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Danielle Droitsch’s Blog

Coincidence? Massive tar sands mine put on hold as stalled tar sands pipelines like Keystone XL choke industry

Danielle Droitsch

Posted May 30, 2014 in Moving Beyond Oil, Solving Global Warming

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Yesterday, a major tar sands company Total E&P – who is also a confirmed shipper for the proposed and now delayed Keystone XL tar sands pipeline – announced it would put on hold indefinitely its plans for the massive tar sands Joslyn mine.   The company said the economics for the $11 billion plan no longer added up.   Over its lifetime, the tar sands mine would have pumped hundreds of millions of metric tons of carbon pollution into the air equivalent to putting 2.4 million cars on the road for 45 years according to Oil Change International.  This announcement severely undercuts oil industry arguments that the expansion of tar sands development is unavoidable. In fact, there is clear and compelling evidence that the growth of the tar sands industry is directly linked to the availability of pipelines like Keystone XL.  It is why the State Department must reject tar sands pipeline projects like Keystone XL because they it would directly enable the growth of the carbon polluting tar sands industry.

The plans for the Joslyn tar sands mine were approved by the Government of Canada in 2011 and would have produced 874 million barrels of bitumen over its life span (production rate of 100,000 barrels/day).  The mine would have commenced production in 2020.  The announcement to indefinitely suspend the project came only a few months after the process for the proposed Keystone XL tar sands pipeline was put on hold as the State of Nebraska resolves legal issues over the route of the pipeline through the state.  Was this a coincidence?  Perhaps not.  Total E&P is a confirmed Keystone XL shipper and the costs of transporting tar sands is an integral indicator to determine whether a tar sands operation is profitable given the industry is landlocked and critically dependent on transport to move its product to markets.

This announcement should have a direct bearing on the State Department’s evaluation of whether Keystone XL is in the national interest.    Instead of assuming the tar sands industry will have no problem expanding with or without Keystone XL (a conclusion that was unfortunately made in the State Department’s environmental review) this announcement should wake up the Obama administration to the fact Alberta’s tar sands industry is likely very dependent on cheap pipeline infrastructure to grow. 

Overall, the tar sands industry is facing multiple economic challenges.  It is currently facing rising labor costs and shortages of workers as well as a significant discount for the low grade tar sands oil.  Industry has behind closed doors complained of how economically marginal it is to develop tar sands projects.  These factors combined with limited avenues for tar sands pipeline – favored by industry as far less expensive than rail – have made tar sands production more risky. Total E&P CEO Andre Goffart confirmed  this challenge for the entire tar sands industry, “As a general comment, I would say that Joslyn is facing the same challenge as most of the industry worldwide in the sense that costs are continuing to inflate when the oil price and specifically the netbacks for the oilsands are stable at best, squeezing the margins.”  

The announcement has been welcome by Canadian organizations who have long opposed the project based on its environmental impacts have welcomed the news.  Greenpeace campaigner Mike Hudema said,  “This project would create over 12.5 billion litres of toxic tailings waste per year after it was fully producing and, of course, it would also contribute greenhouse gas emissions.”

Hannah McKinnon of Environmental Defence Canada was quick to point out it was no coincidence this announcement was made shortly after the Keystone XL process. “Tar sands are high cost, high risk, and high carbon. Josyln North’s mothballing is the latest in a developing trend that doesn't bode well for the industry's future. The economics of the tar sands are marginal today. And in a carbon constrained world, they become increasingly unviable.”

In the end, there are any number of reasons why a massive expansion of the tar sands industry doesn’t make sense in a world where we are aiming to limit carbon pollution and fight catastrophic climate change.  Right now, the tar sands industry wants to triple production until 2020 and then eventually quintuple production in the longer term.  But one of the key determinants to that growth is the availability of pipeline infrastructure like massive pipelines like Keystone X. We have seen clear and transparent evidence that the lack of new tar sands pipeline (an outgrowth from massive public opposition in Canada and the United States) is preventing industry from building new mines.  It is time the Obama administration recognizes this and understands that its decision over the Keystone XL tar sands pipeline will have a direct bearing on the future growth of this carbon polluting industry.

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Comments

A Proud CanadianMay 30 2014 05:02 PM

Coincidence? Why yes. And thanks for asking.
CALGARY, ALBERTA--(Marketwired - Oct. 30, 2013) - Suncor Energy today announced that, together with joint venture co-owners Total E&P Canada Ltd. and Teck Resources Limited., it has voted unanimously to proceed with the Fort Hills oil sands mining project. The Fort Hills project is located in Alberta's Athabasca region, 90 kilometres north of Fort McMurray.
"The Fort Hills project is one of the best undeveloped oil sands mining assets in the Athabasca region, is an excellent fit with Suncor's diversified production portfolio, and will generate significant economic value for Suncor, Alberta and Canada," said Steve Williams, president and chief executive officer. "Given its combination of ore quality and resource size, we expect this project will be a significant source of long-term cash flow for the company and contribute strong returns for our shareholders."
"The Fort Hills economics are positive," said Williams. "Great effort has been made to ensure that our depth of experience and recent technology improvements in oil sands mines are integrated into the development of the project. We are delighted that the other owners share our enthusiasm for this exciting new development."

So yes ….. a coincidence. These partners basically decided to postpone a project with an inferior oilsands lease. But nice try.


The NRDC should be ashamed of itself trying to “hem-in” oilsands production while countries such as Saudi Arabia, Venezuela, and the United States continue to produce heavy oils that are more carbon intensive than an oilsands mine.
When surveying your “tag list” on your website I don’t see anything resembling:
King Abdulla, Hugo Chavez, Nicolas Maduro, OPEC, Saudi Arabia, Riyadh, Nigeria, Venezuela, Caracas

I see tags about
Alberta, Canada, fracking, GaryDoer, Gulf (not gulf of oman), gulfofmexico, keystone, keystonexl, mexico, oilsands, oilshale, pipeline, tarsands, teaparty, transcanada

Shame on you. Shame!
Why on earth aren’t you in Saudi Arabia right now Danielle protesting these guys? They produce 11.6Mbpd!!!!! With much of the new production being heavy insitu oil much more carbon intensive than oilsands. Why?

I am now forced to ask….. Who funds you and why the hilariously obvious bias against North American oil vs tyrant oil?
Any Saudi princes offering funds for your “common enemy”?

With not as much regard as normal,
A Proud Canadian

JakeMay 31 2014 09:19 AM

Canadian,

It is "un-American" or "un-North American", now isn't it? It is hypocritical, isn't it?

I would be willing to wager that this all comes down to dollars. The NRDC doesn't raise much money in the Middle East, so they don't "waste" their time doing anything over there. It's not about doing what is best for the world, it's about doing what's best for the NRDC's pocketbook.

That's my not-so-humble opinion, anyway.

In the end, the NRDC accomplishes nothing. By delaying KXL, they simply help increase "dirty" oil production in other countries (mostly countries that don't like us), and decrease "dirty" oil production in North America. As a result, the same amount of oil is produced. But since the markets are not allowed to do what makes the most sense, markets are less efficient. And when markets are less efficient, carbon emissions go up, not down.

andysteveJun 2 2014 08:57 AM

In defense of Danielle she is correct that the Joslyn was closed due to poor economic primarily due to low WCS prices and high transport costs without KXL. Suncor has a 37% stake in Joslyn so if its partners with no rail access are giving up it does say something about the state of play in Alberta. Suncor is going ahead with Fort Hills but the IRRs on the project are barely 12% according to the latest investment bank analysis of the project. It only works but Suncor because they have access to rail/refining in Eastern Canada.
The return profile of tar sands projects have paralleled the fate of KXL quite closely over the past 12 months falling on average 3-5%. While poor economics can also be attributed to the rise of light crude production in the US, the fact that the oil companies have no reliable long term cost estimates for transporting much of the new production shows how much KXL matters to greenfield plays like Joslyn.

A Proud CanadianJun 2 2014 10:33 PM

Both Joslyn and Fort Hills are JVs with Total and Suncor. Why does Suncor's rail/refining work with one and not the other?

Answer......
The Fort Hills project is one of the best undeveloped oil sands mining assets in the Athabasca region, is an excellent fit with Suncor's diversified production portfolio, and will generate significant economic value for Suncor, Alberta and Canada," said Steve Williams, president and chief executive officer. "Given its combination of ore quality and resource size, we expect this project will be a significant source of long-term cash flow for the company and contribute strong returns for our shareholders."
"The Fort Hills economics are positive," said Williams. "Great effort has been made to ensure that our depth of experience and recent technology improvements in oil sands mines are integrated into the development of the project. We are delighted that the other owners share our enthusiasm for this exciting new development."

A Proud CanadianJun 4 2014 08:05 PM

Danielle,
No answer yet......

Why on earth aren’t you in Saudi Arabia right now Danielle protesting these guys? They produce 11.6Mbpd!!!!! With much of the new production being heavy insitu oil much more carbon intensive than oilsands. Why?

JakeJun 4 2014 09:14 PM

I await her reply as well....

Peter BJun 10 2014 04:01 PM

It should be noted that blocking the supply of oil from any source including the oil sands will raise the price for gasoline and the food which is distributed by diesel powered trucks. This will disproportionately hurt the poor who need the gasoline to get to work and already use most of their income for necessities like food and fuel. Of course the NRDC is more concerned about arctic ice melting.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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