Canada’s tar sands/oil sands have a continuing and growing role to play, with their output increasing over the shorter and longer term as the country strives to reduce its greenhouse gas emissions, Natural Resources Minister Seamus O’Regan told the Financial Times in an interview published this week.
“There is no way we are reaching net-zero without Alberta,” O’Regan told the London, UK-based paper. “Our prosperity and our economy are still highly dependent on it. It is what we do.”
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The former TV personality, now a St. John’s, Newfoundland MP, “vigorously defended the country’s oil industry and its controversial oil sands projects,” the Times says, contending that “revenues from the huge bitumen developments in Alberta, long opposed by environmentalists, would be critical to funding the country’s energy transition.”
In the face of recent divestment decisions by Total, Deutsche Bank, Shell, Equinor, and Teck Resources, O’Regan told the Times that Canada’s daily oil output will rebound from 4.4 million barrels today to 5.5 million barrels next year, then continue growing as new export infrastructure comes onstream. He said the fossil industry can reduce its greenhouse gas emissions while increasing production, even though the industry’s decarbonization efforts have largely stalled out in recent years—and have only ever focused on production emissions in Canada, not the far larger, climate-busting impacts that result when tar sands/oil sands bitumen reaches its final destination and is used as directed.
“What I say in Alberta is that it is incredible in the past 30 years, you’ve managed to find a way to draw oil out of sand,” he told the Times. “Now we need to tap into that innovation and ingenuity to make a thorough transition to a lower-emitting economy.”
O’Regan characterized that transition as “messy”, the Times says, adding that “it’s not easy for a country that touted itself as an energy superpower. Now we’ve got to become a green energy superpower.”
But beyond the bigger-picture wake-up call confronting the Canadian fossil economy, O’Regan’s comments hit the wires during a week when even the industry’s short-term prospects look decidedly dicey.
On Wednesday, an economist with Alberta Crown corporation ATB Financial said fossil producers are on track to reduce their capital spending this year by 30%, a shift that will reverberate through the rest of the provincial economy, CBC News reports. The C$7-billion cut brings new oil and gas investment to its lowest level since 2006, 58% below its average over the last 10 years.
“Although the numbers weren’t a surprise, the report said it was ‘definitely not good news’, noting the money spent on oil and gas extraction has accounted for more than half of the total capital spending in the province over the last decade,” CBC says. “The drop in capital spending not only affects jobs in the oilpatch, but the impact of the plunge also ripples out across the province,” the national broadcaster adds, citing Rob Roach, managing director of research at ATB Economics.
IHS Markit crude oil analyst Kevin Birn placed the “extraordinary” losses even higher, at $9 billion, after factoring in a wider mix of oil, gas, and petrochemical investments that are now on hold. Across all the province’s economic sectors, ATB sees capital investment falling by $11.4 billion, or nearly 20%, CBC says.
“There’s less economic activity, less construction, less suppliers,” Roach explained. “Overall, it lowers the amount of investment, the amount of…other economic activity in the province. So, on both levels, it slows the economy down and reduces employment.”
While oil prices have recovered to around US$40 per barrel—well above the $20-per-barrel threshold they hit during the first wave of the COVID-19 pandemic (not to mention a brief foray as low as -$37.63)—CBC says the industry’s outlook is still clouded by uncertainty over the progression of the global health emergency. “Right now, the sector is basically in maintenance mode—it’s keeping what they’re doing now running,” Roach said. “For that to grow, we do need the global economy and the national [economy] and, especially, the U.S. economy, to recover from the pandemic.”
The latest analysis from international observers suggests that won’t happen anytime soon. On Wednesday, the Organization of Petroleum Exporting Countries (OPEC) projected that world oil demand will fall a bit more steeply this year than it previously expected, and cast doubt on whether the global economy will recover in 2021, Reuters writes.
“Crude and product price developments in the second half of 2020 will continue to be impacted by concerns over a second wave of infections and higher global [oil] stocks,” the cartel said in a report. “Almost all forecasters expect jet fuel in 2021 to struggle making up for lost demand,” while “gasoline demand will face pressure to return to 2019 levels.”
Then yesterday, the International Energy Agency weighed in with its own prediction that cratering air travel will drive down oil demand this year. “In April, the number of aviation kilometres travelled was nearly 80% down on last year, and in July the deficit was still 67%,” the IEA wrote. “The aviation and road transport sectors, both essential components of oil consumption, are continuing to struggle.”
OPEC had global oil consumption falling by 9.06 million barrels per day this year—not nearly enough to deliver on a rapid decarbonization agenda, but more than enough to throw fossil markets into disarray. The IEA put the reduction at 8.1 million barrels per day.