Latest News About Oil Sands

Oil barrel from Canada

Discover the latest news about oil sands, updated weekly on Action Aid Recycling

Update: April 9th, 2021

How America’s focus on infrastructure could help the oil sands industry

The conventional wisdom is that US President Joe Biden’s trillion-dollar bill on infrastructure will boost clean energy and depress demand for oil. Our previous updates to this article have focused on exactly that. But it’s not so clear cut.

The President of the United States wants to spend USD $115 billion to rebuild American roads and bridges to upgrade its infrastructure. Rebuilding roads requires a lot of asphalt, a product derived from “the heaviest and most-dense” type of oil which is derived from bitumen.1

One analyst wrote, “while the Biden administration has been straightforward that there will be oilfield industry casualties from the green energy transition, so far it does seem that they’re doing what they can to soften the blow”.2 Biden’s infrastructure bill may end up helping oil sands producers in the short term more than it hurts them.

‌But, it’s not all good news for oil this week. Canada’s cash-rich energy companies are facing pressure from environmentally-minded investors to focus on transitioning to clean energy. Without that transition, oil companies may struggle to raise money at cheap interest rates, said some analysts.3

Update: April 1st, 2021

America’s infrastructure bill banks on clean energy over oil

US President Joe Biden rolled out his “colossal” infrastructure spending bill this week, and it’s likely to cause a big headache to the oil sands industry. “It’s still the largest government expenditure on infrastructure and clean energy in world history”, said Paul Bledsoe, a former Democratic climate adviser.4

Biden wants to set a federal “Clean Energy Standard” for carbon-free electricity in America by 2035 and pump USD $174 billion into electric vehicles. Either push will likely depress demand for oil. Biden also promised to eliminate “billions of dollars” in subsidies, loopholes and tax credits for fossil fuel companies.5

Even equity markets are not on the side of oil companies. The Financial Times found that from 2012 to 2020, while investments into clean energy companies have “outperformed” markets, those in fossil fuel companies have lost significant value.6

Update: March 26th, 2021

Oil sands industry bets on rail over pipelines

When US President Joe Biden cancelled the Keystone XL pipeline on his first day, he cast a shadow over the oil sands industry. But the industry seems to think it has a new card up its sleeve – trains. This week, in one of the largest deals of its type, Canadian Pacific Railway Ltd said it would pay USD $28.9 billion to create the first rail network connecting Canada, the US and Mexico.

The impact could be transformative. Companies say it will boost trade across North America. Moreover, Canadian oil sands producers think it will allow them to bypass pipelines and transport crude oil directly to refineries elsewhere. A Canadian Pacific spokesperson said it was a “pipeline-competitive way of delivering Alberta energy products to market by rail”.

Could rail be the oil sands’ new saviour? The market is not crying out for new capacity, one analyst told the Financial Times. Rail is costlier than pipelines, and oil from oil sands is among the most expensive per barrel in the world.7 Also, the problems facing the oil sands industry – high environmental costs and a universal move away from fossil fuels – still remain. Pipelines or rail aren’t going to solve that. 

Update: March 19th, 2021

US States push back on Keystone XL pipeline

The controversy surrounding the Keystone XL pipeline is not over yet. It was due to transport Alberta’s oil sands product from Canada to Texas, across 1,200 miles. However, on his first day as US President, Joe Biden signed an executive order cancelling the pipeline.8 This week, a coalition of attorneys general from 21 US states announced that they would sue President Biden and members of his administration for rescinding the permit.

“The president lacks the power to enact his ‘ambitious plan’ to reshape the economy in defiance of Congress’s unwillingness to do so”, they said in a statement to CBS News. It is not clear yet whether they will succeed in their efforts. But, even if legal action is successful, it could be tied up in courts for years to come. That alone would make the project more uncertain and less feasible by the day.9

The government of Alberta, a strong proponent of the oil sands industry, is also picking a fight – with a cartoon film. Alberta’s leader, Jason Kenney, attacked Bigfoot Family for sullying “the reputation of the energy industry” by painting them in a bad light. The film features a scientist who’s family fight ‘Extrakt Oil’ and its plans to drill in pristine wilderness. “The message of the movie is that oil companies are evil, and they will stop at nothing, including murdering children, to destroy the environment and kill all of the cute talking animals, all in the name of profit”, a government official complained. Unsurprisingly, the cartoon has become more popular in Canada since Alberta’s crusade against it.10

Update: March 12th, 2021

Last year, the oil industry panicked about how low prices could fall. Now, however, the oil industry is wondering how much prices could increase. Oil prices have shot up to nearly USD $70 per barrel after Saudi Arabia and Russia  two of the world’s most powerful oil producers – decided to restrict their oil supply.

But, the rally in prices is not expected to last. US President, Joe Biden, is planning an unprecedented USD $2 trillion investment bill for infrastructure and clean energy jobs11 The oil industry expects a further boost for clean energy in the bill, along with higher emissions standards, which will make fossil fuels less profitable.12

Higher oil prices are expected to help Canada’s oil sands industry too. But, Alberta’s producers have also cut production to restrict supply and keep prices high. The net effect is that oil sands producers are at least back to earning some profits for their oil after the rout in 2020. However, not many expect prices to stay high in the long term. As one industry analyst said, “I can’t see much growth in the oil sands happening because there is going to be less demand in the future”.13

Why is the oil sands industry in crisis?

Within hours of being inaugurated as the US President, Joe Biden signed an executive order canceling the Keystone XL pipeline.14 The pipeline would have carried 830,000 barrels a day of Alberta’s oil to the US Gulf Coast for refining. The executive order was expected, but the speed of its arrival suggests even worse news for Canada’s oil sands industry.

The Financial Times wrote the day after Biden was sworn in “an era of deregulation and fossil fuel promotion in the world’s biggest and most consequential energy market is over”15.

Other pipelines are now on the chopping block too. Last year, the Atlantic Coast Pipeline project was abandoned after legal problems.16 The Dakota Access Pipeline has sparked large protests and it could also be cancelled by the President if the opportunity arises.17 In other words, it looks like the future of the fossil fuel sector, especially the oil and gas industry, is in jeopardy.

Alberta’s oil sands industry has attracted a lot of media attention and political interest in recent years. It contributes to the province and Canada’s economic growth. However, the entire sector now faces major problems for numerous reasons. Could this be the end of the boom? This will inevitably affect the largest oil providers and their stocks, for example Suncor Energy, Canadian Natural Resources Ltd and MEG Energy Corp, in addition to the Alberta government and the Canadian oil industry in general.

Alberta oil sands aerial view
Alberta oil sands aerial view

Why is the Canadian oil sands industry in trouble?

Firstly, oil prices have dived over the last year during the COVID-19 pandemic.18 This matters because the break-even price among Canadian producers is at least USD $45 per barrel.19 They lose money on every barrel below that price. As Middle Eastern countries have cut production and started hoarding during the COVID-19 pandemic, the likelihood that oil prices will recover quickly is low.20

Secondly, oil prices have fallen as the US has boosted its own production of oil. The US is now less reliant on importing oil than it has been in the past 50 years. It became a net exporter of oil in September 2019.21 As the world’s biggest consumer of oil, lower US demand negatively impacts oil producers overseas.22

Thirdly, the oil sands industry was suffering even before the latest crisis. The number of bankruptcies of oil and gas companies in the US and Canada jumped by 50 per cent in 2019.23 Prices aren’t just low because consumers are moving to electric vehicles, but also because the price of renewable energy is tumbling. Solar power costs will fall by as much as a quarter over the next decade, becoming the cheapest source of new power across the world.24

But, even those numbers could be conservative. The price of solar has fallen faster than even the wildest projections over the last decade. Solar power is expected to account for most of the four terawatts of solar and wind power added to the grid globally by 2030, as renewables’ share of total power capacity rises from 10 per cent to 30 per cent in 2040.25

Could oil prices recover?

It looks unlikely that the oil sands industry will revive any time soon. The COVID-19 pandemic will keep oil demand low, even if oil-producing countries are keen to increase supply and save their economy. The glut in supply from countries like Russia, Nigeria, Venezuela and Saudi Arabia will keep prices low.26

Even a return back to longer term profitability looks unlikely if solar power prices fall as quickly as they have in the past decade. It certainly looks more certain that the days of oil prices being at USD $100 per barrel are over. And with that, the days of a gold rush in Alberta are over too.27

The world is in an inevitable and necessary transition away from fossil fuels.28

What should we do with the oil sands industry?

One word: transition. Rather than sliding into massive subsidies and a slow decline, Canada could instead create well-paying jobs in new industries. Canada could transition the oil sands industry into a clean, renewable energy producing industry. Others are already doing it. In recent months, every major oil company from Shell to BP and Exxon have announced plans to transition to clean green energy.29

As far back as 2014, Canada’s clean energy sector had more jobs than the oil sands.30 In 2017, clean energy employed nearly 300,000 people in Canada.31 Canada provided at least $14.3 billion annually for fossil fuel subsidies on average between 2017 and 2019, and that’s before the millions of dollars provided to oil and gas as part of COVID-19 recovery efforts.32

Canada’s recovery must focus on clean energy, or it risks being left behind as the world pivots towards renewable energy. It cannot prosper if the unprofitable oil sands industry continues being a mill around its neck.

Sources

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  2. OilPrice.com. (n.d.). The Oil Industry Receives An Unexpected Boost From Biden. [online] Available at: https://oilprice.com/Energy/Energy-General/The-Oil-Industry-Receives-An-Unexpected-Boost-From-Biden.html [Accessed 9 Apr. 2021].
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