January 15, 2010 / 8:02 PM / 8 years ago

Controlling oil sands pace a risky move for Alberta

CALGARY, Alberta (Reuters) - Alberta’s new energy minister would face more flak from the very oil industry he is trying to mend fences with if he tried to regulate the pace of development in the Canadian province’s vast oil sands, analysts said on Friday.

Ron Liepert, whom Premier Ed Stelmach named as head of the key energy department this week, told a newspaper that Alberta needs to look at ways to moderate growth in oil sands output. He later backed away from comments that suggested government changes to policies that promote investment.

Any suggestion that the government will start putting the brakes on development of the largest oil source outside the Middle East will further erode industry and investor support for the Conservative government of Premier Ed Stelmach, said Chris Feltin, analyst at Macquarie Securities Canada.

“That gets into a very tricky situation for government, if that is the case, just simply because they’ll be put into a position to determine why some projects should proceed ahead of others,” Feltin said.

“They’re going to get into a position of picking favorites and I don’t think that’s what the government should or wants to get into with regard to their relations with the industry.”

An oil-sands development rush led to onerous cost overruns and project delays as oil prices escalated into 2008. However, as much as C$90 billion ($87 billion) worth of developments were canceled when prices tumbled in the latter half of that year.

“I believe we have an opportunity to sit down as cabinet and have that discussion and say, ‘As this thing starts to crank up again, are we going to change our policy of come-one, come-all into the development of the oil sands?'” Liepert said in an interview with the Globe and Mail newspaper.

A government spokesman said on Friday that Liepert later clarified those remarks at a swearing-in ceremony in Edmonton. Liepert was referring to ways the government itself could be better prepared for the next boom, such as ensuring the labor force was available and infrastructure could handle the influx of people and money, spokesman Jerry Bellikka said.

“He made it very clear we’re not talking about any interventionist policies to physically try and slow down industry’s growth,” Bellikka said.

The government, aiming to attract investments, has so far avoided talk of legislating or regulating development controls.

Now, Stelmach is working to win back support from the oil industry by rethinking changes the government made to the province’s royalty structure.

Energy companies have said those changes, coupled with the development of shale gas elsewhere in North America, have left Alberta’s natural gas sector at a sharp economic disadvantage.

Liepert’s first task is to oversee a government-sponsored review of the competitiveness of energy investment in Alberta. That is due to be completed next month.

Currently, Imperial Oil Ltd’s Kearl project and Royal Dutch Shell’s Athabasca project expansion, are the only two major oil sands mining projects under construction. There is also handful of smaller “in situ” projects that involve drilling for the crude rather than mining.

Environmental groups have waged campaigns in Canada and around the world to publicize the impact of unrestrained oil sands development on air, land, water and local communities.

Using the current lull to reevaluate development would be a positive step, said Simon Dyer, oil sands program director for the Pembina Institute, an environmental think tank.

“It’s fair to say that the problems associated with out-of-control oil sands development from the economic and cost inflation side are higher on the radar for the government than environmental issues,” Dyer said. “But the fact that they seem to acknowledge that there is actually the ability to control the pace and scale of growth is a valuable step in itself.”

($1=$1.03 Canadian)

Additional reporting by Ajay Kamalakaran; editing by Peter Galloway

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