World leery of oilsands
Rothschild analyst: Foreigners fail to commit over fear of oil price crash
Claudia Cattaneo
Financial Post
Wednesday, June 07, 2006
CALGARY - Canadians are getting accustomed to viewing the Athabasca oilsands as the Holy Grail to an oil-starved world, but the outside view remains cautious.
Franco Bernabe -- the Rome-based vice-chairman of prestigious European investment bank Rothschild Europe, former chief executive of Italian integrated energy giant ENI SpA and member of the board of Petro-China -- said concern about a return to lower oil prices is keeping many from rushing into Canada's unconventional deposits.
"The oil industry is a little bit uneasy with the sudden and accelerated pace in which things are happening here in Canada," Mr. Bernabe, who privatized ENI when he was at its helm from 1992 to 1998, said in an interview.
"There is much more awareness [of the oilsands worldwide] than a couple of years ago, but what I notice is that deeply in the mindset of the oilmen there is a scare that there will be an oversupply" of oil that will drive prices down, making Canada's high-cost oil less economic.
Already, he said, an increasing number of voices are sounding the alarm that the world oil market is oversupplied -- although that's not reflected in the price of oil because of speculation.
Mr. Bernabe was in Alberta this week for meetings with Canadian oil industry executives and to take a first-hand look at the oilsands business around Fort McMurray.
He said he expects oil companies that are not already in the basin to take a "discreet approach" and make small, staged investments to gain experience and competence in the basin, rather than massive investments at a time of peak oil prices.
"The hydrocarbons industry has been cyclical for 100 years," said Mr. Bernabe, who heads Rothschild's oil-and-gas group. The firm has such deep roots providing advisory services to the industry it financed the startup of the oil major now known as Royal Dutch Shell PLC.
"There is no reason why it shouldn't remain cyclical. If [oil] prices collapse, then you got in [the oilsands] at the wrong time. I personally think there is never a missed opportunity when you have to pay too much."
The Athabasca deposits could see up to $130-billion in investments in the next decade if all 46 major mining and thermal projects now being built or proposed and their 135 expansion phases move forward. But concern about escalating costs -- in the oilsands and elsewhere in Canada's super-heated oil industry -- is widespread and could knock off projects.
Already this week, David Netzer, a Houston-based petrochemical consultant hired by the Alberta government and 19 energy-sector partners to look into the feasibility of building a US$10-billion refinery near Edmonton, said Alberta's economy is running so hard it would now be impossible to build it.
Last week, the National Energy Board said production from Alberta's oilsands will triple to three million barrels a day by 2015 -- but the risk of doing business is rising and costs for producers have soared 25% in the past two years.
Companies such as Imperial Oil Ltd. and Husky Energy Inc. said they are investigating oilsands strategies that don't involve building upgraders in Alberta to avoid the province's high inflation.
Chris Seasons, president of the Canadian subsidiary of Devon Energy Corp., said last month capital spending in natural gas could retreat across the Canadian sector next year if costs continue to rise, even as gas prices have weakened.
Mr. Bernabe predicted China's national oil companies are not likely to write big cheques for a piece of the Canadian business any time soon.
Despite rumours in the past couple of years that companies such as Petro-China were on the verge of major Canadian oilsands investments, so far their commitment has been small.
Canada's stable oil environment may be preferred by Western oil companies, but the Chinese have other options, said Mr. Bernabe, the only Western director on the board of Petro-China.
"The Chinese are willing to take more political risk," he said. "Non-conventional oil is abundant in many parts of the world. I see a very rational behaviour on the part of the Chinese and a prudent attitude on investments in Canada."
ccattaneo@nationalpost.com
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