Oil sands deals another blow to `energy independence’

Oil sands mining near Fort McMurray, Alberta. (Karen Warren/Houston Chronicle)

Rising costs and increased competition from hydraulic fracturing in the U.S. is taking its toll on investments in Canadian oil sands. The slowdown is limited so far, but it shows how quickly energy markets can change and how tenuous the idea of North American energy independence actually is.

Suncor Energy, the biggest oil sands producer, said Thursday it’s reconsidering a plan to invest billions in upgrades as it cuts spending by 11 percent, the Wall Street Journal reported. At the same time, construction and labor costs have been rising in northern Alberta, the site of most oil sands activity. In some cases, crude from oil sands has a break even price approaching $100 a barrel, and today’s prices make those projects uneconomic.

Like Shell Oil’s project to drill in Arctic waters, oil sands are among the most expensive sources of conventional energy in the world. Set against a global market of fluctuating prices, the high-cost production makes the dream of energy independence elusive. As oil prices fall — they’re just under $86 a barrel today — imports simply become the cheaper alternative.

Canadian oil sand production is a key piece of most discussion about North American independence, including a plan favored by Republican presidential candidate Mitt Romney. We are unlikely to drill our way to independence by relying on domestic production alone, but we can’t count on Canadian production, either. Canada remains our biggest oil supplier, but these are expensive reserves. Counting on them as the driver of energy independence could mean the U.S. winds up paying billions more for energy when cheaper alternatives are available elsewhere.

Achieving and maintaining energy independence sounds great, but it flies in the face of economic reality.