The Cancelation of Teck Mine in Alberta

So the company that had applied to start another massive open pit mine to extract tar sands in Alberta has decided to withdraw that application just days before a cabinet decision about it was to be made.

It should come as no surprise considering their application contained the assumption that the oil prices would average $95 dollars per barrel for the 40 year life of the mine.

While I believe the current low oil prices will rebound within the next decade they will probably not reach that level for that amount of time.

In other words, the economic and business case for the mine did not exist.  It would not have been economically viable for most of its run.  It probably would have lost money to the company for most of that time, requiring massive government subsidies to keep it going.

It is interesting that for most of the life of the exploitation of the Tar Sands I have read that the price of oil has only been at a level for make their exploitation profitable for about a decade in total.  All other times they have only been able to break even or operate at a loss.  Yet, Tar Sands exploitation still hums along nicely.  One big reason could be the companies exploiting the Tar Sands are receiving huge government subsidies so that they can stay profitable.  

Their argument is probably the same every time.  If you do not give us the subsidies we will have to shut down our operations putting thousands of Canadians out of work.  No government would want to be in power when that happens to they cough up.

The dynamic might have changed with the most recent federal election.  Albertans turned their backs on the Liberals in a big way.  They took away all incentive for the Federal government to provide further subsidies to the Tar Sands.  They will maintain the current ones but one of the probable planning assumptions for the Teck Mine was they would receive subsidies and once they began it would be nearly impossible for any future government to take them away.

So with no government backstop to compensate for their wildly inaccurate assumption about oil prices the whole operation became completely non-viable from a business and economic point of view.

Many Albertans will blame the Federal Government in general and the Liberals in particular for this but that is nothing new.