ROYAL Dutch Shell Plc, Exxon Mobil Corp and the rest of the oil industry may face higher costs to exploit Canada's tar sands, the biggest deposit outside of Saudi Arabia, because of efforts to rein in climate change.

A Canadian mandate to bury carbon dioxide when producing the oil may add between US$2 and US$13 a barrel to the cost of production, according to Pembina, an Alberta-based environmental group. Mining crude from the area now costs around US$60 a barrel.

The additional costs are likely to feed through to consumers, leading to higher energy bills and contributing to inflation. Oil prices two days ago reached a record near US$117 a barrel in New York, led by increasing demand from emerging markets, threats to supply in Nigeria and a UK refinery strike.

Canada's increasing costs "are important in how the market looks to the world," said Michael Wittner, Societe Generale SA's head of oil research in London. "One way or another it will push up prices for Canadian oil sands," he said.

The European Union, Canada, Norway and Australia are among nations setting rules to force industries that use or produce energy to store carbon dioxide underground, instead of venting it into the atmosphere. The accumulation of carbon because of burning fossil fuels is blamed for global warming, Bloomberg News said.

'New floor'

Saudi Arabian Oil Minister Ali al-Naimi said last month that oil is unlikely to fall below US$60 to US$70 a barrel because alternatives like Canadian tar sands and renewable sources have become viable at those levels.

The rising cost of exploration means US$70 to US$80 a barrel is a "new floor" for prices, Total SA Chief Executive Officer Christophe de Margerie said in Paris on April 10. After 2012, the miners of oil-encrusted sand buried under the swamps of northern Alberta will have to store carbon emissions rather than releasing them.

Alberta, Canada's biggest carbon dioxide-emitting province, last year passed regulations forcing companies like Shell to cut greenhouse emissions per unit of output.