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