Latest News About Oil Sands

Oil barrel from Canada

Within hours of being inaugurated as the US President, Joe Biden signed an executive order canceling the Keystone XL pipeline.1 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”2.

Other pipelines are now on the chopping block too. Last year, the Atlantic Coast Pipeline project was abandoned after legal problems.3 The Dakota Access Pipeline has sparked large protests and it could also be cancelled by the President if the opportunity arises.4 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.5 This matters because the break-even price among Canadian producers is at least USD $45 per barrel.6 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.7

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 2019.8 As the world’s biggest consumer of oil, lower US demand negatively impacts oil producers overseas.9

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 2019.10 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.11

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 2040.12

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.13

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.14

The world is in an inevitable and necessary transition away from fossil fuels.15

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.16

As far back as 2014, Canada’s clean energy sector had more jobs than the oil sands.17 In 2017, clean energy employed nearly 300,000 people in Canada.18 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.19

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

  1. Davenport, C. and Friedman, L. (2021). Biden, in a Burst of Climate Orders, Rejoins the Paris Agreement. The New York Times. [online] 20 Jan. Available at: https://www.nytimes.com/2021/01/20/climate/biden-paris-climate-agreement.html.
  2. Brower, D. (2021). Brower, D. (2021). Biden opens a new era of American energy. ‌. [online] Available at: https://www.ft.com/content/dd18f70b-d79b-4999-93e4-45fa180b4f71.
  3. Cox, E. and Schneider, G.S. (n.d.). Energy companies abandon long-delayed Atlantic Coast Pipeline. Washington Post. [online] Available at: https://www.washingtonpost.com/local/virginia-politics/atlantic-coast-pipeline-canceled/2020/07/05/da1c0f40-bef5-11ea-b178-bb7b05b94af1_story.html.
  4. the Guardian. (2016). Dakota Access Pipeline plan still on despite protests across the US and world. [online] Available at: https://www.theguardian.com/us-news/2016/sep/13/dakota-access-pipeline-protests-north-dakota-sioux [Accessed 27 Jan. 2021].
  5. B.;Sitter,Christopher;Wasilewski,Derek, C., Kevin M. ;Mead,David;Reed,Stephen (n.d.). From the barrel to the pump: the impact of the COVID-19 pandemic on prices for petroleum products : Monthly Labor Review: U.S. Bureau of Labor Statistics. [online] www.bls.gov. Available at: https://www.bls.gov/opub/mlr/2020/article/from-the-barrel-to-the-pump.htm.
  6. www.businesswire.com. (2019). Costs of Canadian Oil Sands Projects Fell Dramatically in Recent Years; But Pipeline Constraints and other Factors Will Moderate Future Production Growth, IHS Markit Analysis Says. [online] Available at: https://www.businesswire.com/news/home/20190501005040/en/Costs-of-Canadian-Oil-Sands-Projects-Fell-Dramatically-in-Recent-Years-But-Pipeline-Constraints-and-other-Factors-Will-Moderate-Future-Production-Growth-IHS-Markit-Analysis-Says [Accessed 24 Jan. 2021].
  7. Marketplace. (2020). Oil-rich countries have been hit hard by the pandemic. [online] Available at: https://www.marketplace.org/2020/07/22/oil-rich-countries-covid-19-transition-away-diversify/ [Accessed 27 Jan. 2021].
  8. www.eia.gov. (n.d.). Despite the U.S. becoming a net petroleum exporter, most regions are still net importers – Today in Energy – U.S. Energy Information Administration (EIA). [online] Available at: https://www.eia.gov/todayinenergy/detail.php?id=42735.
  9. Eia.gov. (2016). Oil imports and exports – U.S. Energy Information Administration (EIA). [online] Available at: https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php.
  10. U.S., Canadian oil firm bankruptcies surged 50% in 2019, report says | CBC News. (n.d.). CBC. [online] Available at: https://www.cbc.ca/news/canada/calgary/oil-gas-bankruptcies-calgary-usa-canada-1.5437720.
  11. Welle (www.dw.com), D. (n.d.). Falling solar panel prices spell sunny future for clean energy | DW | 28.05.2020. [online] DW.COM. Available at: https://www.dw.com/en/cheap-solar-energy-prices-explained/a-53590607.
  12. Brower, D. (2021). Brower, D. (2021). Biden opens a new era of American energy. ‌. [online] Available at: https://www.ft.com/content/dd18f70b-d79b-4999-93e4-45fa180b4f71.
  13. Gladstone, R. (2020). Oil Collapse and Covid-19 Create Toxic Geopolitical Stew. The New York Times. [online] 22 Apr. Available at: https://www.nytimes.com/2020/04/22/world/middleeast/oil-price-collapse-coronavirus.html.
  14. World Bank. (2020). Impact of COVID-19 on Commodity Markets Heaviest on Energy Prices; Lower Oil Demand Likely to Persist Beyond 2021. [online] Available at: https://www.worldbank.org/en/news/press-release/2020/10/22/impact-of-covid-19-on-commodity-markets-heaviest-on-energy-prices-lower-oil-demand-likely-to-persist-beyond-2021.
  15. Science. (2020). Making the change: breaking our fossil fuel habit. [online] Available at: https://www.nationalgeographic.com/science/2020/02/partner-content-breaking-our-fossil-fuel-habit/.
  16. Will Covid-19 mark a permanent shift in oil companies’ energy-transition strategies? (2020). Recharge. [online] 28 May. Available at: https://www.rechargenews.com/transition/will-covid-19-mark-a-permanent-shift-in-oil-companies-energy-transition-strategies-/2-1-814356 [Accessed 4 Jun. 2020].
  17. Green energy sector jobs surpass total oil sands employment. (n.d.). The Globe and Mail. [online] Available at: https://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/green-energy-sector-jobs-surpass-oil-sand-employment-total/article21859169/ [Accessed 24 Jan. 2021].
  18. New research claims green energy creates more jobs than the traditional kind: Don Pittis | CBC News. (n.d.). CBC. [online] Available at: https://www.cbc.ca/news/business/green-energy-economy-1.5143757.
  19. International Institute for Sustainable Development. (n.d.). Doubling Back and Doubling Down: G20 scorecard on fossil fuel funding. [online] Available at: https://www.iisd.org/publications/g20-scorecard.