Billions of dollars worth of oil sands projects have been cancelled or shelved in the two years since crude prices collapsed.Ben Nelms/Bloomberg
Koch Industries Inc. has scrapped plans for an $800-million oil sands development, blaming economic uncertainty in Alberta and the province's climate policies.
The Wichita, Kan.-based conglomerate, owned by the conservative billionaire Koch brothers, asked Alberta's energy regulator to rescind the approval for the Muskwa steam-driven oil sands project.
Koch's Canadian oil sands unit "does not believe the current nor medium-term economic environment in Alberta will provide opportunity to generate an adequate return on the required capital for construction of the Muskwa [steam-assisted gravity drainage] project," Byron Lutes, vice-president of Koch Oil Sands Operating ULC, said in a letter to the Alberta Energy Regulator.
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"The longer term economic risk of the project is further burdened with the regulatory uncertainty around the Climate Leadership Program, and its potential impacts on the project, from carbon tax to the emissions cap," he said.
Premier Rachel Notley's climate plan, which includes a carbon tax and a cap on emissions from oil sands, takes effect in January.
The proposed project, located south of Fort McMurray, Alta., was being designed to produce 10,000 barrels a day of bitumen, which is considered small in scale. Other developers, including Canadian Natural Resources Ltd. and Cenovus Energy Inc., have recently given green lights to larger steam-driven developments, though those are expansions to projects that are currently operating. Expansions have different economics due to sunk costs and other factors.
"Each company will assess their project based on a number of factors," Alberta Energy Minister Marg McCuaig-Boyd said in a statement on Monday. "We are seeing a variety of companies make decisions to proceed with oil sands projects, such as CNRL moving forward on its over $1-billion Kirby North project, as announced in November."
Mr. Lutes was not immediately available to discuss the economics of the Muskwa proposal, for which construction had not started.
Andrew Leach, the University of Alberta economist who led the New Democratic Party government's panel that designed the climate plan, said the policy would add 46 cents a barrel to costs, assuming U.S. crude at about $51 a barrel and a host of other assumptions.
Billions of dollars worth of oil sands projects have been cancelled or shelved in the two years since crude prices collapsed. Oil has gained ground from lows of early last year but is still considered to be below break-even levels for most new oil sands projects, given high development costs compare with convention oil drilling.
Koch has cited climate-change policies for cancelling an oil sands project in the past. In 2003, the company halted its $3.5-billion (Canadian) Fort Hills mining project, blaming Canada's ratification of the Kyoto accord. It sold its interest and now Suncor Energy Inc. is building it for $15.1-billion.
Jeffrey Jones