Doubts over Tar Sands payoff
Sep. 3rd, 2007 by AlHi guys, I’ve been thinking and doing some research over the direct investment of Tar Sands And I would like to share some of the main points in regards of this big energy project in Canada.
“The Law of Receding Horizons”
This is a simple concept :as the costs of energy rises,the cost of everything else made with energy like building materials also rises.So an energy project which was expected to be profitable when energy costs were x amount higher than today , turns out to be still uneconomical when you get there.
The urgency to produce the tar sands due to impending decline of global crude has led to
skyrocketing costs.The real profits in producing tar sands seems to be in government tax breaks rather then the resources itself.
The whole Tar Sands operation will cost about $117 billions by 2015 according to oil analyst woodmac.
Cost Inflation
WoodMac analyst has warned about Tar sands profitability given the control of oil companies capital expenditure going forward to ensure that it will stay in the money.So
what’s the inflation culprits.
The usual ones are lack of manpower and cost of materials.There’s a lot of talk about productive practices in the scope of project management and contract schedules will help keep costs competitive.It’s true that one must keep a watch over the labour hours when your riggers and engineers are pulling over 6 figures pay.But this is not going to help much as the hardware and commodities are going through the roof as demands from Asia increase & also with high oil costs.
This is just doesn’t look like a good investment play given the high cost and low percentage of finding and producing oil in the tar sand regions and that’s why I advised readers to invest in supporting industries which is a less risky bet.
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