Although the consumer price index moderated last month, not all industries are out of the inflationary woods. Exhibit A has to be the Canadian oil sands, which is experiencing tightness in everything from giant tires to capable workers. With around $100 billion in current or planned industry spending, there isn't much room for a letup in costs.
The cost crunch, combined with cascading crude prices, is causing some casualties. On Tuesday, the Fort Hills Energy partnership -- comprising operator Petro-Canada
To give you some context, Canadian Natural Resources
In comparison with these leading lights, Fort Hills appears to be in trouble. When asked at a recent conference about the crude price at which a new oil sands entrant faces marginal economics, Suncor's Rick George responded that it gets tough around US$80 to $90 per barrel of crude oil. I'm not going to predict the outcome for Fort Hills, but it wouldn't be the first time that Teck Cominco has soured on a project on account of soaring costs. Just last winter, such mining woes forced Teck and partner NovaGold Resources
If Fort Hills, or other emerging oil sands ventures, become footnotes, it would be a real blow to the U.S. consumer, who is a prime beneficiary of increasing Canadian crude imports. The winners, naturally, would be the entrenched oil sands ogres left standing -- Suncor and Canadian Natural. Marginalized competitors would spell less pressure on those precious materials and skilled laborers, and improved rates of return on future expansions.
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