While some of Jason Kenney’s usual mouthpieces and apologists start agitating for the Teck Frontier oilsands mine, it seems we need yet more reality checks about the project – particularly the economics. Because we have seen on more than one occasion where a project that wasn’t economically viable still achieves mythology status because certain people who think the idea of it is great will lie about its fate in order to suit their narratives *cough*Energy East*cough*. Anyway, here’s Andrew Leach with more.

Frontier is a big project: a $20 billion potential investment. It's also an expensive project. That capital investment is $76k per barrel per day of capacity: an option that gets you ~ 40 years of production 4 which you still have to pay op + maint costs, royalties, and taxes.

— Andrew Leach (@andrew_leach) December 18, 2019

Taking those estimates, and assuming a 10% return on investment, which would be a fairly standard hurdle rate for taking this kind of commodity price risk over this kind of time horizon, you can calculate what oil price you'd need to see to make the project work.

— Andrew Leach (@andrew_leach) December 18, 2019

If you were to cut initial capital costs or operating costs by 25%, you could get your break-even down closer to $65 WTI. Those are real prices, so you'd need to see WTI at $65 plus inflation on average over the life of the project just to meet a minimum hurdle rate of return.

— Andrew Leach (@andrew_leach) December 18, 2019

So, what about the other part. Is this the project that is most likely to be adopted? No. There are plenty of other potential investments with lower costs than Frontier. Cenovus has several great SAGD assets, Imperial has Aspen, Carmon Creek is available in the Peace, etc.

— Andrew Leach (@andrew_leach) December 18, 2019

Let's also remember why CERI doesn't even evaluate oil sands mines anymore. They are too expensive. In 2014, with oil at its post-2008 peak, Total shelved its investment in Joslyn. That project has an approval in hand, is closer to McMurray, etc.https://t.co/Rx9miZ3EUv

— Andrew Leach (@andrew_leach) December 18, 2019

A fair point to make is that many world oil price forecasts show prices that would make Frontier work, in a vacuum. For example, here are EIA's real dollar WTI price forecasts from their Annual Energy Outlook. https://t.co/T7BPYwOcjK The reference case average is ~$100/bbl. pic.twitter.com/1079U2l0mY

— Andrew Leach (@andrew_leach) December 18, 2019

If you're going to frame Frontier as the last, best hope for AB, and frame Trudeau as the lone barrier, one has to wonder what you've done with all the other, cheaper projects out there and why you expect this project to be more likely to be built than earlier-approved mines.

— Andrew Leach (@andrew_leach) December 18, 2019

Good reads:

• Justin Trudeau correctly says that Alberta and Saskatchewan’s frustrations don’t actually amount to a national unity crisis.
• Trudeau is also calling on the US not to ratify any trade deal with China until the detained Canadians are released.
• As well, Trudeau says that he hasn’t asked Rona Ambrose to be the new ambassador to Washington, so make of that what you will.
• The federal government has signed a deal with Ontario related to the Canada Housing Benefit to help out low-income households with rental costs.
• Surprising no one, Davie Shipyard was deemed the only shipyard qualified to build the new ice breakers that the Coast Guard so desperately needs.
• There are concerns that the Canadian Forces aren’t relying on public disciplinary measures to deal with members engaged in racist or other hateful conduct.
• The Parliamentary Budget Officer says that the government has very little spending room this year if it wants to maintain its declining debt-to-GDP ratio.
• The government is about to move on toughening rules around vaping, particularly around advertising.
• Canada has quietly signed onto a US-led memorandum of understanding for trying to break the Chinese hold on the rare earth elements market.
• Jody Wilson-Raybould says her new office is three floors-up from the old one with a “better view.” Okay, then.
• Quebec is challenging the new Indigenous child welfare law to court because – wait for it – provincial jurisdiction.
• Jason Kenney’s propaganda “War Room” got off to a bad start when it turns out that their logo was plagiarised. Good job, guys.
• Robert Hiltz evaluates is political predictions for 2019, and where he went wrong.

Odds and ends:

For the CBA’s National Magazine, I wrote about yesterday’s Supreme Court of Canada decision and what it means for administrative law.

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