Windsor Star

Oil industry isn’t dead — it may be getting better

- JOHN IVISON

Elizabeth May has provoked outrage by claiming “oil is dead.” It is not entirely clear why. It’s like the Pope proclaimin­g the Bible as the fount of spirituali­ty.

May is the country’s environmen­tal conscience — the demise of fossil fuels is an article of faith for her. But she is guilty of wishful thinking. The Canadian oil industry is not dead yet — in fact, it may be getting better.

In an article in Policy Magazine, May claimed Canadian oil is a “product lacking investors.”

Yet, at the annual general meeting of Barclays PLC in London on Thursday, shareholde­rs of the giant European bank voted down a proposal by Share Action, an activist group that promotes “responsibl­e” investing, to quit the Canadian oilpatch.

“The tarsands have no place in a Paris-compliant world,” Share Action said.

Three-quarters of the bank’s shareholde­rs disagreed.

Financial institutio­ns around the globe have been buckling before the might of such activist groups, but Barclays said that the industry here is supported by the Canadian government and is highly regulated. It agreed to stop lending to the coal industry and to stop funding Arctic drilling, but fought the case for continued lending to oilpatch clients, provided the carbon intensity per barrel is lower than the global median by the end of the decade — a goal most oilsands producers believe they will achieve.

The reason Barclays risked the wrath of Share Action and its fellow travellers is that it believes the Canadian industry may be in better shape coming out of the COVID crisis, than it was going in.

Barclays thinks many Canadian producers will have a superior ability to weather the current price war than over-leveraged U.S. shale producers; it believes a new pipeline from Alberta to the West Coast will be built; and it sees the prospect of Canadian oil sales to the East Coast carried by ship, via the Panama Canal. The world still depends on oil and is likely to do so for many years, according to the Internatio­nal Energy Agency, even if its most recent review suggests demand may suffer in the short run.

This is not to suggest that the industry is in rude health.

Suncor was one of many oilsands giants this week to reveal massive losses in the first quarter, joining Canadian Natural Resources, Crescent Point, Cenovus, Husky and others.

Suncor said gasoline demand dropped by half and aviation fuel sales fell by 70 per cent. The sector has already turned off 600,000 barrels per day of production and that number is likely to hit one million. Planned capital spending has been cut across the board in an industry where investment was already around onethird 2014 levels.

The price of Western Canadian Select has stabilized, trading at around $22 on Thursday, but that’s still below break-even for many producers.

But while the energy industry is down, it is not out.

This is just as well for the Canadian economy, given it is the country’s largest export industry, responsibl­e for 10 per cent of GDP; employs more than half a million people; and, contribute­s around $8 billion in tax revenues.

If it was dead, the deleteriou­s effects would ripple beyond the Prairies: Canadian banks, for example, have around $60-billion of exposure in loans to the oilpatch.

May, and Bloc Québécois leader Yves-francois Blanchet, have shown almost indecent haste in calling for the pandemic to be used as an opportunit­y to reorient the energy mix away from Alberta oil.

“The pandemic in a very real way, as horrific as it is at many levels, gives us an opportunit­y to stop and think about how we manage to get this economy back on its feet,” May said. Alberta Premier Jason Kenney said Thursday that May and Blanchet should stop kicking Albertans when they’re down.

But there is considerab­le sympathy for May’s view in Liberal circles.

In his morning press conference, Justin Trudeau said government efforts at spurring recovery will take into account how to “build better” — greener outcomes with less pollution.

The federal budget, when it eventually lands, is likely to be heavy with sustainabl­e-finance measures, policies that might encourage the financing of innovation, clean electricit­y, retrofits and climate-resistant infrastruc­ture.

But the prime minister was politicall­y astute enough not to gloat about the travails hitting oil producing provinces.

“I don’t share that assessment,” he said, when asked if he agreed with May.

Since April 17, Trudeau has been talking about help for the oil and gas sector. There has been a $1.7-billion commitment to clean up orphan and abandoned wells, as well as money made available to reduce methane emissions.

But the province has called for the federal government to go further and use its ability to borrow at rock-bottom interest rates to provide a $20-billion liquidity backstop for major producers.

Frustratio­n with the federal government inside Kenney’s Alberta government is usually high, but tempers have shortened from sporadic Happy Gilmore levels to what might be termed Goodfellas.

The belief is that the Department of Finance has pulled together a plan for a liquidity facility that the Prime Minister’s Office has held up for political reasons.

Senior officials in Alberta point out that companies are not looking for a bailout, just help to withstand a prolonged period of instabilit­y. “Government support signals to the markets the willingnes­s to back this industry. It says ‘we’re the fire department and we have a ton of water to throw on this fire’,” said one senior source.

The federal cabinet appears to be split on whether to help put out a conflagrat­ion caused by COVID and the oil-supply overhang created by Saudi Arabia and Russia.

Detractors points out the high carbon content of Alberta bitumen: Stanford University places Canada behind only Venezuela, Cameroon and Algeria in terms of greenhouse gas emissions per unit of energy.

Supporters point out that half the crude extracted in the U.S. has a similar emission level; that the amount of energy used per barrel has fallen 20 per cent since 2011; and that the province has an absolute cap on emissions. If Canadian oil is displaced by product from overseas, it will likely be from a country where environmen­tal activists would not dare to operate.

The bottom line is that the energy industry is in transition — even Kenney admits as much.

But the country needs a functional fossil fuel industry to help fund that shift. It will not happen overnight.

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