Costs may derail oil sands projects

High costs will likely derail some projects in the oil sands, according to Murray Edwards, the reclusive vice-chairman of Canadian Natural Resources, one of many firms working in the overheated Fort McMurray region of Alberta. It was the strongest public declaration yet from a senior industry executive that some projects may not go ahead as planned. For projects on the drawing board - which is a long list including major ones from Petro-Canada, Total and Exxon Mobil - the challenge is huge, Mr. Edwards said. "These projects, long term, need prices higher than $50 [U.S. a barrel]," Mr. Edwards told reporters.

While Mr. Edwards was skeptical that the industry could deliver on heady forecasts for production gains, he was bullish about the prices of crude oil and natural gas. He said supply-and-demand fundamentals for both commodities indicate oil could stay higher than $60 a barrel through the end of the decade and natural gas could average at least $8 for 1,000 cubic feet. The world is in an economic era "without precedent," Mr. Edwards said, pointing to high commodity prices, low interest rates and strong global growth.

Cost escalation in the oil sands has been and remains extreme. In just the past 5 years, Mr. Edwards said the price to build a project has doubled. The trend remains intact, given Shell Canada's declaration in July that a planned expansion of its existing oil sands project could cost $12.8-billion, up 50% from an estimate made just one year ago.

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