UPDATE 1-Oil sands producers gird for Obama's Canada visit

(Adds comment from environmental group)

By Ayesha Rascoe

WASHINGTON, Feb 17 (Reuters) - Canada's oil sands industry, battered by collapsing oil prices, also faces the prospect of ballooning costs as the United States and Canada prepare to discuss energy security and efforts to fight global warming.

When U.S. President Barack Obama visits Ottawa on Thursday, energy will be a key topic in his talks with Canada Prime Minister Stephen Harper, who often touts Canada as an emerging energy superpower due to its massive oil sands resources.

Oil sands producers worry that Obama's plan for a cap-and-trade system to reduce emissions of greenhouse gasses could make their operations too costly -- especially at current depressed oil prices. Harper also has voiced support for a cap-and-trade system.

Environmental groups call the oil sands "dirty oil" and say its development is hazardous to air, land, water and communities. Some in the Obama camp appeared to agree with that message during the election campaign, and producers fret about the push for standards that reward low carbon emissions.

"This is a real test for how the administration balances energy security and climate change in its strategy," said Michael Levi, senior fellow at the Council for Foreign Relations.

The Obama administration has been mum so far on what official stance the president will take on oil sands. Both sides will closely monitor his first official trip abroad.

"We're watching it and we know that energy will be on the agenda. The real key for us is to set a framework," Greg Stringham, vice president of markets and fiscal policy for the Canadian Association of Petroleum Producers, told Reuters.