Fossils’ Capital Flight is ‘Vote of Non-Confidence’ in Tar Sands/Oil Sands
With ConocoPhillips’ blockbuster, $17.7-billion deal to sell its tar sands/oil sands properties to Calgary-based Cenovus Energy Inc., the departure of some of the world’s most colossal fossils “isn’t an international retreat any more, it is a vote of non-confidence,” according to Financial Post columnist Claudia Cattaneo.
“With oil prices firming, this should have been a time of renewal, investment and optimism in the oilsands,” Cattaneo writes. “Instead, the flight of foreign capital means a continuation of challenging times.”
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And while Exxon and BP are likely to stay put, Cattaneo cites an investment bank’s analysis showing that Chevron Corporation and Total S.A. may soon pull up stakes.
“Chevron’s position does seem non-core and it could redeploy proceeds into the [U.S.] Permian,” Tudor Pickering Holt & Co. stated in an investors’ note. “Total has already sold some of its Fort Hills position, and we wouldn’t be surprised if it sold down further.”
“The U.S. and international majors are piling into U.S. shale,” agreed John Brussa, chair of the Calgary-based law firm, Burnet Duckworth & Palmer LLP, who sits on the boards of six fossil companies. As companies adapt to a future of volatile world oil prices, “you are seeing a rotation out of longer-term projects to shorter-cycle time projects.”
Brussa added that “if there is a shrinking pool of dollars going into oil and gas exploration, people are going to look at it and say: There is an issue in Canada, so it’s off the list.”
The result is a tar sands/oil sands industry dominated by four Canadian companies—Cenovus, Suncor Energy Inc., Canadian Natural Resources Ltd. (CNRL), and ExxonMobil subsidiary Imperial Oil—and “many are welcoming the return to domestic control,” Cattaneo writes. “The survivors will be larger, more nimble, and more relevant market participants.” And “they will be more aligned with Canadian values, whether in interacting with Aboriginal communities or by accepting higher environmental requirements.”
At the same time, “the companies’ high concentration in one basin magnifies their vulnerabilities, for example if market access remains elusive, or if Canadian oil discounts persist, or if politicians keep punishing the sector because it doesn’t fit their green energy aspirations.”
Cattaneo is quick to blame government policies for “scar[ing] off so much foreign capital” by “stretching out pipeline reviews, imposing carbon taxes, capping oilsands development.” But mounting evidence points to market forces and competitive pressures—including newly-affordable clean energy options and the near prospect of affordable storage—that are far beyond the ability of the fossil industry or the Canadian government to control.
“Alberta’s problem is twofold: Its oilsands have been buried by fracked American oil that is both higher-value and cheaper to produce, while longer-term they face marginalization in a world committed to weaning itself off carbon,” ex-pipeline executive Ross Belot argued last April, in one of his frequent posts on iPolitics demolishing the case for further pipeline development. “Oilsands production won’t be expanding much in the foreseeable future, if it all.”
More recently, Belot contended that the fossil industry will still receive lavish federal supports under a pan-Canadian climate plan that leads toward the purchase of “costly” international credits for emissions that exceed the country’s 2030 carbon target. That overrun is estimated at 44 megatonnes, and at a price of $50 per tonne in 2022, the Globe and Mail priced the required offsets at $2.2 billion.
“Think about that for a moment,” Belot wrote. “In order for Western Canada’s fossil fuel growth to be accommodated under our Paris commitments, we’re going to be subsidizing the energy industry again.”
All of which could be a moot point by 2025, the year when French energy giant Engie SA is projecting oil at $10 per barrel and solar at 1¢ per watt. With fossils pursuing aggressive cost reductions, often at the expense of oilfield employment, companies like CNRL are predicting production costs below $20 per barrel by the end of this year. But if Engie is right, any cost advantage CNRL is looking forward to is due to evaporate in less than a decade.