SYNCRUDE CHIEF CITES IMPORTANCE OF CANADIAN OILSAND RESOURCE

Eric Newell, Syncrude Canada Ltd. president and chief executive officer, is a missionary who constantly preaches the present and future value of Canadian oilsands. , Newell says the bitumen sands in northern Alberta are a Middle East scale crude oil reserve for Canada and other investors willing to participate in development.

Aug. 2, 1993

4 min read

Eric Newell, Syncrude Canada Ltd. president and chief executive officer, is a missionary who constantly preaches the present and future value of Canadian oilsands. ,

Newell says the bitumen sands in northern Alberta are a Middle East scale crude oil reserve for Canada and other investors willing to participate in development.

But, he warns, long term development will not happen unless the oilsands can attract investment from "strong, patient, long term, well focused investors," Having the resource is no guarantee of anything unless the right decisions are made now so the resources are developed and brought to market in the right timeframe.

Newell says traditional megaproject investors have different priorities: Governments have budget deficits. Many oil majors are concentrating on projects that will produce more immediate cash flow.

As a result, oilsand operators such as Syncrude must find new investors. An example is the 5% investment in 1992 by a unit of Japan's Mitsubishi in Syncrude.

ALBERTA, JAPAN

In a presentation to Japanese investors in Tokyo last June, Newell said there is a logical fit between Alberta's oilsands and Japan's heavy dependence on imported crude. He said Japan should take advantage of the oilsands to diversify and stabilize its long term oil supply.

He said, "The oilsands are the lowest risk alternative for future oil development in Canada due to Syncrude's performance. We have the natural resources, technological know-how, human resources, and the freedom to get out of the gate and into the race.

"So the question is this: Will Canada and Japan continue to take a short sighted approach and increase their reliance on OPEC oil and politics? Or will we develop the oilsands and keep all the benefits that go with that?"

Newell believes pent up demand for energy rich goods in eastern Europe, fast growing demand in eastern Asia, and population growth in developing nations will bring oil supply and demand into much tighter balance. He estimates current world consumption of 161 million b/d of oil equivalent will increase to 241 million b/d by 2010.

Newell sees oilsands development as the key to self-sufficiency for Canada and an important source of crude for other markets.

But he notes that investors must gamble on the future price of oil.

He also recognizes that investors must have deep pockets. Syncrude, with nine partners and initial and improvement costs of more than $4.3 billion (Canadian), would now cost $8-10 billion for a facility of similar size.

Newell says the tremendous financial commitment and the long time required for payout are the main reasons new oilsands plants are not springing up in northern Alberta. He estimates design and construction of a plant to produce 30 million bbl/year would cost about $5 billion and take 5 years to bring on stream.

GOVERNMENT POLICY

The Syncrude executive says it is critical that governments provide investors the stability of long term policy and an assurance that ground rules will not chance overnight. Governments also must provide fiscal regimes that encourage research and development spending, new plant investment, and a reasonable return on investment.

He says Ottawa so far has failed to develop a long term oilsands development plan. At one point, a federal agency responsible for guaranteeing residential mortgages would not do so for homes in Fort McMurray, Alta., until Syncrude appealed to the highest levels of government.

"New technology is needed to meet problems associated with emissions, product quality and rising materials handling costs. The next step in oilsands development will require technical breakthroughs comparable to the U.S. space program in the 1960s," Newell says.

"Without a joint approach to exploiting oilsands potential, governments, industry, and the public will lose an important opportunity and the resource may go undeveloped.

Newell says there is now much more cooperation than in the past with neighboring oilsands operation Suncor Inc. The Middle East, he says, is the oilsands' main competitor.