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Suncor CEO Steve Williams, right, talks to a shareholder at the company's annual general meeting in Calgary, May 1, 2012.

TODD KOROL/REUTERS

While the final decision has not yet been made whether Suncor Energy Inc. will proceed with its massive Voyageur upgrader for oil sands crude, the economics of the project are increasingly dubious, the company's chief executive officer told a Toronto audience Thursday.

Steve Williams said that the economics for upgrading crude are "really challenged" and margins are disappearing. In general, upgrading "is not looking as healthy today as it was a few years ago," he said.

An upgrader is a kind of pre-refinery that transforms heavy oil sands crude into a lighter oil that can be further refined into fuels like gasoline and diesel.

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Mr. Williams noted that the company's scaled-back investment program, announced this week, was mainly because of those concerns about upgrading.

"I'm not questioning the need to grow the [oil sands] industry," he said. "It could possibly grow faster. What I'm questioning is the need to upgrade."

By turning oil sands crude into a lighter grade, "we would actually be upgrading into a product that won't pay for itself in the future," he said.

After his speech to the Toronto Board of Trade, Mr. Williams told reporters that a review of the Voyageur project has been accelerated and will be completed by March 30, but a firm decision about the project's future has not yet been made. All options are still on the table, he said, including going ahead with the project, proceeding with different partners or "a different process configuration."

Essentially, the question is whether the cost of the plant is justified by the difference between the price of the crude going in and the upgraded oil coming out. "It is not a question for today, it is about our view for the future," he said. "What do we think those margins are going to be five, 10 or 15 years out. That is where we are spending our time now."

The ability of producers in the United States to deliver more light sweet crude has exceeded expectations he said, and that is causing companies to reflect on the value of upgrading lower grades of crude.

Mr. Williams said he thinks broad public sentiment in the United States and Canada is shifting towards support for the oil sands industry because people increasingly recognize its key role in supplying needed energy to the North American market. However, he acknowledged that the players have done a poor job at getting young people on side.

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Indeed, many young people see the oil sands as simply "bad," he said. "We earned that disrespect and we've got to start turning it around….I am particularly worried about youth and about schools."

Industry efforts such as the collaborative Canada's Oil Sands Innovation Alliance, which was set up to share intellectual property related to environmental matters among industry players, are helping to change things, Mr. Williams said.

"Some of our biggest dissenters have started to lift their heads and listen to the progress," he said.

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