Gun-shy Investors Abandon Tar Sands

The Globe and Mail’s Report on Business reported Friday that investors are reconsidering the viability of the Alberta tar sands as a worthy venture.

After putting numerous assets up for sale earlier this year, tar sands companies have so far come up empty-handed. With operating costs constantly rising, unstable oil prices and dropping revenues, major energy corporations are losing deals due to skittish investors.

They are being forced to hold off on selling what they anticipated would be valuable assets after receiving less than enthusiastic bids.

Suncor Energy Inc., Canada’s largest oil company has scaled back its spending by $1 billion from last year as a means of offsetting lagging revenues.

Recent predictions by the International Energy Association and British Petroleum show that instead of a rise in the demand for Canadian crude oil, Canada’s prime export destination—the United States—is on its way to becoming the world’s largest energy producer, potentially becoming energy self-sufficient by 2020.

There are American companies, such as Murphy Oil based in El Dorado, Arkansas, who are considering selling off their stake in Canadian oil companies. The Houston-based Marathon Oil Corporation spent the last seven months in talks to sell part of its 20-percent stake in the Athabasca Oil Sands Project before the deal fell through. The company has declined to say what went wrong.

Environmental journalist Andrew Nikiforuk warned Canadians almost three years ago that government overspending to develop fossil fuels and a failure to diversify would lead to the industry’s collapse. In an opinion piece for The Tyee, he wrote about the dangers of allowing the Canadian dollar to become to closely tied to the price of oil, something that was already beginning to happen at the time:

“For better or worse Canada's economic fate is now chained to oil exports and oil price shocks. That's what happens when a nation supplies the United States with 20 per cent of its oil and refuses to have a national conversation about the consequences.”

Recent stocks reports show that Canada’s biggest oil companies have taken a turn for the worse.

In April, major companies including Shell, Exxon and BP, were trading at the lowest numbers seen in nine months.

These numbers cast doubt on the Harper government’s assertion that oil sands production will triple by 2035. If BP's predictions are correct, some say Canada will be lucky to hold steady at current levels of export to the US, let alone increase it by millions of barrels per day.

The fossil fuel industry may in fact be undermining its own economic viability. The rise of natural gas production via hydraulic fracturing is at least partially to blame for the drop in demand for crude oil down south – due to the high volume and availability of shale gas.

Investors' wariness will also have a huge impact on development should the Canadian and America governments approve the Keystone XL and Northern Gateway pipelines.

With willing investors dwindling, it's hard to say who will be willing to risk the money to build more tar sands insfrastructure.

Image Credit: Kris Krug via flickr, used with permission.