Chilly Reception Awaits U.S. Energy Companies in Canada

Recent Blog Post

Chilly Reception Awaits U.S. Energy Companies in Canada

On the same day the Obama Administration put the kibosh on the Keystone XL pipeline, two engineering contracts totaling $12.2 billion were awarded to two U.S. companies for work in the Alberta oil sands. One included a $750 million contract to a Chicago-based company for work on Exxon’s huge Kearl Oil Sands project, one of [...]

Read More...

Chilly Reception Awaits U.S. Energy Companies in Canada

Posted by Jeff Rubin on January 24th, 2012 under SmallerWorldTags: asia, energy, keystone xl, sinopec • 10 Comments

On the same day the Obama Administration put the kibosh on the Keystone XL pipeline, two engineering contracts totaling $12.2 billion were awarded to two U.S. companies for work in the Alberta oil sands. One included a $750 million contract to a Chicago-based company for work on Exxon’s huge Kearl Oil Sands project, one of the largest it has anywhere in the world.

Good thing for those U.S. engineering companies there are no “Buy Canadian” provisions in oil sand contracts like there are “Buy American” provisions in U.S. federal procurement. But U.S. oil companies may soon find a less hospitable political landscape north of the border. After Obama sandbagged TransCanada, and all the Alberta producers that were going to supply it, I wouldn’t want to be a U.S. pipeline company looking for regulatory approval in Canada these days

When it comes to energy markets things can change in a hurry. No doubt rainmakers in Calgary’s Petroleum Club are already starting to brush up on their Mandarin. How the goal posts have moved.

It wasn’t that long ago when I was chief economist at CIBC World Markets that Alberta government officials would tell me in no uncertain terms the province wasn’t looking for investment from state-owned oil companies.

Since then, China’s state owned refining company, Sinopec paid more than $4.5 billion for a 9% stake in Syncrude, the largest oil sand producer in the province. Similarly, State owned Petro China spent about $2 billion acquiring full control of the Mackay River project from Athabasca Oil Sands Corp..

State owned Chinese energy companies are not pouring billions of dollars into developing Alberta’s oil sands so more synthetic crude or bitumen can be sent to refineries in Cushing Oklahoma. While the sudden about turn by the Obama Administration may have been a rude awakening for some folks in Calgary’s Petroleum Club, in the end it only serves to reroute Canadian oil to where world markets will ultimately dictate that it flow.

Prime Minister Harper once remarked it was a no brainer for the Keystone XL pipeline to connect Alberta oil sand product to supply U.S. markets. Looking at geography, it is easy to understand the remark. But looking at where market growth will occur, the Prime Minister’s sentiments are misguided.

U.S. gasoline consumption continues to fall, and it is now down to the lowest levels in more than a decade. The future of the oil sands lies with the growth of oil demand in Asian markets, not in American ones. And that future, more than any regulatory decision in either the United States or Canada, will depend on the price of oil.

JB

Jeff,

How do you expect to extract oil from the Alberta Tar Sands once the Canadian natural gas reserves (currently about 10 years left) are exhausted?

JB

P.S: If you want to use fission nuclear power plants you better start building them now because if takes about 10 years to build one…
http://profiles.google.com/mjcole77 Michael Cole

JB your question implies long term planning on the part of Alberta and the oil producers, I don’t think these guys know what they are going to have for breakfast in mountain time when I’m already at the office in eastern time!
http://twitter.com/peterscholtens Peter Scholtens

I wouldn’t bet on China. The demographic trends of their one-child policies aren’t particularly encouraging.
rfk

How possible/likely that if the pipeline is built to the US that the refined product ends up on ships exported to the highest bidder outside the US? Is it possible that this nothing more than an opportunity to score political points?
Rig Pig Petey

Actually, you can thank me for being able to stop at the gas station for a “fill up” and then drive across the street to your “Timmy’s”. Breakfast for me was decided last week as to where i’d b this morning. You must understand that the world runs on “oil”, i didn’t decide that and neither did you. I am thankful though,……..sure beats rubbing a couple sticks together
Instincts

Right, as long as you personally can outlive longevity of finite hydrocarbon energies, why bother caring about or planning for what alternative energies our descendents are, with certain, going to need when we’ve exhausted and/or priced hydrocarbons out most people’s reach? …simply being thankful at the pumps is a big part of why things have come to this point.
Rig Pig Petey

Until hydrocarbons are taxed out,…it is what it is. Think of all the infrastructure in place. To change a society’s habits takes 2, maybe 3 generations,… totally. Oil consumption and utilization has tinkered / occurred and increased since the start of the industrial revolution. What is that,maybe 150 years,…not even a blink on the grand scale. So that is a couple generations. Alternative energies will eventually become part of the mainstay IF we don’t blow ourselves to smithereens. Some reality here now,….. everything we have in our daily lives has an “attribution/connection” to oil. Now my point is, “i’m old, i’ve been in the oil business for over 50 years and i’ve been a part of GETTING US THIS FAR, now, i suggest you be thankful for that tank of gas and Timmy’s, I am all about passing the torch to the next generation. I have kids in university, two have graduated as engineers to date,…………but to say we haven’t got it together? Wow,…..you guys spend too much time daytrading.
Charles

Jeff , what is your take on recent oil exploration activity in the Caribbean … Repsol in Cuba, Bahamas, Jamaica and also, Guyana ? What is prospect for Haiti ? Reports have ALBA meeting in Jacmel in March .
Mark Hecht

Jeff,
Love your articles. You need to post more often!
M.Hecht, Calgary
Robinson

JEFF POST MORE OFTEN……TONNES OF STUFF GOING ON AND WE WANT YOU INPUT!!!!!