In praise of the oilsands
The Macdonald-laurier Institute has just released a paper of mine on the oilsands and Canada’s economy. Many Canadians outside the prairie provinces have trouble understanding — or accepting — that Alberta’s oilsands are still enormously important to our economy. The $8.3 billion of new investment in the oilsands last year represented 4.5 per cent of all Canada’s business investment in 2020 and was four times the capital spending undertaken by the auto manufacturers whom eastern-canadian politicians continue to lionize and subsidize.
The oilsands now dominate Canada’s crude oil production, with 70 per cent of total output, and the recent investments mean production will continue to grow. Most is destined for the U.S. market. While U.S. oil imports have fallen sharply as domestic shale-oil output has expanded, demand for Canadian oil has risen steadily because of declining supplies of heavy oil from Mexico and Venezuela, as well as the lower price Americans pay for our oil.
Oilsands production and investment have different impacts on Canada’s economy. The overall effect on GDP is about the same but increased investment creates more jobs in both Alberta and the rest of Canada in the short term. Higher production creates fewer jobs because producing bitumen does not require much labour. On the other hand, these jobs pay more and are stable over the long term. The stability of oilsands operations was displayed during the pandemic, as employment in oil and gas extraction fell only 0.9 per cent, compared with a 17 per cent drop in drilling and exploration operations.
All provinces not named Alberta also benefit from higher oilsands investment and production. The rest of Canada garners 18.3 per cent of the incomes generated by investment and 13.5 per cent of incomes from production. Their share of job gains is even larger, although because the oilsands need comparatively little labour the number of jobs is small in absolute terms. Central Canada, notably Ontario, benefits most from both oilsands investment and production.
While oilsands investment is volatile, production has risen steadily for three decades, even despite lower oil prices after 2015. Steady production growth reflects how lower investment only affects the rate of increase of future production. Because of the high level of fixed costs, once an oilsands plant starts producing it rarely stops for extended periods — unlike drilling rigs, which are easily mothballed or moved to the U.S.
It is misleading to speak of “Canada’s oilsands” as a uniform entity. Every project has unique costs, produces varying types of bitumen and has different emission levels. There are two main oilsands technologies. One is the open-pit mining the media relentlessly displays in its desire to (ahem) tar the oilsands with a bad environmental image. In fact, the majority of oilsands production now comes from steam-assisted underground “in situ” operations. These are typically smaller projects with lower costs that adapt more easily to the inevitable fluctuations in oil prices. While in situ projects damage surrounding land less than mining does, the need for steam to heat the oil sand requires burning natural gas, which produces greenhouse gas emissions. To reduce both costs and emissions, the industry increasingly uses solvents that reduce the input of natural gas.
The industry long ago lost the public relations battle about its environmental impact. As a result, the improvement in its record as in situ operations have overtaken mining has been largely ignored. The chief economist of the International Energy Agency acknowledged this new reality when he said the contribution of the oilsands to global emissions “is not peanuts, it is a fraction of peanuts.”
Even so, almost all media stories on the oilsands feature photos of shovels loading bitumen into massive trucks that rumble across landscape scarred by openpit mining and around tailing ponds presumably full of toxic materials. The Economist spoke for many when it called oilsand strip-mining “One of the bleakest scenes of man-made destruction.” These apocalyptic pictures have become “the coveted oilsands porn” of the industry’s foes, in the words of Alberta Oil magazine.
What is only rarely shown is how the land looks after its rehabilitation, which all companies must fund when they begin operations. Equally rare are photos of relatively pristine in situ sites, where the work is conducted underground and without waste ponds. As one critic admitted, underground operations “are squeaky clean with little to no above-ground toxins.” The boreal footprint of the oilsands is less than 10 per cent of the 11,000 square kilometres Quebec flooded to build its hydro power. Yet Quebec politicians ritually denounce Alberta’s “dirty oil” while ignoring the environmental damage of their own self-styled “clean hydro.”
The oilsands not only create wealth and jobs but are a stellar example of innovation by Canadian companies. Unfortunately, negative public and media perceptions (telegraphed by the completely inaccurate descriptor “tar sands”) have been encouraged both by overseas competitors and by U.S. customers, who have benefited enormously from heavily discounted prices for bitumen. Taking their cue from their political leaders, not enough Canadians look at this industry as an example to emulate, not a pariah to defame.