A consortium of eight Canadian oil companies is seeking government permission to construct and operate a $5 billion facility for conversion of tar sands into oil.
The huge synthetic oil project in the western province of Alberta is becoming increasingly attractive. Expected oil price increases by OPEC countries could make make synthetic oil production profitable.
Apart from impressive oil and natural gas reserves -- mainly in Alberta -- Canada is estimated to have more proven oil reserves in the tar sands than there are in the entire Middle East.
But as long as the world price per barrel of oil remains below $15, the cost of the sands conversion has been too expensive. Experts now believe that rising world prices could make the tar sands development in Alberta and the northwest territories exceptionally attractive.
Profitable production of synthetic oil now requires a price of about $18 a barrel.
The so-called Alsands project is viewed as crucial for future largescale development of synthetic oil that could make Canada into a key factor in world energy production.
The sheer size of Canada's estimated reserves offers the prospect of a major oil supplier for the United States that would lessen sharply the possibility of another Arab oil boycott.
But there is strong undercurrent here against sharp increases in the use and development of Canada's natural resources and it's not certain that large scale development in Alberta will be approved.
The consortium seeking approval of the governments of Alberta and Canada includes Shell Canada and Shell Explorer, Dome Petroleum, Hudson Bay Oil and Gas, Pacific Petroleum, Petrofina Canada Resources and Canadian subsidiaries of Gulf, Amoco and Chevron Standard. The facility would be built near Fort McMurray.
Members of the consortium and provincial and federal authorities would have to resolve taxation and royalty issues before the project gets under way. A public hearing on those matters is scheduled for June 19.
Industry sources say the eight companies are now seeking additional tax concessions on top of $1.5 billion currently available in incentives to ensure reasonably quick amortization of their investment. The plant would produce 140,000 barrels per day of oil.
The approval is somewhat complicated because of a complex relationship between the provincial and federal governments.
Under the Canadian constitution the provinces control mineral wealth in their territories. So Alberta collects royalities as well as provincial taxes while Ottawa collects federal corporate levies.
It is understood that Alsands consortium is offering an eventual 30 percent royalty to Alberta on top of a 7.7 percent provincial tax bite. The eventual federal tax would be 27 percent.
The consortium is seeking initial tax easement to make sure the plant construction would get under way. A pioneering project in 1967 in Alberta currently produces 45,000 barrels a day of synthetic fuel. And the second plant, completed last year, also near Fort McMurray, is expected eventually to produce 125,000 barerls a day.
The regular domestic oil is sold here at $12.75 a barrel while the output from the Fort McMurray plant is guaranteed $17.80 a barrel.
But the Alsands group is undertaking what would amount to the largest synthetic fuel production project and that would set the trend for the development of huge tar sands deposits in Alberta and the Northwest Territories.
Resource conservation appears to be the major concern of project opponents.