Alberta wary of California low-carbon fuel rule

HOUSTON (Reuters) - Canada’s biggest energy-producing province, Alberta, is wary of the new California low-carbon fuel rule and its potential effects on exports of oil sands production, the province’s energy minister said on Friday.

Mel Knight, Alberta minister of energy, said the new rule -- and rules being considered by other states -- are a potential threat to exports of upgraded oil from Canada’s oil sands, but Alberta will continue to try to participate in discussions to help shape such rules.

“We’ve got people there in California. We’ll continue to work with them,” Knight said at the end of a visit with the American Petroleum Institute’s Downstream Committee in Houston. “We’ll want to be very active relative to that.”

As for potential effects on Alberta exports, Knight said he could not be specific. “Does it have a possibility of a negative effect on Alberta’s bitumen future? I would suggest I’d be very naive if I thought anything other than ‘yes’ is the proper answer to that,” Knight said.

Environmentalists are critical of the process of producing bitumen from oil sands and processing it into refinable oil because of the effects on land, water supply and global warming.

On other subjects, Knight said Alberta’s new royalty scheme is an improvement for companies suffering the collapse in oil prices from $147 a barrel last year to about $50 now.

Alberta raised royalty rates as prices peaked last year, drawing industry howls, but Knight said that, as promised, the new scheme makes government a partner in the downturn, too.

“We said at the outset that we wanted to share in the upside of this industry but we would also share in the risk, and that’s exactly what you see happening,” Knight said.

Despite the oil downturn, drilling incentives including a cap on royalties for new projects appear to be steadying activity and even boosting some drilling plans, he said.

The risk of a new labor shortage when the economy recovers is real, but enough work continues in the oil sands to keep a core labor force in place, and government education plans should keep a pool of workers available, Knight said.

Reporting by Bruce Nichols; Editing by Christian Wiessner