Philippines may turn to China, Russia after scrapping Canada helicopter deal

FILE PHOTO - Philippine Defence Secretary Delfin Lorenzana listens to questions during a news conference inside the military headquarters of Camp Aquinaldo in Quezon city, metro Manila, Philippines March 14, 2017

MANILA (Reuters) – The Philippines may turn to non-Western defense manufacturers, including China and Russia, to acquire 16 helicopters after it had to scrap a $233 million deal with Canada, its defense minister said on Monday.

Francois-Philippe Champagne, Canada’s trade minister, has ordered a review of the contract over concerns about Manila’s intended use for the helicopters.

“We are looking at Korea, Russia, China, Turkey and other countries for the medium-lift helicopters in lieu of the Bell 412EPI,” Philippines’ Defence Minister Delfin Lorenzana told reporters.

“We’re back to square one in the procurement process.”

It took about two years to negotiate the deal. The contract for the 16 combat utility helicopters was a repeat order, he said, after Canada delivered eight Bell 412 helicopters worth 4.8 billion pesos ($92.8 million) in 2014.

Lorenzana signed the Canadian helicopter deal last week at the Singapore Air Show last week, but Canada ordered a review after learning the aircraft would be used in anti-rebel operations.

“I think there is malice in the way it is being raised,” Lorenzana told reporters.

“It is not an attack helicopter but a medium-lift, meaning for transport of personnel and supplies. We are not asking these for free but we’re buying them. We do not have to justify how we will use these equipment.”

President Rodrigo Duterte scrapped the deal on Friday night because of conditions imposed by Canada, telling his generals not to buy from the United States and Canada because of conditions imposed on arms sales.

Air Force officials said Russia’s Kamov and China’s Z-series helicopters are comparable models to Bell’s 412 medium lift. South Korean’s Surions are also an option.

($1 = 51.7300 Philippine pesos)

(Reporting by Manuel Mogato; Editing by Martin Petty & Simon Cameron-Moore)

Heavenly show to feature trifecta of super blue moon, eclipse

The super moon appears in the sky in Cairo, Egypt, in this file photo taken October 17, 2016.

By Ian Simpson

WASHINGTON (Reuters) – The moon will stage a rare triple show on Wednesday when a blue super moon combines with a total lunar eclipse that will be visible from western North America to eastern Asia, U.S. astronomers say.

The overlap of a blue moon – the second full moon in a calendar month – with a lunar eclipse while the moon is at its closest approach to the earth is the first such celestial trifecta since 1982, said Noah Petro, a research scientist at NASA’s Goddard Space Flight Center outside Washington.

“Just having these three things simultaneously occur is unusual,” Petro said in a telephone interview. “A blue moon is not extremely rare but it’s a nice coincidence that it happens in conjunction with these other two.”

The moon will reach its fullest on Wednesday at 8:27 a.m. EST (1327 GMT).

A blue moon normally occurs about once every 2-1/2 years. This month’s first full moon was on Jan. 1.

The blue moon also will be a super moon, which occurs when it is at or near its closest point to the earth, or perigee. A super moon is about 14 percent brighter than usual, the National Aeronautics and Space Administration said.

Wednesday’s moon will be the second closest of 2018 after the one on Jan. 1.

The lunar eclipse, which takes place when the moon passes in the earth’s shadow, will last almost 3-1/2 hours. It will start at 6:48 a.m. EST (1148 GMT) and peak at 8:29 a.m. EST (1329 GMT), NASA said.

The total eclipse will be visible from the western United States and Canada across the Pacific Ocean to most of Australia and China, as well as northern polar regions. The eclipse will give the moon a reddish color known as a blood moon.

“I’m calling it the purple eclipse because it combines the blue moon and a red eclipse,” Rich Talcott, a senior editor at Astronomy magazine, said by telephone.

Petro said the eclipse is also a scientific opportunity for researchers in Hawaii, who will study what happens to the moon’s surface when it quickly drops from 212 Fahrenheit (100 Celsius) in sunlight to minus 279 F (minus 153 C) in darkness.

The speed of cooling can show what the surface is made of, such as rock or dust, he said.

(Reporting by Ian Simpson; Editing by Colleen Jenkins and Bill Trott)

Russia: North Korea summit undermines U.N., aggravates situation

U.S. Secretary of State Rex Tillerson and Canada’s Foreign Minister Chrystia Freeland speak at a news conference during the Foreign Ministers’ Meeting on Security and Stability on the Korean Peninsula in Vancouver, British Columbia, Canada, January 16, 2018.

MOSCOW (Reuters) – Russia hit out on Wednesday at a U.S.-led effort to increase international pressure on North Korea, saying it was making the situation worse and undermining the United Nations.

Twenty nations hosted by the United States and Canada in Vancouver agreed on Tuesday to consider tougher sanctions to press North Korea to give up its nuclear weapons.

North Korean leader Kim Jong Un has refused to give up development of nuclear missiles capable of hitting the United States in spite of increasingly severe U.N. sanctions, raising fears of a new war on the Korean peninsula.

The Russian Foreign Ministry said top diplomats from Moscow and Beijing had not been invited to the meeting — which was made up of countries that backed South Korea during the 1950-53 Korea War — and that the events were damaging the authority of the United Nations.

“It is an absolutely unacceptable situation, when 17 countries take upon themselves the role of ‘helper’ to the UN Security Council and interpreter of its resolutions, thereby actually putting its authority into doubt,” the ministry said in a statement.

“Such events, conducted hastily and to the detriment of functioning multilateral formats, are not contributing to the normalisation of the situation around the Korean peninsula, but on the contrary, aggravating it.”

North and South Korea began talks last week for the first time in more than two years and agreed on Wednesday to field a combined women’s ice hockey team and march together under one flag at next month’s Winter Olympics in PyeongChang.

(Reporting by Jack Stubbs; Editing by Catherine Evans)

Nations to consider more North Korea sanctions, U.S. warns on military option

South Korean Minister of Foreign Affairs Kang Kyung-wha, U.S. Secretary of State Rex Tillerson, Canada’s Minister of Foreign Affairs Chrystia Freeland and Japan's Minister of Foreign Affairs Taro Kono are seen during the Foreign Ministers’ Meeting on Security and Stability on the Korean Peninsula in Vancouver, British Columbia, Canada January 16, 2018.

By David Brunnstrom and David Ljunggren

VANCOUVER (Reuters) – Twenty nations agreed on Tuesday to consider tougher sanctions to press North Korea to give up its nuclear weapons and U.S. Secretary of State Rex Tillerson warned Pyongyang it could trigger a military response if it did not choose negotiations.

A U.S.-hosted meeting of countries that backed South Korea during the 1950-53 Korea War also vowed to support renewed dialogue between the two Koreas “in hopes that it leads to sustained easing of tensions” and agreed that a diplomatic solution to the crisis was both essential and possible.

North Korean leader Kim Jong Un has refused to give up development of nuclear missiles capable of hitting the United States in spite of increasingly severe U.N. sanctions, raising fears of a new war on the Korean peninsula.

The United States and Canada co-hosted the day-long meeting in Vancouver to discuss ways to increase pressure on Kim.

U.S. officials have reported a debate within the Trump administration over whether to give more active consideration to military options, such as a pre-emptive strike on a North Korean nuclear or missile site.

Tillerson brushed off a question about such a “bloody nose” strike, telling a closing news conference: “I’m a not going to comment on issues that have yet to be decided among the National Security Council or the president.”

However, he said the threat posed by North Korea was growing.

“We all need to be very sober and clear-eyed about the current situation … We have to recognize that the threat is growing and if North Korea does not chose the pathway of engagement, discussion, negotiation, then they themselves will trigger an option,” Tillerson said.

“Our approach is, in terms of having North Korea chose the correct step, is to present them with what is the best option – talks are the best option; that when they look at the military situation, that’s not a good outcome for them.”

“It is time to talk, but they have to take the step to say they want to talk.”

The Vancouver meeting pledged to ensure that U.N. sanctions already in place were fully implemented and the participants said in a joint statement they agreed “to consider and take steps to impose unilateral sanctions and further diplomatic actions that go beyond those required by U.N. Security Council resolutions.” They gave no details.

Tillerson said all countries needed to work together to improve interdiction of ships attempting to skirt sanctions and said there must be “new consequences” for North Korea “whenever new aggression occurs.”

He said the meeting had agreed that China and Russia, which did not attend the Vancouver talks and sharply criticized them, must fully implement U.N. sanctions.

Speaking in Beijing, Chinese Foreign Ministry spokesman Lu Kang said Canada and the United States were demonstrating a “Cold War mentality” that would divide the international community and damage chances of an appropriate settlement on the peninsula.

“Only through dialogue, equally addressing the reasonable concerns of all parties, can a way to an effective and peaceful resolution be found,” Lu added.

U.S. officials say discussion of a military strike option has lost some momentum since North and South Korea held formal talks for the first time in two years this month and Pyongyang said it would send athletes to the Winter Olympics that South Korea will host next month.

‘NOT TIME FOR REWARD’

Japanese Foreign Minister Taro Kono said in Vancouver that the world should not be naive about North Korea’s “charm offensive” in engaging in talks with the South.

“It is not the time to ease pressure, or to reward North Korea,” he said. “The fact that North Korea is engaging in dialogue could be interpreted as proof that the sanctions are working.”

South Korean Foreign Minister Kang Kyung-wha said she hoped the dialogue would continue well beyond the Olympics, but stressed that existing sanctions must be applied more rigorously.

Tillerson said North Korea must not be allowed “to drive a wedge” through allied resolve or solidarity and reiterated Washington’s rejection of a Chinese-Russian proposal for the United States and South Korea to freeze military exercises in return for a freeze in North Korea’s weapons programs.

A senior State Department official said U.S. Defense Secretary Jim Mattis briefed the Vancouver participants over dinner on Monday and stressed the U.S. preference for a diplomatic solution, while keeping a military option on the table.

“It was a chance to raise people’s confidence that we have thought through this, that we definitely prefer a diplomatic solution,” the official said.

Russia and China have been accused of not fully implementing the U.N. sanctions, something they deny.

Chinese Foreign Minister Wang Yi, speaking on Tuesday in the West African state of Sao Tome, said everyone should cherish the present easing of tension on the Korean peninsula.

But history shows that each time tensions ease, there could be interference or backsliding, Wang added.

“Now is the time to test each side’s sincerity,” he said. “The international community must keep its eyes wide open, and see who is really the promoter of a peaceful resolution to the peninsula nuclear issue and who will become the saboteur who causes a return to tensions.”

A U.S. official said Susan Thornton, the State Department’s senior diplomat for East Asia, would travel to Beijing from Vancouver to brief China on the outcome. He said he expected Tillerson to provide readouts to his Russian and Chinese counterparts.

(Reporting by David Ljunggren and David Brunnstrom; Additional reporting by Nicole Mordant in Vancouver, Michelle Nichols at the United Nations, Philip Wen in Beijing and Matt Spetalnick in Washington; Editing by James Dalgleish and Lisa Shumaker)

Ford urges 2,900 pickup owners to stop driving after new Takata death

A recalled Takata airbag inflator is shown in Miami, Florida in this June 25, 2015 file photo.

By David Shepardson

WASHINGTON (Reuters) – Ford Motor Co said on Thursday it had confirmed a second death in an older pickup truck caused by a defective airbag inflator of Takata Corp and urged 2,900 owners in North America to stop driving immediately until they can get replacement parts.

The second largest U.S. automaker said it confirmed in late December that a July 2017 crash death in West Virginia in a 2006 Ford Ranger was caused by a defective Takata inflator. It previously reported a similar death in South Carolina that occurred in December 2015.

Ford said both Takata deaths occurred with inflators built on the same day installed in 2006 Ranger pickups. At least 21 deaths worldwide are linked to the Takata inflators that can rupture and send deadly metal fragments inside vehicles. The faulty inflators have led to the largest automotive recall in history. The other 19 deaths have occurred in Honda Motor Co vehicles, most of which were in the United States.

Ford issued a new recall for automobiles that had been previously recalled in 2016.

Of the 391,000-plus 2004-2006 Ranger vehicles recalled at the time, the new recall announced on Thursday affects 2,900 vehicles. These include 2,700 in the United States and nearly 200 in Canada. The new recall will allow for identification of the 2,900 owners in the highest risk pool.

A Mazda Motor Corp spokeswoman said on Thursday the company would conduct a similar recall and stop-drive warning for some 2006 Mazda B-Series trucks, which were built by Ford and are similar to the Ranger.

Japanese auto supplier Takata plans to sell its viable operations to Key Safety Systems, an affiliate of China’s Ningo Joyson Electric Corp, for $1.6 billion.

A Takata spokesman said the company will make all attempts to ensure it can deliver replacement inflators as soon as possible.

The National Highway Traffic Safety Administration urged owners to heed Ford’s warning. “It is extremely important that all high-risk air bags are tracked down and replaced immediately,” NHTSA spokeswoman Karen Aldana said.

‘FAILED RECALL’

Ford said it would pay to have vehicles towed to dealerships or send mobile repair teams to owners’ homes and provide free loaner vehicles if needed.

Takata said in June that it has recalled, or expected to recall, about 125 million vehicles worldwide by 2019, including more than 60 million in the United States. Some 19 automakers worldwide are impacted.

Takata inflators can explode with excessive force, unleashing metal shrapnel inside cars and trucks and have injured more than 200. The defect led Takata to file for bankruptcy protection in June.

In 2017, prosecutors in Detroit charged three former senior Takata executives with falsifying test results to conceal the inflator defect. None have come to the United States to face charges.

Last year, Takata pleaded guilty to wire fraud and was subject to pay a total of $1 billion in criminal penalties in a U.S. court in connection with the recalls.

Automakers have struggled to get enough replacement parts for the massive recalls. A November NHTSA report said about two-thirds of U.S. vehicles recalled have not yet been repaired.

Senator Bill Nelson, a Democrat, said in a statement on Thursday the latest death is evidence of “the very definition of a failed recall” pointing to the earlier Ford death in 2015. NHTSA must do more, he said, to make the recall a priority.

In November, NHTSA rejected a petition from Ford to delay recalling 3 million vehicles with potentially defective airbag inflators to conduct additional testing.

In June 2016, NHTSA warned airbag inflators on more than 300,000 unrepaired recalled 2001-2003 model year Honda vehicles showed a substantial risk of rupturing, and urged owners to stop driving them until getting them fixed. NHTSA said they have as high as a 50 percent chance of a rupture in a crash.

(Reporting by David Shepardson; Additional reporting by Minami Funakoshi in TOKYO; Editing by Diane Craft and Muralikumar Anantharaman)

Canada criticizes U.S. lumber duties put in place on Wednesday

A log driver works a barge of Canadian logs at Squamish Mills Ltd in Howe Sound near Squamish, British Columbia, Canada, April 25, 2017.

WINNIPEG, Manitoba (Reuters) – The Canadian government on Wednesday criticized the United States for a decision to impose duties on certain softwood lumber exports and underlined its determination to fight the move.

The duties, which went into effect on Wednesday, are “unfair, unwarranted and troubling,” Foreign Minister Chrystia Freeland said in a statement.

Ottawa has already launched challenges against the duties – which range from about 10 percent to nearly 24 percent, below a preliminary range of about 17 percent to 31 percent – with the World Trade Organization and through NAFTA.

The U.S. Commerce Department’s decision will impose anti-dumping and anti-subsidy duties affecting about $5.66 billion worth of lumber and comes amid increasingly acrimonious talks on renegotiating NAFTA, the trilateral trade pact between the United States, Canada and Mexico.

Joe Patton, U.S. Lumber Coalition Co‐Chair and Vice President of Wood Products at The Westervelt Company, defended the duties.

“These duties are a fair enforcement of U.S. trade law. For decades, the Canadian government has abused the law and provided massive subsidies to its lumber industry, harming U.S. producers and workers,” he said on Wednesday.

The decision to impose tariffs followed failed talks to end the decades-long dispute between the two countries. The row centers on the fees paid by Canadian lumber mills for timber cut largely from government-owned land. Those fees are lower than fees paid on U.S. timber, which comes largely from private land.

The U.S. Commerce Department accuses Canada of unfairly subsidizing and dumping softwood lumber, which is commonly used in the construction of homes. Canada denies it is dumping the lumber.

The US Dept of Commerce was not immediately available for comment on Wednesday.

(Reporting by Rod Nickel in Winnipeg, Manitoba; and David Ljunggren in Ottawa; writing by Sue Thomas; Additional reporting by Lesley Wroughton in Washington; Editing by Chizu Nomiyama and Jim Finkle)

TransCanada to restart Keystone pipeline on Tuesday

TransCanada to restart Keystone pipeline on Tuesday

By Nia Williams

CALGARY, Alberta (Reuters) – The Keystone crude oil pipeline will restart at reduced pressure on Tuesday, TransCanada Corp <TRP.TO> said, nearly two weeks after closing the line after it leaked 5,000 barrels of crude in rural South Dakota.

Calgary-based TransCanada shut down the 590,000 barrel-per-day pipeline, one of Canada’s main crude export routes linking Alberta’s oil fields to U.S. refineries, on Nov. 16. The company is still cleaning up the spill and investigating the cause.

TransCanada said on Monday the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) reviewed its repair and restart plans. It said it will start operating the pipeline at reduced pressure, and gradually boost the volume of crude moving through.

TransCanada did not specify what the reduced pressure would be or when the pipeline would return to full capacity. PHMSA did not immediately respond to a request for comment.

“We are communicating plans to our customers and will continue working closely with them as we begin to return to normal operating conditions,” TransCanada said in a statement.

In its most recent update, TransCanada said it has so far cleaned up 1,065 barrels of oil.

The cleanup “is going as fast as we would hope, they are working 24 hours a day,” said Brian Walsh, environmental scientist manager with the South Dakota Department of Environment and Natural Resources.

Keystone has leaked substantially more oil, and more often, in the United States than the company indicated to regulators in risk assessments before operations began in 2010, according to documents reviewed by Reuters.

The Keystone outage roiled crude oil prices on both sides of the border as market players anticipated a glut of crude building up in Alberta while inventories fell in the U.S. futures trading hub of Cushing, Oklahoma.

The West Texas Intermediate (WTI) prompt spread <CLc1-CLc2> widened to a session low of negative 10 cents on news of the pipeline returning to service. Traders see the spread as an indicator for supply at Cushing.

The discount on Western Canada Select heavy blend crude for December delivery in Hardisty, Alberta, narrowed in thin trade to $17.90 a barrel below U.S. crude, according to Shorcan Energy brokers. On Friday December WCS settled at $21.50 a barrel under the U.S. benchmark.

The Keystone spill in South Dakota came days before neighboring Nebraska approved a route for TransCanada’s planned Keystone XL pipeline, but the approved route differed from the company’s preferred path. TransCanada has asked the state to reconsider, according to a filing posted on the Nebraska Public Service Commission website on Monday.

A company spokesman said TransCanada is seeking a “clarification” on the Nov. 20 decision, but did not provide further details.

On Saturday, landowners opposed to the pipeline responded to TransCanada’s request with their own motion seeking oral arguments on the issue.

A PSC spokesperson said the body has 60 days to respond to TransCanada’s motion.

(Additional reporting by Catherine Ngai in New York, Val Volcovici in Washington and Ethan Lou in Calgary; Editing by David Gregorio)

Nebraska regulators approve Keystone XL pipeline route

A TransCanada Keystone Pipeline pump station operates outside Steele City, Nebraska March 10, 2014.

By Kevin O’Hanlon and Valerie Volcovici

LINCOLN, Nebraska/WASHINGTON (Reuters) – Nebraska regulators voted on Monday to approve a route for TransCanada Corp’s Keystone XL pipeline through the state, lifting the last big regulatory obstacle for the long-delayed project that U.S. President Donald Trump wants built.

The 3-2 decision by the Nebraska Public Service Commission helps clear the way for the pipeline linking Canada’s Alberta oil sands to refineries in the United States, but is likely to be challenged in court by opponents who say the project is an environmental risk.

The commission’s approval was not for TransCanada’s preferred route, but for a slightly longer alternative that could prove more difficult and costly to build. It was unclear whether the company will decide to pursue the project as it considers the commercial viability.

TransCanada did not immediately respond to a request for comment on the commission’s vote.

TransCanda stock rose as much as 2 percent to the session’s high of C$63.80 after the decision, while the broader Canada stock index was up 0.2 percent.

Trump, a Republican, has made Keystone XL’s success a plank in his effort to boost the U.S. energy industry. Environmentalists, meanwhile, have made the project a symbol of their broader fight against fossil fuels and global warming.

The proposed line has been a lightning rod of controversy since it was first advocated nearly a decade ago. The administration of former President Barack Obama, a Democrat, considered the project for years before rejecting it in 2015 on environmental grounds, under pressure from activist groups.

Trump swiftly reversed that decision after coming into office this year, handing TransCanada a federal permit for the pipeline in March and arguing the project will lower fuel prices, boost national security, and bring jobs.

Nationwide, Trump has said Keystone XL would create 28,000 jobs. But a 2014 State Department study predicted just 3,900 construction jobs and 35 permanent jobs.

Trump’s decision placed the pipeline’s fate into the hands of the obscure regulatory body in Nebraska, the only state that had yet to approve the pipeline’s route. Permits along Keystone XL’s proposed 1,179-miles (1,897-km) path have been approved in Canada, Montana and South Dakota.

Opposition to the line in Nebraska has been driven mainly by a group of around 90 landowners whose farms lie along the proposed route. They have said they are worried spills could pollute water critical for grazing cattle, and that tax revenue will be short-lived and jobs will be temporary.

A lawyer for the landowners, Dave Domina, said the commission’s decision was a partial victory, because it denied TransCanada its preferred route. But he added: “We will carefully evaluate the Order and meet with our clients.”

Billionaire environmental activist Tom Steyer denounced the commission’s decision. “We will not stop making our voices heard until this project is dead,” he said in a statement.

Just days ago, TransCanada’s existing Keystone system spilled 5,000 barrels in South Dakota and pipeline opponents said the spill highlighted the risks posed by the proposed XL expansion.

An aerial view shows the darkened ground of an oil spill which shut down the Keystone pipeline between Canada and the United States, located in an agricultural area near Amherst, South Dakota, U.S., in this photo provided November 18, 2017.

An aerial view shows the darkened ground of an oil spill which shut down the Keystone pipeline between Canada and the United States, located in an agricultural area near Amherst, South Dakota, U.S., in this photo provided November 18, 2017. Courtesy DroneBase/Handout via REUTERS

The project could be a boon for Canada, which has struggled to bring its vast oil reserves to market. But there are questions about demand for the pipeline after a surge in drilling activity in the United States.

 

(Reporting by Kevin O’Hanlon and Valerie Volcovici; additional reporting by Nia Williams and Ethan Lou in Calgary; Writing by Richard Valdmanis; editing by Grant McCool)

 

Canadian groups seek to overturn Quebec ban on Muslim veil

Canadian groups seek to overturn Quebec ban on Muslim veil

By Anna Mehler Paperny

TORONTO (Reuters) – Two Canadian groups on Tuesday asked a court to overturn a new Quebec law that bans observant Muslim women from wearing a full-face veil when providing or receiving government services.

The National Council for Canadian Muslims, the Canadian Civil Liberties Association and Quebec Muslim resident Marie-Michelle Lacoste asked a provincial court to declare the law invalid, arguing that it discriminates against Muslim women and violates equality and freedom of religion protections in the Canadian and Quebec constitutions.

The provincial Liberal government that backed the law, passed on Oct. 18, has rejected claims that it targets Muslim women. It argues that the ban on all face coverings was necessary for security reasons and to facility communication and identification of people. Debate has focused on the niqab, a veil worn by a small minority of Muslim women that covers the whole face save for the eyes.

Opponents of the law say it targets a visible minority that has been subject to threats and violence in the primarily French-speaking province. Quebec had about 243,000 Muslims as of 2011, according to Statistics Canada.

The government believes the law is constitutional and will defend it in court, Isabelle Marier St-Onge, a spokeswoman for Quebec Justice Minister Stephanie Vallee, said by phone on Tuesday.

The law affects teachers, police officers, hospital employees and daycare workers in government agencies, and users of public services, from school to mass transit systems.

“Such blatant and unjustified violations of freedom of religion, as well as of the equality guarantees of the Quebec and Canadian Charters, have no place in Quebec or Canada,” the groups’ court submission said.

The plaintiffs stand a good chance of success, said political scientist Emmett Macfarlane, who has written extensively about Canada’s constitution and Supreme Court.

“It’s a pretty clear case, where we know who’s being adversely affected and we know it’s a distinct minority,” Macfarlane said.

In January a gunman walked into a Quebec City mosque and shot six people to death. A French-Canadian university student has been charged as the sole suspect.

France, Belgium, the Netherlands, Bulgaria and the German state of Bavaria have imposed restrictions on the wearing of full-face veils in public places. Denmark plans to institute its own ban.

(Reporting by Anna Mehler Paperny; Editing by Jim Finkle and Richard Chang)

Canada’s oil sands survive, but can’t thrive in a $50 oil world

FILE PHOTO - Giant dump trucks dump raw tar sands for processing at the Suncor tar sands mining operations near Fort McMurray, Alberta, Canada on September 17, 2014. REUTERS/Todd Korol/File Photo

By Nia Williams

CALGARY, Alberta (Reuters) – Canada’s oil sands producers are stuck in a rut.

The nation’s oil firms are retrenching, with large producers planning little or no further expansion and some smaller projects struggling even to cover their operating costs.

As the era of large new projects comes to a close, many mid-sized producers – those with fewer assets and producing less than 100,000 barrels of oil a day in the oil sands – have shelved expansion plans, unable to earn back the high start-up costs with crude at around $50 per barrel. Larger Canadian producers, meanwhile, focus on projects that in the past were associated with smaller names.

The last three years have seen dozens of new projects mothballed and expansions put on hold, meaning millions of barrels of crude from the world’s third-largest reserves may never be extracted.

Where industry groups in 2014 expected Canada’s oil sands output to more than double to nearly 5 million barrels per day (bpd) by 2030, that forecast has been knocked down to 3.7 million bpd.

This follows a spell of consolidation that has seen foreign majors sell off more than $23 billion in Canadian assets in a year and turn to U.S. shale patches such as the Permian basin in Texas, which produce returns more quickly and where proximity to refiners means the barrels fetch a better price.

“We cannot compete with that huge sucking noise to the south that is called the Permian. Investment dollars are spiraling away down there,” Derek Evans, chief executive of small oil sands producer Pengrowth Energy <PGF.TO> told Reuters in an interview.

Permian production rose 21 percent in 12 months through July compared to a 9 percent increase in Alberta’s oil sands, according to Canadian and U.S. government data.

COSTLY STARTUP PHASE

Mid-sized producers are hurting the most, due to start-up costs that far exceed those in other major producing areas. Oil sands producers have slashed operating costs by a third since 2014, but building a new thermal project – in which steam is pumped as deep as one kilometer (1094 yards)underground to liquefy tar-like bitumen and bring it to the surface – requires U.S. crude benchmark at around $60 a barrel to break even, analysts estimate.

The North American benchmark West Texas Intermediate crude <CLc1> has traded between $42 and $55 a barrel so far this year. The U.S. Energy Information Administration forecasts it will average $49.69 a barrel in 2017 and $50.57 a barrel next year.

There are around half a dozen thermal projects in the costly start-up phase, when engineers steadily increase steam pressure to bring a reservoir’s production up to full capacity.

One of those is Athabasca Oil Corp’s <ATH.TO> Hangingstone project. It was originally conceived as a 80,000 bpd project, but instead will bring output to only 12,000 bpd from the current 9,000 bpd. The project can break even with U.S. crude prices of at least $53 a barrel, meaning right now Athabasca keeps losing money on Hangingstone production. Size is crucial in the oil sands; the more bitumen a company can squeeze out of a plant, the lower fixed costs per barrel will be.

“(Athabasca) was a company built when oil was $100 a barrel. In those days we were going to find funding for joint ventures and build greenfield projects to a massive size. The reality is the world changed,” chief executive Rob Broen told Reuters.

Quarterly filings show why smaller players are struggling. Transportation and marketing costs at Hangingstone, along with the cost of natural gas used to produce steam to extract oil, and other operating costs are much higher compared with Cenovus Energy’s <CVE.TO> Christina Lake project, one of the highest-quality and biggest bitumen reservoirs in the oil sands.

Pengrowth’s development plans are on hold as well, Evans said, because the company needs U.S. crude to stay at $55 for a sustained period to justify investment in its 14,000 bpd Lindbergh thermal project, at one point intended to grow as large as 40,000 bpd.

THE BIG GO SMALL

Large producers have pulled back in response to lower global prices as well. For example, Suncor Energy’s <SU.TO> 194,000 bpd Fort Hills mine, due to start producing oil by the end of this year, is the company’s last megaproject.

Canadian Natural <CNQ.TO> restarted construction on its 40,000 bpd Kirby North project last November, one of a handful of smaller projects to start producing in 2019.

Other companies like MEG Energy <MEG.TO> are planning expansions at existing sites in 20,000 bpd “modules” rather than starting large new projects from scratch. But even such more modest investments are out of reach for smaller companies like Athabasca and Pengrowth.

“It’s very hard (for a small company) to drag itself out of the financing black hole it would have to get in to build a project to start with,” said Nick Lupick, an analyst at AltaCorp Capital. “A large company can take that on their balance sheet without having to leverage too highly.”

(Reporting by Nia Williams; Editing by David Gaffen and Tomasz Janowski)