Canada could soon produce ‘a quarter of free-world oil’
The White House’s call for more oil from Saudi Arabia and Russia last week raised some hackles in Alberta, the province that is home to the world’s third biggest oil deposit.
The request came just two months after U.S. President Joe Biden’s decision to revoke a critical permit led to the demise of the Keystone XL pipeline. The Us$8-billion project, meant to carry heavy crude from Alberta’s oilsands to Texas, faced years of fierce environmental opposition.
“Why is the U.S. government blocking energy imports from friendly Canada, while pressing for more imports from OPEC dictatorships & Putin’s Russian regime?” Jason Kenney, Alberta’s premier, asked on Twitter.
Alberta is the U.S.’S biggest foreign oil supplier by far. It has pinned its economic future on increasing exports to it southern neighbour.
Yet new oilsands projects in Alberta, among the most carbon-intensive on earth, are in trouble as governments pledge deep decarbonization, Un-sponsored scientists warn of a worsening climate crisis and Wall Street sours on fossil fuels.
Extracting bitumen from Canada’s oilsands is an energy-intensive way to produce crude. Despite efficiency improvements, Co2-equivalent emissions are still higher than most other sources of oil. Total oilsands emissions rose almost 140 per cent between 2005 and 2019, to 83 million tonnes a year, or more than 10 per cent of Canada’s total, according to the country’s submission to the UN.
Despite the cancellation of Keystone XL, Alberta’s oil output — mostly from the oilsands — hit a record high in the first half of the year, averaging 3.5 million barrels a day as projects ramped up following last year’s price crash and the province lifted production quotas.
However, capital spending in Canada’s oil and gas sector has plunged from a high of $81 billion (US$65 billion) seven years ago to just over $27 billion this year, according to the Canadian Association of Petroleum Producers. The trend suggests lower production growth in future.
Tim Mcmillan, CAPP’S president, blames Justin Trudeau’s federal Liberal government for policies he says have had a “dampening” effect on investment, such as the federal carbon tax and a new law to stiffen environmental oversight of new energy projects such as pipelines.
Oil analysts say that broader forces are more significant, including doubts about longer-term demand, the effects of last year’s price crash and policy shifts against fossil fuels.
The asset manager Blackrock, for example, now lumps the oilsands industry with civilian firearms, tobacco and other pariah sectors. Some insurers are pulling away and several banks have said they will not finance new oilsands projects.
“If governments get serious about their net-zero targets, high-cost and Esg-sensitive supplies like the Canadian oilsands cannot grow, and their continued existence comes into question,” said Al Salazar, vice-president of intelligence at consultancy Enverus. (ESG refers to environmental, social, and governance matters.)
For now, the consensus is that the oilsands will expand much more slowly than expected a decade ago, when international oil companies joined a latter-day gold rush to northern Alberta.
Alex Pourbaix, chief executive of Cenovus Energy, Canada’s second-largest producer, said his company was using cash flowing in from this year’s higher oil prices to eliminate debt and pay back shareholders. Small expansions at existing assets would account for any growth.
“It will be without those giant kinds of capital projects,” he told the Financial Times.
Suncor Energy, a rival producer, told investors that it would pursue “value over volume” until 2025. Canadian Natural Resources, the country’s biggest producer, plans only a modest increase in spending.
“Shareholders don’t want (companies) to grow right now, and in this world I don’t think new oilsands projects would be welcome anyway,” said Jackie Forrest, executive director at Calgary’s Arc Energy Research Institute.
Kevin Birn, chief analyst for the Canadian oil market at consultancy IHS Markit,
reckons that oilsands production will at best rise another 650,000 b/d by 2030, if projects are optimized and planned expansions are revived.
Companies could divert cash not to growth but to decarbonizing operations as “an investment in future competitiveness,” Birn argued.
The five largest Canadian producers recently proposed a $75-billion decarbonization project that includes carbon capture, utilization and storage and the potential use of small-scale nuclear technology to eliminate emissions from operations.
Forrest said federal and provincial measures — including the carbon tax, a clean fuel standard and a forthcoming tax credit — should make decarbonization attractive to operators.
“Assuming the Liberals get in again, we’ll have enough clarity and the policy will be there and we’ll see significant investments,” she said. Trudeau on Sunday called a snap election for September 20.
If they can be greened, supporters say a golden era awaits the oilsands, as stuttering U.S. shale production and underinvestment in supplies elsewhere increases the strategic value of deposits in western, open countries.
“By the end of the decade, Canada is going to be a quarter of free-world oil,” said Adam Waterous, head of Waterous Energy Fund, a Calgary private equity firm.
Critics say Alberta is banking on rosy outlooks for global oil demand that cannot transpire if the world meets emissions targets.
“Alberta has not internalized that oil demand is in decline and that ever-worsening projections about climate impacts ... have fundamentally changed the outlook,” said Simon Dyer, deputy executive director of the Pembina Institute, a clean energy think-tank. “That is out of step with the investment community and the global climate conversation that’s happening around the world.”