Oil’s slippery slope
The Paris climate agreement is just the latest sign of trouble for Canada’s oilpatch. How will the industry adjust to new, irreversible realities?
When solar entrepreneur Jeremy Leggett bumped into Suncor Energy boss Steve Williams at the World Economic Forum in 2014, odds were high that tempers would flare. The two men were among about 40 dinner guests — a mix of CEOs, pension fund managers, economists and government leaders. They had gathered in Davos, Switzerland, to talk about “short-termism” in the financial and corporate worlds and how it undermines efforts to tackle climate change.
At one point during the dinner, Leggett recalls in his book The Winning of the Carbon War, Williams mentioned the difficulty he had in pushing through a 50-year investment plan for the oilsands.
Leggett, who is also non-executive chairman of London-based financial think tank Carbon Tracker, asked Williams after the dinner if he was concerned the investment would become stranded; that within five decades the world would no longer need what Canada’s largest oil company had to offer.
“Clean energy can’t do the job oil does . . . Clean energy can’t be economic,” Williams snapped. To which Leggett replied: “But we are already in the process of doing that . . . Doesn’t that make you worry just a little about your 50-year plan?”
In Leggett’s book, the exchange ends there. But it continued — and got heated, to the point where a red-in-the-face and clearly insulted Williams stormed off in anger.
Back then Williams had less reason to worry. Brent crude was priced at around $107 (U.S.) a barrel and meaningful political action on climate change, both in Canada and internationally, was largely absent.
Two years later, the fossil fuel industry is under siege. Brent prices have plunged by two-thirds to below $40 a barrel, and the International Energy Agency says a recovery shouldn’t be expected anytime soon. At the same time, Alberta now has an ambitious climate plan that includes a carbon tax and hard cap on oilsands emissions. And just last week, 196 countries approved a binding global climate deal in Paris.
The Paris agreement seeks no less than a peaking of greenhouse-gas emissions “as soon as possible” and a decarbonized global economy within the century’s second half. It is through the lens of this new reality that Canada’s oilsands industry must move forward in competition with every other oil-producing nation.
“Most people in the industry have been to some extent surprised at how quickly change has happened over the past 12 months,” said Chad Parker, executive director of nonprofit sustainability consultancy the Natural Step Canada.
Parker is heading up an initiative called the Energy Futures Lab, which has assembled a group of experts from academia, industry, government and civil society to come up with a low-carbon transition plan for Alberta. Current CO2 emissions from oilsands production sit at around 70 megatonnes, twice as much compared to 10 years ago. Alberta’s new climate plan calls for a ceiling of 100 megatonnes.
Two years ago, when the oilsands were riding high on above-$100 oil, the industry would have hit that emissions ceiling by 2020, according to projections from Environment Canada. But with sub-$40 oil, development has slowed substantially. At today’s rates of production based on current technology, the industry could delay reaching its emissions cap to 2030, possibly later.
“No new projects are being built,” said economist Dave Sawyer, CEO of Ottawa-based EnviroEconomics. “Right away the market has taken care of all that new growth.”
It creates space for Alberta’s economy to diversify, which has never been more crucial. “We can argue about the pace and the strategy, but the idea of transition is now part of government policy,” said Parker. “Some are getting the message. Some aren’t.”
Suncor, under Williams’ leadership, seems to get it more than others. He was one of four oilsands CEOs who backed Alberta Premier Rachel Notley’s climate plan and, rather than dismissing the events in Paris, he flew there to listen and learn. These days, he says, Suncor’s goal is to be “the last man standing,” implying that many in his industry will fall. He says he’ll tackle low oil prices and an emissions cap in Alberta by boosting operational efficiencies and using new technologies to reduce costs and emit less greenhouse gases per barrel of oil.
Dan Zilnik, president of Oil & Gas Sustainability, a consultancy in Calgary, said limits on global emissions will, over time, keep more fossil fuels in the ground. But not all fossil fuels, oil-producing regions and individual projects will be threatened equally.
He equates it to a game of musical chairs. “For Alberta and for the companies invested in the oilsands, the challenge is to position some portion of their reserves to be consistent with a carbon-constrained world, either by being first to find a seat, or by being faster — lower-carbon — that the competition,” said Zilnik.
But eventually, by the end of this century, all seats will be taken away and the music will stop for fossil fuels, assuming the political will behind the Paris agreement and the advance of clean, renewable technologies prove lasting.
That means being better and more efficient at producing oil won’t be enough as we approach the second half of this century. Companies, such as Suncor, will need to ask themselves what they want to be when they grow up in the low-carbon economy. This article is part of a series produced in partnership by the Toronto Star and Tides Canada to address a range of pressing climate issues in Canada leading up to the United Nations Climate Change Conference in Paris, December 2015. Tides Canada is supporting this partnership to increase public awareness and dialogue around the impacts of climate change on Canada’s economy and communities. The Toronto Star has full editorial control and responsibility to ensure stories are rigorously edited in order to meet its editorial standards.