Monday, March 10, 2008

US Energy Law Can Penalize ‘Commercially Available’ Canadian Fuel’, Raise US Consumer Energy Prices, Jeopardize US Energy Security & Trigger Trade War

Canada warns US over oil sands

By Sheila McNulty in Houston

Financial Times

Published: March 9 2008

Canada has warned the US government that a narrow interpretation of new energy legislation would prohibit its neighbour buying fuel from Alberta’s vast oil sands, with “unintended consequences for both countries”.

In a letter to Robert Gates, US defence secretary, Canada said that it “would not want to see an expansive interpretation” of the Energy Independence and Security Act 2007. A copy of the letter, from Michael Wilson, Canadian ambassador, and copied to Condoleezza Rice, US secretary of state, and Samuel Bodman, US energy secretary, has been obtained by the Financial Times.

Section 526 of the law limits US government procurement of alternative fuels to those from which the lifecycle greenhouse gas emissions are equal to or less than those from conventional fuel from conventional petroleum sources. Canada’s oil sands are considered unconventional fuels, and producing them emits more greenhouse gas than conventional production.

The Bush administration has, nonetheless, encouraged developing oil sands, given the US’s favourable relationship with Canada and that it would reduce reliance on Middle East imports.

Amy Myers Jaffe, energy expert at Rice University, said cutting out the oil sands as a source of fuel would also limit global supplies further, forcing up the price of oil: “$106 a barrel is going to look cheap.”

The three presidential candidates hoping to replace President George W. Bush are proponents of strong US policy to counter greenhouse gas emissions, which could lead to a narrow interpretation of the law. That could be why Canada wants the law interpreted now.

“The Canadians do, in fact, have something to worry about, particularly from a Democratic administration,” Ms Jaffe said.

Environmentalists say extracting a barrel of crude from oil sands results in five times the amount of greenhouse gas emissions than extracting conventional crude – a figure some energy companies dispute.

Tristan Landry, spokesperson at the Canadian embassy in Washington, said: “Classifying fuel from the oil sands as non-conventional fuel ... would unnecessarily complicate the integrated Canada-US energy relationship.”

The energy department said the US was “assessing any implication to the US federal fuel procurement practices arising from the bill and will work co-operatively with Canada”.

Copyright The Financial Times Limited 2008

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