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Gulf oil slick: A potential boon for Canada

A ban on drilling offshore the US and the likely stiffer regulation on oil and gas companies to come should mean a greater reliance on Canadian energy

WHISPER it, but the US' misfortune could be Canada's gain. A ban on drilling offshore the US – temporary or permanent – and the likely political fallout that will force stiffer regulation on oil and gas companies operating in the US should mean a greater reliance on Canadian energy, writes Derek Brower.

Naturally, few in the Canadian industry are saying as much. No-one wants to be seen rubbing his hands while the neighbours clean up the mess on their front lawn. But with new pipeline infrastructure on the way, Canadian oil exports from Alberta are increasingly targeting refineries on the US Gulf coast. And if the US wants to outsource its oil-exploration risk – but does not want to turn down the political rhetoric about the country's unhealthy reliance on imports from the Middle East – Canadian oil suddenly looks more appealing than ever.

The "backwash" from the Gulf spill, to use Alberta energy minister Ron Liepert's term, could also affect Canada negatively. Executives in Calgary worry that increased regulation and the addition of new layers of "redundancy" into blowout prevention will make drilling more onerous and costly. Many Canadian companies are active in the US upstream. Shale drillers based in Canada, but with acreage in already-sensitive areas such as the Marcellus deposit, in the US northeast, fear an overreaction from the authorities governing their activities.

But the official response in Canada has so far been muted. Indeed, Liepert told Petroleum Economist last month that governments must be careful not to overreact.

No moratorium plans

In Newfoundland, where Chevron is drilling Canada's deepest offshore well in the Orphan basin (in waters almost twice as deep as BP's Macondo prospect), the provincial government says it has no plans to impose a moratorium on activity, although, the infrastructure deployed offshore will undergo more stringent checks.

But Kathy Dunderdale, the province's natural resources minister, last month asked what the "rationale" would be in shutting down Newfoundland's offshore oil industry, if it meant the loss of "hundreds" of jobs.

More obvious beneficiaries are developers in Alberta's Athabasca region, where the Gulf spill has achieved the unthinkable – to environmentalists – in making the oil sands look like they are not, after all, the world's worst ecological disaster.

Indeed, in light of the disaster in the Gulf, the renewed onslaught against the oil sands by green campaigners looks increasingly ill-judged, at least in political terms. Notwithstanding President Barack Obama's Oval Office address, in which he placed some of the blame for the spill on his country's "addiction to oil", the US will be an ever bigger consumer of Canadian bitumen. A slow-down in drilling in the US will only exacerbate the decline in the country's domestic output, especially as Alaska's output drops.

That strategic reality should give oil-sands producers some comfort. Yet, in Alberta, the industry remains deeply disturbed by what it considers to be unfair and untrue vilification of its business. A campaign against the oil sands by the international soap company Lush is the latest to garner hurtful responses from producers. UK banks involved in financing the oil sands – including Barclays and RBS – have also drawn the ire of activists protesting against their sponsoring of "blood oil".

A fight back is under way and the companies are trying to be reasonable. The Canadian Association of Petroleum Producers (Capp) says it welcomes the opportunity to debate the oil sands, just as it welcomes greater scrutiny. It helps the industry to improve its environmental performance, says Capp's vice-president of oil sands and markets, Greg Stringham. Only, he says, when complaints about the oil sands mask an agenda to wean the world from oil altogether – and not just to mitigate the environmental effect of petroleum production – do the goals of the green movement and those of the industry diverge.

Environmental campaigners may not like to hear that. So polarised has the debate about the oil sands become that any claim by the industry is greeted with scepticism among greens activists.

On the ground, however, the rhetoric may soon give way to genuine progress. Suncor, one of the oil sands' biggest developers, last month gained approval from the Alberta government for a new technology, called TRO, to deal with the vast pools of noxious oily liquid created during oil-sands mining. These tailings ponds are considered by many in the industry – and also by environmentalists – to be the oil sands' most insoluble problem.

Suncor's new technique to deal with them should allow the tailings to be solidified and dried within weeks (and not months or years), enabling a speedier reclamation of the land disturbed by mining. The company says it will spend C$1bn on dealing with its tailings.

But after the Gulf spill, faith that the oil industry can provide its own solutions to the mess it creates will be thin on the ground. On that front, oil-sands producers now have a lot more convincing to do.

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