OIL SANDS-PART 3: Biggest Customer Has Second Thoughts

Chris Arsenault*

FT. MCMURRAY, Oct 20 (IPS) - As Canada's tar sands extraction expands full steam ahead, a perfect storm of internal and external opposition could derail some of the voracious growth at the world's largest energy project.

Together, skyrocketing construction costs, falling crude prices, increasingly vocal opposition from some native groups, and a little known section of the 2007 U.S. Energy Independence and Security Act all threaten growth projections in northern Alberta.

"If I was an investor, I wouldn't want to take the risk of putting money into the tar sands right now," said Liz Barratt-Brown, a senior attorney at the Natural Resources Defence Council, an NGO leading U.S. lobbying efforts against Canada's heavy oil industry.

Canada is the largest foreign exporter of oil to the United States, with Alberta's tar sands sending roughly 500,000 barrels to the U.S. every day. Losing access to the U.S. market would significantly affect expansion plans.

And Canadian oil industry lobbyists are concerned about section 526 of the U.S. Energy Independence and Security Act of 2007 which bars U.S. federal agencies such as the military and the postal service from buying synthetic or unconventional fuels if they create more greenhouse gases emissions than conventional fuels.

"It was just one of those funny stories in Washington where this section [526] was overlooked," Greg Stringham from the Canadian Association of Petroleum Producers told IPS. "I don't think Canadians or oil companies knew about this section."

Between January and September of this year, Canadian oil lobbyists pushed hard to have section 526 amended or repealed, Barratt-Brown told IPS. Unlike other provinces, Alberta maintains its own special interests office in Canada's embassy in Washington.

In February 2008, Canada's ambassador to the United States, Michael Wilson, wrote to the U.S. defence secretary arguing that Canadian tar sands oil should not be included in the interpretation of this section.

Then on Mar. 17, Democratic Senator Henry Waxman, chair of the House Oversight and Government Reform Committee and author of the legislation, wrote a letter to Chairman Jeff Bingaman of the Senate Energy and Natural Resources Committee clarifying the legal meaning of section 526.

Waxman said section 526 of the Act prohibits U.S. government agencies, including the military, from purchasing "fuels derived from tar sands".

Lobbying continued throughout the spring. Two Republicans from Texas, Reps. Jeb Hensarling and Mike Conaway, sent a letter in late March to other members of the House of Representatives stating: "Section 526 would be problematic enough if it were clear and straightforward, however, the language contains several ambiguities, causing a flurry of attempts at legislative interpretation by the Air Force, the Canadian government, [and] the Centre for Unconventional Fuels [an industry lobby group]."

To counter anti-tar sands campaigners, the Alberta government launched a 21-million-dollar advertising campaign in April aimed at improving the province's brand.

Environmentalists claimed victory in late September, when the Defence Authorisation Bill passed without weakening or amending section 526. Oil industry lobbyists say environmentalists haven't won any victory and U.S. institutions will continue purchasing tar sands oil.

"This will be the first time government agencies have to look at greenhouse gas emissions for purchasing policies and that's positive," Barratt-Brown told IPS.

Oil from Canada's tar sands creates roughly three times the GHG emissions as conventional crude, according to environmentalists.

While environmentalists are claiming victory, plans in the U.S. are going ahead to retrofit old refineries to process tar sands synthetic crude, a sign that some industry players are not concerned about new legislation. U.S. drivers in Colorado, Ohio, and Indiana are already burning gasoline derived from tar sands oil.

"I was in Whiting, Indiana recently, where they are retrofitting one of the oldest refineries in the U.S. to process tar sands crude," Thomas Clayton-Muller, with the Indigenous Environmental Network, told IPS. Much of his community in Alberta is opposed to the development because of local health effects and broader environmental concerns, according to Clayton-Muller.

In January 2007, Governor Arnold Schwarzenegger announced that California would require a 10-percent reduction in carbon content from all fuels sold in the state by 2020, which would effectively ban imports from the tar sands.

The U.S. Conference of Mayors passed a resolution in June calling for an end to unconventional oil imports. "Our cities are asking for environmentally sustainable energy and not fuels from dirty sources such as tar sands," said Eugene, Oregon Mayor Kitty Piercy, who submitted the resolution.

Despite the actions of individual cities and the California's state government, the military is the largest consumer of transportation fuel in the U.S., so its interpretation of Section 526 and future purchasing habits are crucial.

From the office tower of the Canadian Association of Petroleum Producers in downtown Calgary, Greg Stringham is within a 15-minute walk from 150 oil companies and "rumours spread fast".

Stringham doesn't seem overly concerned about anti-tar sands legislation in Washington. He wouldn't comment directly on what a Barack Obama-Joe Biden Democratic administration and increased concerns about global warming could mean for the industry except to tell IPS: "I'm not confident of anything."

*This is the last of a three-part series investigating the political, environmental and social impacts of Canada's oil sands development. Chris Arsenault holds the 2008/09 Phil Lind Fellowship at the University of British Columbia. A portion of his visit to Alberta was minded and financed by Shell Canada.

(END/2008)