspective, given that there were over 3,500 offshore production platforms in the Gulf.

“This is a very significant industrial operation, which has been proceeding without serious incident for many, many years,” he said.

The last big comparable spill was offshore from Santa Barbara, California, in 1969, which prompted a drilling moratorium off that state’s coast, he said.

Canada had a large incident offshore its British Columbia province in 1971, prompting a moratorium there. 

British Columbia’s provincial government had lifted that moratorium in the meantime, but a federal moratorium remained in place, meaning that there was no drilling activity there up to today, Miall said.

Despite the current tough talk in both the US and Canada, offshore drilling would remain indispensible in meeting North American oil demand, Miall added.

Canada currently has offshore drilling off its eastern provinces of Newfoundland and Labrador and Nova Scotia.

In related news on Wednesday, the US Coast Guard said that BP had capped one of three oil leaks from the sunken Deepwater Horizon rig in the Gulf of Mexico.

To discuss issues facing the chemical industry go to ICIS connect


By: Stefan Baumgarten
+1 713 525 2653



AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

ICIS news FREE TRIAL
Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index

Related Articles