Growing political risks imperil oil sands profit, report says

Alberta oil sands producers face growing political risks that could significantly erode their profit margins, and slow the pace of development, says a report from UBS Securities Canada Inc.

In an interview yesterday, UBS analyst Andrew Potter said the industry will have to absorb the cumulative impact of regulations aimed at reducing greenhouse gas emissions, plus possible federal and provincial changes to tax treatment of the projects.

Taken alone, none of the potential policy shifts would derail planned oil sands expansions — unless the federal government imposes much tougher emissions reductions than currently expected, he said. But the combined impact could be more serious. “The point is you can’t just keep taking and taking and taking and think that all these projects are going to go ahead. We could be getting into the danger zone here.”

The government of Alberta last week announced its greenhouse gas emissions targets, a so-called intensity rule that would require major industrial polluters to reduce their production of carbon dioxide by 12 per cent when measured as a percentage of their output of crude oil or electricity.

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