- Joined
- Aug 22, 2008
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- 428
Opinion - Pierre Fournier, EVP, director of research and geopolitical analyst with National Bank Financial, writes that other than the potential for a severe economic recession, the development of the oil sands is likely the most important economic and political issue for Canada for the coming decade. Based on present expectations, the oil sands will host at least $170-billion of investments during this period. Canada is already the main oil supplier to the US, and proven oil resources in Alberta are second only to Saudi Arabia. The challenges remain daunting. The costs of mining and upgrading the resource have skyrocketed, and the breakeven point for new projects is close to US$85 a barrel (West Texas intermediate), an increase of $20 from just a year ago. Volatile oil prices, coupled with environmental and regulatory risks, and the massive investments required for long-term returns, have led many existing and potential players to adopt a more "prudent," that is, conservative, approach. Over the last few months, the stock market correction has been particularly devastating for the oil sands players.
Is it game over for the oil sands? Fournier concludes the answer to this question is no. The strategic interests and the needs of the US, coupled with Canada`s desire to maximize the benefits of the resource, will lead to the continued and perhaps accelerated development of the oil sands. However, balancing the economic, political and environmental stakes will be a formidable challenge. But, ultimately the coming US election and the severe correction experienced by oil sands equities - which currently reflect a long-term oil price of less than $50 a barrel - will undoubtedly present opportunities for the investor. Harsh geopolitical realities and the need for energy independence will trump all other considerations in realizing the potential of Canada`s oil sands.
Is it game over for the oil sands? Fournier concludes the answer to this question is no. The strategic interests and the needs of the US, coupled with Canada`s desire to maximize the benefits of the resource, will lead to the continued and perhaps accelerated development of the oil sands. However, balancing the economic, political and environmental stakes will be a formidable challenge. But, ultimately the coming US election and the severe correction experienced by oil sands equities - which currently reflect a long-term oil price of less than $50 a barrel - will undoubtedly present opportunities for the investor. Harsh geopolitical realities and the need for energy independence will trump all other considerations in realizing the potential of Canada`s oil sands.