Will Canada’s oilsands be a victim of the shale revolution and new technologies?

In his first foreign speech as Prime Minister, Stephen Harper told the Canada-U.K. Chamber of Commerce that Canada was emerging as “a global energy powerhouse—the emerging energy superpower our government intends to build.” Development of the vast potential of the Alberta oilsands, Harper said in his July 2006 speech, was “an enterprise of epic proportions, akin to the building of the pyramids or China’s Great Wall.” This was Harper’s vision for Canada. The Liberals enthusiastically followed in early 2009, when Michael Ignatieff declared the oilsands were our great trump card when dealing with the Americans, apparently a card to be played whenever we wanted something from the Americans (like the Keystone pipeline?). “We provide more oil to the United States than Saudi Arabia. That changes everything,” Ignatieff trumpeted. “It means that when the Prime Minister of Canada goes into the White House he gets listened to in ways that Canadian prime ministers have not been listened to before” because “they can’t run their economy without us.” How times have changed—and in less than a decade. Now we are facing a world where “peak oil” means that the world has more oil than it needs, not that we are about to face shortages. It’s a world where shale oil has great potential to meet the growth in future oil needs. This changing energy world points to the probability of future declines in oil prices as oil supplies become more abundant and technologies reduce the need for oil. In the meantime, the current high price for oil is fostering fuel substitution, such as the use of natural gas in vehicles, and is providing a powerful incentive that makes hybrid and electric vehicles more attractive as well as driving rapid development of more efficient and cheaper solar and other renewable energies. There’s no doubt governments seeking tax revenues and investors seeking profits have been dazzled by plans for huge oilsands projects. As the Christmas poem puts it, “visions of sugar plums danced in their heads.” Chinese companies alone are estimated to have committed something approaching US$30-billion. But is the game over? Will Canada’s oilsands be a victim of the shale revolution and new technologies, leaving oil companies and their shareholders stuck with white elephants? Will financial markets bring a harsh dose of reality? Michele della Vigna of investment bank Goldman Sachs estimates that about US$700-billion of planned spending by oil companies on high-cost projects around the world may have to be cancelled because the oil will not be needed. Asked where projects were most vulnerable, he named Angola, Nigeria and Canada. What’s happening, he said, is that shale oil production is cheaper and plentiful and will likely displace oil projects if they are unable to break even at a Brent oil price of US$85-US$95 a barrel. Brent is expected to average US$108 a barrel this year. Moreover, the potential supply from shale oil is big enough to meet future needs for some time to come. Unless oilsands producers can significantly lower costs and their harmful impact on the environment they will be in trouble. Investors won’t earn a sufficient return to justify investments while financial markets will be more cautious in helping to fund high-cost projects. A recent report published by Carbon Tracker, a financial think tank that reports on energy markets, also warns that many planned oil industry projects that are high cost and in excess of the carbon budget needed to avert serious climate change are likely to be cancelled. It focused only on projects planned by the major multinational oil companies that it said would need a market price of US$95 a barrel to go ahead. It listed the 20 largest projects around the world that were “prime targets for cancellation,” and nine of these projects were in Canada: eight in the oilsands and one in the Arctic. And just a few days ago, Citigroup Global Markets published a report—Energy 2020: The Revolution Will Not Be Televised as Disruptors Multiply—which warned that “the energy industry is going through a period of extreme flux and this shows no signs of abating.” While recognizing the challenges in expanding volumes of shale oil and gas from fracking, the analysts are optimistic on expanded production in many countries around the world. Technology is also accelerating a reduction in our need for oil, Citigroup says. The transportation sector, which accounts for 57 per cent of oil demand, is continuing to benefit from improving efficiency and emissions standards, encouraging the development of improved natural gas, hybrids, electric vehicles and fuel cell vehicles. Renewables, particularly solar, are falling dramatically in price while becoming much more efficient. In another just-released report, the International Energy Agency says that renewable power generation in 2013 accounted for about 22 per cent of the global energy mix, compared to 18 per cent in 2007. Investment in renewables last year totalled about US$250-billion and renewable power generation is projected to continue to grow strongly. Renewables are becoming increasingly cost competitive, reducing the need for subsidies, as well as delivering significant environmental benefits. There has been much discussion over the past decade about developing a national energy strategy in Canada. But too often it has heavily focused on how to build more pipelines and sell more oil. But a true national energy strategy has to be set within a carbon budget and embrace and support the development of a wide range of clean and cost-competitive energy choices, from natural gas vehicles and fuel cells to energy efficiency and better use of information technologies for demand management. If we really want to be an energy superpower, then we have to be a leader in the transition to a low-carbon economy. Clearly, we are not an energy superpower today, nor even an emerging one. David Crane can be reached at crane@interlog.com. The Hill Times

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Will Canada’s oilsands be a victim of the shale revolution and new technologies?

We are facing a world where ‘peak oil’ means that the world has more oil than it needs, not that we are about to face shortages.

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