Suncor Energy Inc. (USA) (SU), TransCanada Corporation (USA) (TRP): The Top Three Challenges Facing the Oil Sands

Increasingly environmental groups have been successful at applying political pressure to push their cause. In May, environmentalists were successful at encouraging the British Columbia provincial government to reject construction of the Enbridge Northern Gateway pipeline, preventing oil sands crude from accessing premium-priced Asian markets.

Investor implications

For investors, it means a more challenging environment for upstream Canadian producers.

As the largest oil sands producer, Suncor Energy Inc. (USA) (NYSE:SU) serves as a good bellwether.

Suncor Energy Inc. (USA) (NYSE:SU) has cut its capital spending program, cancelling its $11.6 billion Voyageur upgrade facility. There are now doubts if the company will persue its Fort Hills expansion.

Suncor Energy Inc. (USA) (NYSE:SU)’s oil sands production is projected to grow 10% annually over the next decade. But those projections may need to be ratcheted down if conditions continue to deteriorate.

Foolish bottom line

So does this spell the end of the Canadian oil sands? Not likely – the industry has faced bigger challenges before and many executives are still confident in the play’s long-term potential.

Short-term challenges should be viewed as a bump in the road. Already, Canadian oil prices have rebounded sharply from their lows last winter as crude begins to move by rail and refiners switch to heavy oil varieties.

In Calgary, there are no plans to cancel this year’s Stampede – an annual 10-day rodeo, exhibition and festival. In the event’s 101- year history, the Stampede has never been cancelled in spit of two world wars and the Great Depression. According to event president Bob Thompson, the show will go on ‘come hell or high water’.

The article The Top 3 Challenges Facing the Oil Sands originally appeared on Fool.com and is written by Robert Baillieul.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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