TORONTO -- Canada's booming oil sands industry is cooling off as crude prices plummet from record summer highs to around $50 a barrel.

Petro-Canada and its partners Teck Cominco Ltd. and UTS Energy Corp. have postponed a decision on further investment in a $19.5 billion oil sands project in northern Alberta and shelved plans to build an upgrade refinery -- becoming the latest to put off investment decisions on a mine and the latest to ditch upgrades.

Oil majors like Royal Dutch Shell and other companies are re- examining the viability of oil sands development in an area that could hold as much as 175 billion barrels of oil. Only Saudi Arabia has more than Alberta.

"It's pretty dramatic when you lose that much on the price of the commodity you're selling," said Steve Laut, president and chief operating officer of Canadian Natural Resources Ltd., which recently slashed spending on its multibillion Horizon oil sands expansion.

Laut said oil needs to be $70 a barrel for his company to get a return on the capital spending on the first phase of its Horizon project, which is almost complete. Suncor spokesman Brad Bellows said his company makes money on its existing mines even if oil falls to $30, but it needs to be $80 for the expansion mine to be viable.

Last month, Royal Dutch Shell PLC postponed a near-doubling of production for its Athabasca oil sands project north of Fort McMurray, citing the uncertain economic environment and the credit crunch. Suncor Energy Inc., Canada's second-largest oil sands operator, reduced its planned 2009 capital spending by more than a third to $4.9 billion.

Bellows said a $1 change in benchmark crude has an annual impact of $55 million to Suncor's cash flow.

With almost every oil sands company delaying expansion, Laut hopes soaring costs for the industry will be curbed. High labor and construction costs had already began to cut into profits as companies rushed to get projects online.

"Why build in a high-cost environment when you're in a moderate- price world," Laut said.

There are signs that costs are starting to come down.

Neil Camarta, Petro-Canada's senior vice president of Oil Sands, said contractors are starting to cut deals where they would not have before.

Laut said CNR recently secured a contractor that was between jobs for $14 million for a project it originally estimated would cost $20 million. He said his company delayed the project after initially getting offers to do it for between $40 million and $75 million months ago.

Producers have also become wary as credit markets have frozen.

"You're much more cautious on who you are dealing with on the other side, ensure they are credit worthy," Laut said. "I suspect that's the same with everybody across the world."

Originally published by ROB GILLIES Associated Press.

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