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Latest Headlines
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Oct 6, 2008 5:13:00 PM MST
Alta.''s energy boom cooling in face of falling oil prices, cancelled projects (Oil-Prices-Alta)
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EDMONTON _ Plummeting oil prices and the stock market meltdown have raised concern that Alberta´s energy boom may be heading for a bust.
But Finance Minister Iris Evans and other senior politicians remain optimistic, and are downplaying the recent shelving of a multibillion-dollar upgrader project near Edmonton.
"I see no bust whatsoever," Evans said Monday in an interview. "We have such a solid footing here in Alberta ... we´re going to continue to grow and flourish."
Major investors in Alberta´s oilsands have billions of dollars at stake, so they´re not going to walk away just because prices have dipped, she said.
"Once you make that huge investment to extract oil in that fashion, they´re not going to pull out. They´re going to continue to develop the oilsands."
The mothballing of the partially-completed BA Energy Heartland upgrader sent shockwaves across the province late last month. The $5 billion project was a keystone in an area known as Upgrader Alley that´s starting to take shape east of Edmonton.
Now there´s confirmation that five other major projects in the same area are also being reconsidered.
"The other ones are under review by the companies with regard to the costs involved and whether or not Alberta is the appropriate place to do the upgrading," said Neil Shelly, utive-director of Alberta´s Industrial Heartland Association. "Some of the companies have cited inflationary costs and a lack of capital as a challenge."
Shelly, whose group represents municipalities surrounding Upgrader Alley, said companies are considering whether it´s better to build in Alberta or to "put in a pipeline and ship it down to the U.S. to be upgraded there."
"So the potential growth in Alberta is just that, it´s potential," he said. "It´s not a done deal."
The Canadian Association of Petroleum Producers has confirmed that some major projects are under review, partly because of what´s happening in the markets. Some projects may end up being delayed or stretched out over a longer period, said CAPP vice-president Greg Stringham.
But he said the other side of the economic downturn is that soaring costs for these projects could begin to ease as prices for steel and labour begin to fall.
"The oil is still in the ground and that oil will be developed, it may just take a different timetable," he said.
Oil prices have tumbled nearly 40 per cent since peaking in July and oil demand in the world´s richest countries has been slowing since May.
Price fell below US$90 a barrel Monday, fuelling more nervous talk about how an economic slowdown will impact more than $100 billion in energy projects in various stages of planning or construction across Alberta.
But veteran energy analyst Wilf Gobert said oil prices are still relatively high, so it would be "ludicrous" to suggest Alberta´s energy boom has gone bust.
"It´s not panic time, not bust time," said Gobert, who retired recently after 33 years of tracking the oil and gas sector. "But there are warning signs and we´re not immune to what´s going on out there in the big bad world."
Oilsands utives have estimated that oil prices in the US$65 to US$100 range are needed just to break even on new projects that turn tarry bitumen into synthetic crude.
Gobert said this means that it´s now crunch time for some of the major investors behind Alberta´s upgrader and oilsands projects.
"We´re at a critical junction with oilsands and mega-projects," he said. "New capital investment is starting to look questionable."
The market meltdown and plunging oil prices will also have a significant impact on Alberta´s financial outlook, with the province being heavily dependent on energy royalties.
The first-quarter fiscal update released in August projected an $8.5 billion surplus, but Evans now concedes this will likely be reduced when the province releases its second-quarter update.
Premier Ed Stelmach said Alberta is prepared to "ride out any further difficulties in the markets" and he points out that the province has the option of dipping into a $7.7 billion sustainability fund that was designed to top up revenues in such cases.
"We have the most volatile revenue stream in North America," said the premier. "So we have to have a cushion for any unforeseen (economic) blows."
Stelmach also pointed out the province was very cautious with its initial budget projection of an average oil price of US$78 per barrel.
"You´ll hear predictions by some lately that oil may go down to US$50 a barrel," he said. "But there was no one who predicted oil would be at US$140 a barrel. So we´re holding firm. We´ll be OK."
Alberta Energy Minister Mel Knight conceded some projects may have to be delayed because of financing, but he insisted world demand for energy "is not going away."
"The world needs oil and we produce oil. The world needs natural gas and we produce natural gas," he said.
Knight said it took Alberta nearly two decades to recover the last time an energy boom went bust in the early 1980s. But he said that´s not likely to happen in the short-term this time around.
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