Monday, May 17, 2010

Investment risks seen rising in Canada's oil sands

CALGARY, Alberta (Reuters) - Investors face growing environmental, financial and social risks unless developers of Canada's oil sands come up with clearer plans to deal with carbon emissions, water use and land reclamation, a report concluded on Monday.
The study, authored by RiskMetrics Group, said oil sands projects require crude prices of at least $65 a barrel, and possibly more than $95 a barrel, to justify $120 billion in planned expansions over the next 10 years.

U.S. crude was down 2.5 percent at $69.75 a barrel on Monday, having fallen more than 15 percent in a month.

New low-carbon fuel standards in the United States and Canada could also put oil sands producers at a disadvantage, because of the higher carbon intensity inherent in Alberta's unconventional crude, the report said.

In addition, the industry will have to make major outlays to reclaim land and treat water once production facilities come to the end of commercial operations, it said.

"Oil sands production is expensive and faces significant risks associated with its environmental and social impacts," RiskMetrics said in the report, commissioned by Ceres, a network of investors and environmental groups.

"If the industry does not take steps to aggressively manage these risks, this report concludes that the industry's long-term growth is in doubt."

Alberta's oil sands represent the largest oil deposits outside the Middle East and are seen as a secure source of supply for the United States from a politically stable neighbor.

However, the environmental and social impacts of development have come to the fore in recent years. Green groups have mounted campaigns to hammer home their message that oil sands projects are damaging to air, water, land and local communities.

The oil industry, led by the Canadian Association of Petroleum Producers, has fired back with its own communications push, saying developers are doing all they call to minimize impacts.

Environmental concerns surrounding the oil sands have been overshadowed in the past month by the explosion of the Deepwater Horizon oil rig in the Gulf of Mexico and the spreading oil slick that threatens the coastlines of the U.S. Gulf states.

The RiskMetrics report concluded that developers must devise a more comprehensive strategy to deal with risks and provide investors with an idea of the appropriate pace of development.

"At the same time, companies will gain more confidence in their own strategic planning decisions and be more likely to gain backing from wary stakeholders, investors and policymakers," it said.

"The alternative leaves these vital questions unanswered and only raises the stakes in the multibillion-dollar bet that has become oil sands development in Alberta."

(Reporting by Jeffrey Jones; editing by Rob Wilson)

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