The cost of going green in the oil patch

NICHOLAS KÖHLER May 14 2007

The cost of going green in the oil patch

NICHOLAS KÖHLER May 14 2007

The cost of going green in the oil patch

BY NICHOLAS KÖHLER • A day after the federal green plan got leaked last week, the reaction from Alberta was swift: the Apocalypse was nigh, its fourth horseman none other than Environment Minister John Baird. News the feds would require a 20 per cent reduction of greenhouse gases by 2020 prompted a Calgary front-page headline to scream: “New federal green plan could ‘crush’ oil sands.” Meanwhile, Baird’s Alberta counterpart, Rob Renner, maintained that recently introduced provincial reductions would supercede dearer federal ones—as if to say, “Lookit, we set our own rules. Feds— back off.”

Still, a UBS Investment Research analysis of the plan’s hit to oil sands producers puts the real price of the measures in the area of 50 cents per barrel—hardly debilitating if you consider operating costs are in the range of $30 per barrel and that a barrel sells for over $60. UBS even predicted a positive market reaction to the plan, given that share prices had anticipated costs double that.

Yet even days later, industry types had yet to absorb their good fortunes. “There’s no denying there are significant costs associated with this plan,” says Pierre Alvarez, president of the Canadian Association of Petroleum Producers. “These are the toughest targets the oil and gas industry will have anywhere in the world.” If they got oif so easy, why then the discontent? With huge capital projects underway, University of Calgary economist Frank Atkins says, industry wants nothing more than certainty-and the rules have been changing awfully fast. “It seems like this government found environmentalism really suddenly,” says Atkins, who doesn’t blame big oil for feeling insecure even though the plan wasn’t all that bad in the end. “It’s a sad state of affairs when you say you’re happy because you didn’t get beat up as much as you thought you would.” M