Row engulfs Canadian oil sands project
Battle lines are drawn as the contentious Frontier project awaits ultimate verdict
A political squabble has broken out over the Canadian federal cabinet’s pending decision on the large-scale Frontier oil sands mine proposed for northern Alberta by Vancouver-based miner Teck Resources.
The cabinet is divided on a final decision, as federal lawmakers attempt to balance the country’s need for natural resource development with its international commitments on climate change. The Alberta provincial government has, in turn, been muttering darkly of dire economic and political consequences if Ottawa says no.
A joint federal-provincial review panel found the C$20.6bn (US$15.5bn) Frontier mine to be in the public interest last July. But that was before Prime Minister Justin Trudeau verbally committed Canada to become carbon-neutral by 2050 while on the election trail last autumn.
Alberta premier Jason Kenney, warned a Washington, DC audience in early February that a negative decision would send a “devastating message” to international finance, when Canada is already struggling to attract foreign direct investment into the country.
According to Kenney, Teck has spent almost C$1bn over the last decade to meet a series of regulatory requirements for the project. Once built, the mine will produce 260,000bl/d at its peak—and operate from 2026 to 2066—employing 7,000 people during construction and 2,500 people upon completion. Teck estimates it will contribute C$70bn in federal, provincial and municipal tax revenues over its lifetime.
On the flip side, Teck expects the Frontier mine to produce 4.1megatonnes (mt) of greenhouse gas emissions annually—equivalent to about 1mn new cars on the road—while the Pembina Institute, an Alberta-based environmental think-tank, lifts that estimate to 6mt when all mine related activities are taken into account.
At the weekend, Kenney made public a four-page letter he sent to Trudeau last week. “Here in Alberta, [a negative decision on the Frontier project] would be interpreted as a rejection of our most important industry and could raise roiling Western alienation to a boiling point,” the Albertan populist wrote.
Teck expects the Frontier mine to produce 4.1megatonnes (mt) of greenhouse gas emissions annually—equivalent to about 1mn new cars on the road
Separatist sentiment has been on the rise in Alberta—and neighbor Saskatchewan—since Trudeau’s Liberal Party first came to power in October 2015. An early November Ipsos opinion poll found support for separation at a historic high, with 33pc of Alberta respondents, and 27pc of respondents from Saskatchewan, favouring their provinces splitting from the rest of Canada.
Isn’t it ironic
But, even if it receives federal cabinet approval, progress on Frontier is not guaranteed. Teck Resources CEO Don Lindsay sees three additional hurdles prior to FID.
These include completion of a large crude oil pipeline project, such as the state-owned Trans Mountain Expansion (TMX); a partner to take a significant stake in the mine; and crude prices high enough to make the project economically viable. The 590,000bl/d TMX to the Vancouver area and another large pipeline projects to move oil from Western Canada, TC Energy’s 830,000bl/d Keystone XL (KXL) to the US Gulf Coast, have overcome some significant legal impediments in recent months.
C$12.6bn - the estimated cost of the project
But opposition to the plans, including from indigenous groups, could still slow, if not halt construction of TMX—the projected cost of the project has already skyrocketed from an original estimate of C$5.4bn to C$12.6bn, partly due to delays. The election of a Democrat to the US presidency in November could, meanwhile, again lead to KXL being shelved.
Finding a partner to take a substantial stake in the Frontier mine may also not be straightforward. Greenfield oil sands mining projects have fallen out of favour in recent years due to their relatively high costs and the time it takes to generate first revenue. Canadian producer Suncor Energy, a partner with Teck in the Fort Hills mining project, has indicated it has no plans to join Frontier.
And crude prices are unlikely to be high enough to boost project economics for the foreseeable future—barring a major and prolonged disruption to Mid-East Gulf oil supply. Andrew Leach, an energy expert at the University of Alberta, estimates the company needs crude prices in the US$75/bl range—adjusted for inflation moving forward—to achieve a reasonable return on investment. The US tight oil revolution is likely to cap prices below that level in the shorter term, while the transition away from higher carbon fuels such as oil could do the same in the longer term.