Ottawa blurs hopes for big help from oil sands

Alberta's oil sands, buried under a thick cover of alluvium that in the past has acted as a persuasive economic barrier to commercial exploitation, had looked like a major Canadian contribution to easing the deepening world energy shortage.

Two operating synthetic oil plants, together pumping out about 150,000 barrels a day of the honey-colored liquid, were to be followed by a string of similarly costly enterprises expected to help ease, in the near term, Canada's increasingly lopsided deficit in energy trade. They were also supposed to help meet the ultimate goal of bringing back selfin hydrocarbons by the self-imposed 1990 deadline.

At least two would-be oil sands developers were ready to toss a minimum of $5 billion (Canadian) into their respective ventures, putting on tap another 280, 000 barrels a day of unconventional oil production by the mid-1980s. With the possibility of two more to follow later in the decade, the noble objective appeared to be almost within reach.

But no more.

Recently Ottawa abruptly canceled the main incentive responsible for getting oil sands plants built.

The Liberal government, apparently feeling bound by its election pledge to provide cheap domestic energy fuels, has invoked a force majeurem clause in agreements with the private operators of the oil sands plants which renders null and void previous guarantees of world prices for their products.

In other words, the products of the oil sands plants will no longer receive the values set by the OPEC countries. Instead, producers will have to settle for something called the Canadian "blended" price, which will likely be below world prices even though it may average out at slightly more than the prevailing

The problem, the plant owners pointed out, is that the cost of synthetic oil production here is running closer to the world price, rather than to the artifically low domestic price.

The Suncrude Canada Ltd. plant, brought on stream 18 months ago and only partly operational because of recurring technical problems, has said the average cost of last year's production was $30 a barrel.

The $2.4 billion plant would have a hard time to show more than a slim profit margin this year even with full production (124,000 barrels a day) sold at prevailing world prices, Syncrude officials claim.

According to the newly appointed federal energy minister, Marc LaLonde, world prices no longer bore any real resemblance to production costs -- domestic or foreign -- and, given anticipated further price escalations, continued adherence to the 1976 pricing agreement would have hurt the Canadian consumers.

Gulf Canada's Keith McWalter and Esso Canada's Arden Haynes, however, differed and publicly rebuked Mr. LaLonde for his action. The two heavyweights of the Canadian petroleum industry warned that pending oil sands projects in which both would have had substantial stakes might be adversely affected by the price revision.

Alberta, as the host province which stands to collect or lose enormous royalties, depending on whether more of the oil sands plants get built immediately, accused the "feds" of acting in bad faith. It was quick to remind Ottawa yet again that with 80 percent of Canada's remaining conventional oil -- about 7 billion barrels -- within the provincial boundaries, Alberta did not need the oil sands plants. And just to be sure that the federal government does not yield to temptation and perhaps grab the oil wells, Alberta issued a new regulation on April Fools' Day that literally claims the oil as it comes out of the ground.

In the future a provincial agency formed as an intermediary will sell the Alberta oil only to a dozen provincially approved refiners.

The intergovernmental struggle over the control of energy resources will most likely intensify after the first round of salvos. Ultimately, of course, the federal government cannot help winning this or any other encounter with provincial subalterns, because of the superior nature of its legislation to enforce the constitution, the British North America Act.

For that reason alone Alberta is not expected to push Ottawa to a final showdown over energy matters. Still, the oil sands issue will have to be resolved soon, because the private developers now waiting in the wings may get tired of the uncertainties and walk away from the 300 billion barrels of bitumen said to be locked up there. They will insist on a federal subsidy or some other compensation if they are to continue to squeeze precious oil out of the inert, claylike substance.

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