Nervous Oil-Sands Investment Stalls

In the space of mere months, long-term investments in Canadian oil sands have gone from full steam ahead to… well, not exactly a grinding halt, but certainly a major slowdown. While handsome profits beckoned at $100-plus a barrel, the just-as-volatile shift toward the $50 mark has oil-sands investors worried. Almost every aspect of oil-sands spending is under review.

The big players in the oil sands are cutting back. Suncor has already done so, and recently one of the biggest, Canadian Natural Resources, said that it would cut spending at its giant Horizon oil sands project from around $3.3 billion in 2008 to $470 million in 2009.
“This environment is scary,” Canadian Natural’s CEO Steve Laut told reporters in an interview. “We are not going to build in a high-price environment for a moderate-price world.”

Scary indeed. The trouble is that no one really knows what is going on. The International Energy Agency (IEA) is warning that the slowdown in oil-related investment could stoke another potential economic crisis. The IEA currently forecasts that oil demand will climb from a present 85 million barrels of oil a day to 106 million barrels, and if that bears out, the industry will need $26 trillion invested in new oil sources over the next 20 years.

The trouble is that forecasts are just that, based on available facts. We don’t have all of the facts all of the time. If we did, we wouldn’t be in the economic soup now. How many oil companies are going to bet the farm on a forecast right now? Not many, I’ll wager.