By Edward Welsch Of DOW JONES NEWSWIRES CALGARY -(Dow Jones)- Negative perception of Canada's oil sands could slow its growth if the industry doesn't make a compelling case for continued development, a report by the U.S. consulting firm Deloitte says. The report calls the oil sands "Canada's primary economic development project," which will create C$1.7 trillion in gross domestic product over the next 25 years. It says environmental objections to oil sands development must be countered by demonstrations of its economic benefits, technological improvements to its environmental performance, and its advantages compared with oil produced by other countries with less stable governments and less ethical regulation. "Production could be at risk of stagnation if the industry is not granted a social 'license to grow,'" according to the report. Environmentalists are opposed to the oil sands industry, located in northeastern Alberta, for the large surface disruptions and carbon dioxide emissions it creates. The potential for pollution to the surrounding watershed is also being studied. Recent deaths of birds in large tailings ponds have highlighted the environmental challenges of the industry in Canada. In the U.S., the proposed expansion of a TransCanada Corp. (TRP) pipeline to carry more oil sands crude to the Gulf Coast has drawn resistance from environmentalists and Democratic legislators. The Deloitte report says oil sands producers must continue to make strides in technology to limit their physical and carbon footprints, such as recent improvements in technology to reclaim large waste ponds created by oil sands mining, and improvements in the efficiency and energy use of underground oil sands extraction. The report also highlights the potential for rising labor and infrastructure costs that could hamstring the industry's development, as it did during the last boom in 2005 to 2008 when competition for talented labor and infrastructure caused prices to skyrocket. It suggests companies coordinate a strategy to retain a skilled work force to avoid a similar run-up in costs as the industry grows. Continued reliance solely on U.S. customers is also a risk for the oil sands industry, the report says, as nearly all of the 1.3 million barrels a day it produced last year were shipped to the U.S. The Northern Gateway pipeline proposed by Enbridge Inc. (ENB) to take oil sands crude to western ports to ship to Asian market would reduce the risk of regulation from the U.S. and increase market competition for oil sands production, the report says. The Northern Gateway project is currently under review by the Canadian government, and opposed by environmental groups concerned about the potential for oil spills. -By Edward Welsch, Dow Jones Newswires; 403-229-9095; edward.welsch@dowjones.com
