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Canadian Oil Sands Worth $1.5 Trillion



November 10, 2008 – Comments (6) | RELATED TICKERS: SU , BQI.DL

Think-tank values oilsands at $1.5 trillion

Eric Beauchesne, Canwest News Service Published: Monday, November 10, 2008

OTTAWA - The wealth in Canada's oilsands, even taking into account the recent plunge in world oil prices, is nearly $1.5 trillion, more than four times the $342 billion officially estimated by Statistics Canada, argues a Canadian think-tank in a report released Monday.

That works out to an $34,591 increase in the wealth of Canadians to $243,950 for every man, woman and child, according to the analysis by the Canadian Centre for the Study of Living Standards.

Last year, Statistics Canada valued the oilsands at $342.1 billion, or five per cent of Canada's total tangible wealth of $6.9 trillion, the centre noted.

The reasons the agency underestimates the wealth in the oilsands is that it takes a restricted view of reserves, including only those that can be exploited now, Andrew Sharpe, chief economist at the centre and one of the authors of the report explained in an interview.

"Given the oilsands importance, it is essential to value them appropriately," the report said.

The official Statistics Canada estimate of the reserves, at 22 billion barrels, is "very small compared to those obtained using more appropriate definitions" resulting in an underestimation of their true value, it said.

Further, it added, the failure to take into account the projected growth of the industry significantly magnifies this underestimation.

More reasonable measures of the total oilsands reserves put them at 173 billion barrels, or eight times the 22 billion estimated by Statistics Canada, the centre said, citing an estimate of the Alberta oilsands reserves by the Alberta Energy Resource and Conservation Board. And the rate at which that oil is projected to be extracted - from 482 million barrels per year in 2007 to a peak of 1,350 million barrels in 2015, and at the 2007 price of $70 Cdn per barrel - boosts the estimated present value of the oilsands to about $1.483 trillion, 4.3 times larger than the official estimate of $342.1 billion.

But the extraction of that wealth comes with a hefty price tag, the Ottawa-based research firm also cautioned, estimating that the social and environmental costs resulting from the emission of greenhouse gases alone at $69.4 billion.

That reduces the net wealth of the oilsands to $1.413 trillion, which is still 4.1 times greater than the Statistics Canada estimate.

"Climate change, caused by the emission of greenhouse gases in the course of human activity, has the potential to impose many social costs through its effects on weather patterns, land value, ecological diversity, forestry, fisheries, political conflict, human and animal migration, energy demands, and a host of other natural and social phenomena," the centre said.

The centre's "preferred estimate, which subtracts the costs of greenhouse gas emissions" does not, however, take into account other yet-to-be estimated environmental and social costs, it added.

"A comprehensive valuation of all environmental costs are needed to assess whether future benefits derived from oilsands development are outweighed by even larger environmental costs," it said.

"Using our preferred estimate, Canada's total tangible wealth increases by $1.1 trillion or 17 per cent, and reaches $8 trillion with oilsands now accounting for 18 per cent of Canada's tangible wealth."

"Given the importance of the oilsands for Canada, Statistics Canada should undertake a review of its methodology."

"The coming-of-age of the oilsands has transformed the Canadian economic landscape," it said. "With Canada now claiming the second largest oil reserves in the world, the importance of the oilsands to the rest of the world and its potential impact on the lives of Canadians cannot be underestimated."

The development of the oilsands carries significant political, environmental and social challenges, it said.

For example, on the environment, Canada faces major international criticisms because of its booming greenhouse gas emissions, it said. Also, oilsands development poses a potential threat to the water supply and human health and entails an economic shift east to west, which may pose important challenges for Canada's society and unity.

6 Comments – Post Your Own

#1) On November 10, 2008 at 11:07 AM, motleyanimal (40.10) wrote:

How does this equation work out when we factor in a recovery/production cost of $80 per barrel?

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#2) On November 10, 2008 at 11:13 AM, SCOTTRHUETTLCPA (54.66) wrote:

What companies can we invest in to take advantage of this.

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#3) On November 10, 2008 at 11:45 AM, kdakota630 (29.47) wrote:

SU would be the main one, with BQI also worth looking in to.

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#4) On November 10, 2008 at 12:01 PM, socialconscious wrote:

Kdakota I liked your well-researched article The oil in the Alberta sands and here at home in Bakken could be a key part of our energy solution  Presently however I must concur with Motleyanimal. When we speak of the Alberta sands and Bakken we our discussing heavy oil extraction. Heavy oil extraction is an extremely costly and nacent field. It requires heavy capital investment in technology that is largely proprietary. It can be done and is being tackled by some large ap integrated oil companies but it will take time. I have included a links that includes a comprehensive yet concise and seemingly unbiased overview on heavy oil. My humble opinion in all and all best. Social C

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#5) On November 10, 2008 at 3:02 PM, VTEngineer2001 (< 20) wrote:

Another good play in the sands is CNQ. As far as a recovery/production cost of $80/brl, I think WAY high:

In mid-2006, the National Energy Board of Canada estimated the operating cost of a new mining operation in the Athabasca oil sands to be C$9 to C$12 per barrel, while the cost of an in-situ SAGD operation (using dual horizontal wells) would be C$10 to C$14 per barrel.[10] This compares to operating costs for conventional oil wells which can range from less than one dollar per barrel in Iraq and Saudi Arabia to over six in the United States and Canada's conventional oil reserves.

The capital cost of the equipment required to mine the sands and haul it to processing is a major consideration in starting production. The NEB estimates that capital costs raise the total cost of production to C$18 to C$20 per barrel for a new mining operation and C$18 to C$22 per barrel for a SAGD operation. This does not include the cost of upgrading the crude bitumen to synthetic crude oil, which makes the final costs C$36 to C$40 per barrel for a new mining operation. [HERE]

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#6) On November 10, 2008 at 5:46 PM, motleyanimal (40.10) wrote:

Here is some more current information, although infrastructure costs for steel are obviously lower since this was published. We should note that next year the higher royalty rates will begin in Alberta.

Last Updated: August 22, 2008

Oil from Canada's tar sands, currently producing about 1.2 million barrels a day, is arguably the most expensive oil in world, and is getting even more expensive.

Last year analysts estimated it cost around $60 a barrel to produce light oil from here. The most recent estimate from the Canadian Association of Petroleum Producers (CAPP) now puts that number at $75 to $90. Comparatively, Saudi Arabian crude is said to cost around $1 a barrel.

The main culprit behind the increase is the price of steel. With the world undergoing a boom in building, steel's price has surged - it's up 80% just since the start of this year

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