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Cablegate: Natural Gas Vs. Nuclear: Canadians Study Feasibility

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS OTTAWA 002221

SIPDIS

STATE FOR EB/ESC/ISC (MCMANUS AND ERVITI), WHA/CAN
(RUNNING), OES/EGC (DEROSA)

USDOC FOR ITA/MAC -- OFFICE OF NAFTA

DOE FOR IA (A/S BAILEY, DAS DOBRIANSKY, PUMPHREY, DEUTSCH
AND MARQUIS) AND EERE (DIXON)

DEPT PASS USTR FOR MELLE AND CHANDLER

DEPT PASS INTERIOR FOR INT'L AFFAIRS

DEPT PASS FERC FOR MOSLEY, LONGENECKER, CONNORS, KELLY AND
LEKANG

DEPT PASS USNRC FOR COMMISSIONER MERRIFIELD

E.O. 12958: N/A
TAGS: ENRG ETRD CA
SUBJECT: NATURAL GAS VS. NUCLEAR: CANADIANS STUDY FEASIBILITY
OF REACTORS FUELLING OILSANDS

REF: OTTAWA 1924 AND PREVIOUS

1. SUMMARY: THE CANADIAN ENERGY RESEARCH INSTITUTE (CERI)
SAYS THAT, AT NATURAL GAS PRICES OF USD 3.50 / MCF OR MORE,
NUCLEAR REACTORS WOULD BE ECONOMICALLY SUPERIOR TO NATURAL
GAS IN SUPPLYING THE LARGE AMOUNTS OF STEAM REQUIRED TO
EXTRACT CRUDE OIL FROM CANADA'S VAST OILSAND RESOURCES. IF
THIS ANALYSIS IS CORRECT, AND IF POLITICAL CONDITIONS ALLOW
THE NUCLEAR OPTION, THIS PRESENTS AN OPPORTUNITY TO FREE UP
SIGNIFICANT AMOUNTS OF CANADA'S NATURAL GAS FOR U.S.
MARKETS, WHILE FURTHER STRENGTHENING THE ECONOMICS OF
CANADA'S SYNTHETIC CRUDE OIL. END SUMMARY.

2. THE CERI STUDY IS AVAILABLE AT WEBSITE CERI.ORG. WHILE
THE STUDY WAS SPONSORED BY ATOMIC ENERGY OF CANADA LIMITED
(AECL), WHICH IS THE OBVIOUS CANDIDATE TO SUPPLY REACTORS IN
CANADA, IN POST'S OPINION CERI'S ECONOMIC WORK IS CREDIBLE.

3. WESTERN CANADA'S OILSANDS (REFTEL) CONTAIN PROVEN
RESERVES EQUIVALENT TO 175 BILLION BARRELS OF CRUDE OIL,
WHICH ARE ALREADY ECONOMICALLY RECOVERABLE AT CURRENT OIL
PRICES. EXTRACTING MOST OF THIS OIL DEMANDS LARGE AMOUNTS
OF STEAM, WHICH IS INJECTED INTO THE GROUND IN ORDER TO
SEPARATE OIL FROM SAND. CURRENTLY, THIS STEAM IS SUPPLIED
BY BURNING NATURAL GAS - WHICH IS ABUNDANT IN THE OILSAND
REGION, BUT SUSCEPTIBLE TO TIGHTENING SUPPLY-DEMAND
CONDITIONS ON A CONTINENTAL BASIS. POSSIBLE RISING NATURAL
GAS PRICES ARE A SIGNIFICANT SOURCE OF ECONOMIC RISK FOR
OILSAND PRODUCERS.

4. THE OILSANDS ARE CURRENTLY PRODUCING A MILLION BARRELS
OF OIL DAILY, AND MULTI-BILLION-DOLLAR EXPANSIONS ARE
UNDERWAY, SO THE AMOUNT OF NATURAL GAS CONSUMED IS
SIGNIFICANT. ANALYSTS SAY THAT GAS FROM THE PROPOSED
MACKENZIE VALLEY NATURAL GAS PIPELINE PROJECT, WHICH IS
PROJECTED TO DELIVER ROUGHLY 0.8-1.2 BILLION CUBIC FEET OF
GAS PER DAY TO NORTHERN ALBERTA BEGINNING AROUND 2009-2010,
IS LIKELY TO BE ENTIRELY ABSORBED BY OILSANDS DEMAND.

5. THE CERI STUDY COMPARES CURRENT GAS-FIRED STEAM
GENERATION TECHNOLOGY WITH THE ACR-700, THE COMING
GENERATION OF AECL'S "CANDU" LIGHT WATER REACTORS. THESE
REACTORS BURN NATURAL-GRADE URANIUM, OF WHICH CANADA IS THE
WORLD'S LARGEST PRODUCER. AECL HAS UP-TO-DATE EXPERIENCE
WITH REACTOR CONSTRUCTION; IT HAS CURRENT OR RECENT
CONSTRUCTION PROJECTS IN CHINA, KOREA AND ROMANIA, AND
COMPLETED CANADA'S NEWEST NUCLEAR POWER PLANT AT DARLINGTON,
ONTARIO IN THE EARLY 1990'S. AECL ALSO CLAIMS A GOOD RECORD
OF COMPLETING REACTORS ON SCHEDULE AND ON BUDGET.

6. ACCORDING TO THE CERI STUDY, AT GAS COSTS OF USD 3.50 /
MCF, TOTAL COSTS FOR THE TWO OPTIONS ARE SIMILAR, WITH
NUCLEAR HAVING AN EDGE ($8.61 VS. $9.42 PER TONNE OF STEAM).
HOWEVER, THE STUDY STRESSES THAT BECAUSE FUEL ACCOUNTS FOR
ABOUT 90 PERCENT OF THE COST OF THE GAS OPTION, THIS OPTION
IS MUCH MORE EXPOSED TO CHANGES IN FUEL COST. MOREOVER, THE
GAS OPTION IS ALSO EXPOSED TO POSSIBLE COSTS RELATED TO ITS
CARBON DIOXIDE EMISSIONS, A FACTOR WHICH DOES NOT AFFECT THE
NUCLEAR OPTION.

7. COMMENT: THE FINDING THAT NUCLEAR IS AN ECONOMICALLY
COMPETITIVE SOURCE OF HEAT FOR OILSANDS PRODUCTION IS NO
SURPRISE. CANDU REACTORS HAVE GOOD SERVICE RECORDS, AECL
HAS RECENT CONSTRUCTION EXPERIENCE, URANIUM IS ABUNDANT, AND
CANADA'S NUCLEAR POWER REACTORS HAVE PROVIDED COMPETITIVE
BASE-LOAD ELECTRICITY FOR DECADES. ALL THE QUESTIONS ARE ON
THE POLITICAL SIDE. WESTERN CANADIANS CURRENTLY HAVE
VIRTUALLY NO EXPOSURE TO NUCLEAR INDUSTRIES OTHER THAN
URANIUM MINES, WHEREAS THEY KNOW AND TRUST FOSSIL FUELS.

CELLUCCI

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