Another Bet on the Future

Despite the surplus of oil in the world, investments in Canadian oil sands projects continue.  This past week, two Canadian First Nations issued bonds totalling $545 million.  The funds, raised by the Fort McKay and the Mikisew Cree First Nations, will be used to purchase a 49% stake in an oil storage terminal facility run by Suncor Energy.

The facility will be used to help manage the output of the Fort Hills oil sands mine, a $17 billion investment in oil sands mining and production.  The mine life is expected to be up to 50 years.

The First Nations will depend on steady cash flow from the operation of the storage terminal to make their investment worthwhile.

This type of development flies in the face of the recent Paris climate change accord, which is trying limit the increase in greenhouse gases for the rest of this century.

The greenhouse gases produced by Alberta oil sands projects equal that of the entire province of Quebec.  Mining oil is not the way the world is moving.  Royal Dutch Shell has purchased an extensive EV charging network in Europe, and will be installing charging facilities at its gas stations.  Oil companies are rapidly reinventing themselves as energy companies.  Canada is designing a Clean Fuel Standard, which will take into account fuel use for buildings, cars and industry.  It remains to be seen how this standard will impact the oil sands.

The bond issue feels like a tremendous step backwards.  Fifty years ago there were no cell phones, no internet, and interracial marriage was still illegal in many U.S. states.  Fifty years is a long time.

In 23 years, France’s ban on gasoline powered vehicles takes effect.  Britain, Germany, India and China are following suit.  Norway is banning their sale in 2025.  More countries will likely join them.

EVs are projected to be cost competitive in terms of price and range with gasoline powered vehicles by 2025.

One has to wonder, is any investment in oil sands production today worth the risk?

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