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ENERGY
Triple-digit oil prices to become norm as wells run dry, analyst says

Oil prices of at least US$100 a barrel are expected to become the norm as early as next year, as conventional supplies continue to decline and consumption in the developing world rises, CIBC chief economist Jeff Rubin said Tuesday. "We're in a world of triple-digit oil prices for the foreseeable future. Whether it's $100 or $140 a barrel ... is up to debate, but the bottom line is we're in the bottom of the ninth inning of the hydrocarbon age." Rubin said higher oil prices will spur technological innovations, as well as growth in nuclear power and biofuels. More of OPEC's production will go toward fuelling its energy needs. Despite Wall Street's obsession with oil consumption by China and India, oil use in Russia, Mexico and the OPEC nations outpaced the world's most populous country last year. By 2012, Canadian oilsands could become the single largest source of new oil supply for the United States as Mexico's supplies become depleted, Rubin said. Recent oilsands acquisitions by Royal Dutch Shell and Marathon Oil could be the "harbinger of things to come." Six of the largest oil suppliers to the US are poised to cut their global exports by nearly two million barrels a day by 2012, Rubin said. The projected cut - amounting to 7% - by Mexico, Venezuela, Saudi Arabia, Nigeria, Algeria and Russia, "reflect the growing struggle in these countries to grow production and manage their own soaring rates of oil consumption." Canada's oilsands production is expected to increase to 2.3 million barrels a day by 2015, up from about 1.1 million barrels a day in 2005, according to the US Energy Information Administration. Rubin's remarks come as big oil companies, such as Exxon Mobil, continue to forecast plenty of fossil fuel for the world's needs to at least 2030.
(Edmonton Journal 071003)

WATER
Industry water use worries experts

Upgraders in the industrial heartland northeast of Edmonton could use as much as 104 billion litres of water annually, almost as much as all the people and industries in the Greater Edmonton area combined. The eight current and proposed upgraders have applied to the government for 92.2 billion litres, while licences for another 11.9 billion litres has already been granted, according to data released to the Journal by Alberta Environment. "We have no idea what the effects of all these allocations might be," said Bill Donahue, a water research scientist. "What I think is most alarming is that the province has never had any plan for development in Alberta and they continue to approve and promote very water-intensive industries. . . they have minimal understanding of their water supply. They have no understanding of the effects of climate change and what they're going to be on the water supplies." Alberta Environment said Monday it had "done the science" on the river and had limits in mind. It will launch a new program today that considers the combined environmental impact of industrial activity on air, land and water. Instead of evaluating proposed projects on their own, the new plan is to add all existing and proposed projects together to determine the combined effect on air and water quality, as well as wildlife living in an area. Alberta Environment said it has already done scientific studies to figure out what the targets for air, land and water quality should be in the industrial heartland. Discussions with industry about how those targets will be implemented will begin right away. The facilities will have to work together to limit air emissions to a regional cap, for example. How protective of the environment these new limits will be depends on how stringent they are, said Chris Severson-Baker, director of the Pembina Institute's energy watch program. "If (targets) are set at the wrong level, then it's going to give a permit to pollute," Severson-Baker said.
(Edmonton Journal, Calgary Herald 071002)

MONEY
Bank injects $855M into financial markets

The Bank of Canada intervened in financial markets again yesterday, buying $855-million of securities to defend its target overnight interest rate. Since Thursday, Canada's central bank has intervened four times for a total of $3.815-billion. In such purchase and resale transactions, the Bank of Canada buys government bonds from major financial institutions with an agreement to sell them back at a predetermined price the next business day. The bank made the transactions to maintain its overnight loan target rate, which is 4.5%. The Bank of Canada and other central banks, including the US Federal Reserve, have been pumping money or “liquidity” into the global financial system to ease a credit squeeze related to the collapse of the US subprime mortgage market.
(Globe and Mail 071003)

Public wants oilpatch to pay more

An overwhelming number of Albertans - 88% - believe they are not getting their "fair share" from oil and gas royalties, and two-thirds want Premier Ed Stelmach to fully adopt the contents of a review panel report that has the oilpatch seething. Those are results of a poll commissioned by the Calgary Herald and Edmonton Journal, which also shows, despite dire warnings from the energy industry, a majority of Albertans believe oil and gas companies won't flee the province if the government hikes royalties. Industry fiercely opposes implementing the panel's full report and warns that the province could miss out on billions of energy investment dollars - though proponents note Alberta's adjusted royalty scheme would still be in the middle of the pack internationally. The poll indicates there's a significant appetite for change. Of the 88% of Albertans who believe they are not getting their fair share from oil and gas royalties, 51% "strongly agree" with that sentiment while only 4% "strongly disagree." While the review panel's recommendations are ruffling industry's feathers, 67% of the poll's respondents agree with panel chairman Bill Hunter, who said the government should adopt the report in its entirety. Respondents were also asked whether royalties should be increased, decreased or kept the same for each of natural gas, conventional oil and the oilsands. On natural gas, 44% called for an increase in royalties. On conventional oil, 48% support a hike. But on oilsands - Canada's marquee energy play and the future of oil development in Alberta - 55% of respondents said there should be higher royalties. Interestingly, 56% of respondents believe any royalty increase should apply to both new and existing projects, instead of "grandfathering" the old rules for projects already in place.

Alberta Auditor General Fred Dunn said Tuesday that royalty rates should be increased to even higher levels than the review panel recommends. His report, released Monday said the energy department has determined a royalty rate of about 66% would keep the province competitive with other jurisdictions. Even if the government decided to take a bit more than that - in the 70% range - it would still be fair, he said. "What is the risk that the industry sees which would therefore justify the owners - Albertans - selling the resource for less than other jurisdictions?" Dunn said. Meanwhile, Canada's oil and gas lobby moved into high gear Tuesday in its battle against proposed royalty increases. "Changing the current balance would involve trade-offs," Canadian Association of Petroleum Producers president Pierre Alvarez told a Calgary Chamber of Commerce luncheon. "The panel low-balled costs faced by industry by billions of dollars and shrank the revenues paid to government by industry, again by billions of dollars. When you stick to and consider all of the facts, it is clear that the picture does not reflect our current reality." Citing numerous analyses - many from investment bankers and brokerages that serve the industry - that have reached the same conclusion, Alvarez cited industry cost estimates used by the panel and described them as outdated and far too low. Alvarez's speech came the same day that Crescent Point Energy Trust said it will devote all of its preliminary $150-million 2008 capital budget to projects in Saskatchewan due to what it called the "uncertainty" created by the report's recommendations. "Some companies have choices where they can spend their dollars and it will happen," said ceo Scott Saxberg. About 80% of the trust's production is based in Saskatchewan, but he said the company could have spent between $50M and $100M on capital projects in Alberta. "We're deferring that," Saxberg said. "Those projects become less economic compared to our projects in Saskatchewan."

Meanwhile, total supply costs of oilsands ventures in Alberta have increased 23 to 86% over the past 12 months depending on the nature of the projects, the Canadian Energy Research Institute said Tuesday - throwing more fuel onto the heated royalty debate. "Costs at the plant gate are about $35 to $37 per barrel of bitumen, with another $27 or so for upgrading to synthetic crude oil (SCO)," said the report. The report also incorporated costs to be incurred by oilsands producers for dealing with greenhouse gas emissions. It did not factor in an increase in supply costs, if the panel's recommendations are accepted by the government. Derek Butter, head of corporate analysis with Wood Mackenzie, said on Tuesday internal rate of returns will be a contentious issue irrespective of what might be the final outcome of recommendations from the provincial royalty review. However, rising costs in Alberta are not likely to get in the way of the province increasing its bitumen production significantly.
(Calgary Herald, Globe and Mail, National Post 071003)