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Is it the Beginning of the End for the Alberta Oilsands?

Is it the Beginning of the End for the Alberta Oilsands? thumbnail

A new report from Oil Change International challenges industry’s common assumption that the continued production of oilsands crude is inevitable.

The report, Lockdown: The End of Growth in the Tar Sands, argues industry projections — to expand oilsands production from a current 2.1 million barrels per day to as much as 5.8 million barrels per day by 2035 — rely on high prices, public licence and a growing pipeline infrastructure — all of which are currently endangered in a carbon-constrained world.

As the report’s authors find, growing opposition to oil production — especially in the oilsands, which is among the most carbon intensive oil in the world — has significantly altered public perception of pipelines, a change amplified by the cross-continental battles against the Enbridge Northern Gateway, Kinder Morgan Trans Mountain, TransCanada Energy East and TransCanada Keystone XL pipelines.

According to the report’s authors, production growth in the oilsands hinges on the construction of these contentious pipelines because the existing pipeline system is currently at 89 per cent capacity.

Oilsands Offside Canadian Values and Economic Diversity

Report author Hannah McKinnon said oilsands pipelines represent a “high risk, high carbon, high cost path” that is at odds with “diversifying the Canadian economy and building a cleaner, safer energy future.”

“Widespread public concern from citizens across the country and the continent have made it clear: we can’t afford to keep putting the transition to a clean, safe, renewable and just energy economy off,” McKinnon told DeSmog Canada.

A poll released by the Climate Action Network in April found the majority of Canadians feel addressing climate change is more important than developing the oilsands or constructing pipelines.

“And this public concern, as the report shows, has had an incredible impact in making politicians, municipalities and Canadians more generally think about the kind of future Canada wants, and as a result, pipelines and expansion are hitting legal, political and public hurdles everywhere they turn.”

McKinnon said the oil industry is making “desperate efforts” to “prove they are still in the game.”

“But, thanks in large part to inspiring people-powered movements, they are not getting away with it anymore,” she said.

“Whether it is exposing Exxon’s efforts to bury climate science for decades, calling out governments for basing energy policy on demand scenarios that take us towards five degrees or more of warming, or exposing the industry for meddling and undermining climate and clean energy policy the world over — people power is killing fossil fuel fatalism.”

Pipeline Delays Critical to Oilsands

U.S. President Barack Obama has delayed a decision on the Keystone XL pipeline, which would carry oilsands crude from Alberta to the Gulf Coast, for six years.

Canada’s newly elected Liberal government has indicated it will not support the construction of the Northern Gateway pipeline, which is currently facing 18 separate legal challenges.

The Trans Mountain pipeline also faces a legal challenge from Vancouver-area First Nations and the Energy East pipeline has generated significant opposition from Alberta to the Atlantic.

Together these four pipelines have the capacity to transport nearly three million barrels of oil per day. Pipeline uncertainty means oilsands companies do not have the security of affordable access to commercial markets. As a result, operators have backed out of oilsands projects — something that occurred well before the current oil price plunge, according to the report.

Oil Change International found that for every 1,000 barrels per day of production capacity (both under construction and approved), 500 of those barrels are trapped in delayed or suspended projects.

Oil giant Total suspended its $11-billion Joslyn North project, Statoil halted its multi-billion Corner project and Shell shelved the Pierre River project while prices were still above the $90 per barrel mark, the report notes.

“While the circumstances for rapid expansion of the tar sands have been favorable for the industry over the past two decades, there are clear signs that this perfect storm of unfettered market access, political support, growing U.S. demand and minimal regulatory constraints is shifting,” the report states.

“The groundswell of local, national and international opposition to the tar sands industry, which has become a poster child of a high-carbon future incompatible with a safe global climate, was not predicted by industry.”

Oilsands Boom Becomes Bust

The recent drop in oil prices has furthered the troubles of oilsands producers who, during the last 15 years, have dumped an estimated $200 billion into the resource.

In recent months roughly 35,000 energy industry jobs have been lost in Alberta. Pipeline builder TransCanada, oil companies Penn West, PHX Energy Services, ConocoPhillips, Nexen and Talisman Energy have all reduced their employment numbers as did waste management company Tervita.

Teck Resources, Cenovus Energy and Nexen have all delayed the start of new projects or pared down investment in the region amid the price slump.

Canadian Natural Resources, one of Canada’s largest oilsands producers, recent reported a $405-million net loss in the second quarter of 2015. The company blamed the loss on the province’s NDP provincial government, which recently raised corporate taxes by two per cent.

One unnamed oil executive and investor told the New York Times growing public sentiment that the industry doesn’t pay enough in taxes and concern around environmental protections is stifling new investment in the oilsands.

“There’s never been a time when I’ve been less optimistic,” he said.

The End of Oilsands and the Fossil Fuel Era

The oil industry’s tight profit margins, eroding public licence and access problems are in stark contrast to a flourishing low-carbon and renewable energy market.

Clean Energy Canada recently release a report that found the value of clean energy projects in Canada reached $10.9 billion in 2014, up 88 per cent from 2013.

The report also found the rate of increase for clean energy jobs outpaced every other sector. In 2013, the most recent year for which data exists, Canada’s clean energy sector provided 26,900 direct jobs.

Global investment in clean energy skyrocketed to $310 billion in 2014.

A September report from Arabella Advisors found the combined assets of those divesting from fossil fuels reached an unexpected $2.6 trillion in 2015. An estimated $784 billion of those divested funds are pledged to finding climate solutions.

The investment analysis group found uncertainty around stranded assets and unburnable carbon has significantly affected investment in the oil and gas sector. In addition, investors are noting the financial success of divested portfolios.

The Oil Change International report found that “public concern and efforts to slow and stop tar sands expansion by challenging expansion of the North American tar sands pipeline system are poised to have a meaningful impact on keeping carbon in the ground — close to 34.5 billion tonnes of CO2 — if existing hurdles to pipeline expansion are maintained.”

“This is equivalent to the emissions of 227 coal plants over 40 years,” the report states.

“No matter how you look at it, the end of the tar sands is inevitable,” McKinnon said.

“[Canada has] federal (as part of the G7 commitment) and provincial promises to decarbonize within the century,” she added.

“But how hard we make the transition on ourselves and how much climate damage we do in the meantime is still front and centre.”

DeSmog Blog

18 Comments on "Is it the Beginning of the End for the Alberta Oilsands?"

  1. makati1 on Wed, 28th Oct 2015 7:34 pm 

    The world economy is going to shut down the tar sands and any other high cost oil or NG sources. Permanently. Not concerns about the ecology or climate change. No profit = no Tar sands.

  2. Truth Has A Liberal Bias on Wed, 28th Oct 2015 8:25 pm 

    Yeah the Tar Sands will be shut down as soon as everybody gets the fuck off the roads.

  3. John on Wed, 28th Oct 2015 9:57 pm 

    I agree with Truth.

    The desire to stay warm, eat warm foods and travel comfortably trump all other considerations. The oil sands will be fully exploited regardless of perceived financial constraints. The rules of finance will be changed to accommodate this.

  4. makati1 on Wed, 28th Oct 2015 10:16 pm 

    John and Truth, how do you expect to pay for this oil? You and most in the US never had to face real deprivation. The Great Depression survivors are mostly dead now. You are like spoiled children with your hands out, asking for ‘more’ at any expense.

    It is not a matter of ‘wanting’ or even ‘needing’. It is a matter of having enough wampum to trade for those things, with people who don’t give a damn if you live or die. No ‘rules’ will change. Just your life.

  5. GregT on Wed, 28th Oct 2015 11:47 pm 

    “The desire to stay warm, eat warm foods and travel comfortably trump all other considerations. The oil sands will be fully exploited regardless of perceived financial constraints. The rules of finance will be changed to accommodate this.”

    I wonder if the Neanderthals were this dumb. Probably not. After all, they discovered fire, the same “tech” that we still rely on for almost everything today.

  6. James Tipper on Thu, 29th Oct 2015 12:16 am 

    Of course there are two real things going on:

    1) Billionaire Warren Buffet owns major shares in a rail line that ships the oil. Such a pipeline would crush the stocks in what he owns, so he pumped up a bunch of liberal supporters. Not saying the pipeline is good or bad, but if it wasn’t for his money it would be up.

    2) Tar sands will be abandoned anyway due to basic profit factors, it’s is hard to produce and hard to refine. As oil prices fall further, they will be abandoned as quickly as shale.

  7. GregT on Thu, 29th Oct 2015 1:18 am 

    If Warren keeps being a “team player”, he will be allowed to keep his trinkets, if not, he will be wiped out just like anybody else that gets in the way.

  8. rockman on Thu, 29th Oct 2015 7:06 am 

    Time will tell. But it’s also good to remember that the first 1 million bbls per day from the oil sands was developed when the inflation adjusted price of oil averaged around $35/bbl. And that was when there was much less PAID FOR infrastructure in place

  9. John on Thu, 29th Oct 2015 8:55 am 

    Well, other than being called stupid and spoiled, I feel so validated by your responses!

    Lighten up, guys, it’s simply a belief of mine that the desire to keep warm and well fed will be greater than the desire to adhere to a financial system of measurement. If you were the President of the United States, and there was growing social unrest due to a lack of resources because the country couldn’t “afford” to drill for that last ten billion barrels of oil, what would you do? Any sensible person will do whatever it takes to stay warm and well fed.

    I just disagree with the theory that oil production will stop because there aren’t enough dollars to pay for it. Your slavish devotion to a paper system of accounting is noted. People will fight for the last drop, and will not give a damn how much it costs.

  10. ghung on Thu, 29th Oct 2015 9:24 am 

    Yeah, John, it’s just a matter of deciding what to steal from Peter to pay Paul’s fuel bill. Shouldn’t be so hard. Meanwhile, all the Peters will just stand around and watch it play out, at least until some Mocking Jay makes an appearance.

  11. Kenz300 on Thu, 29th Oct 2015 10:32 am 

    Fossil fuels are killing the planet…….

    All Fossil fuel companies need to transition to “ENERGY” companies and embrace safer, cleaner and cheaper alternative energy.

    Wind Power Now Cheaper Than Natural Gas for Xcel, CEO Says – Renewable Energy World

  12. Kenz300 on Thu, 29th Oct 2015 10:32 am 

    Electric vehicles, bicycles and mass transit are the future…….

    How The Decline Of Cars Is Changing Cities For The Better

  13. GregT on Thu, 29th Oct 2015 11:24 am 

    “If you were the President of the United States, and there was growing social unrest due to a lack of resources because the country couldn’t “afford” to drill for that last ten billion barrels of oil, what would you do? ”

    Make damn sure that the military was kept warm and well fed. Same as it ever was.

  14. Revi on Thu, 29th Oct 2015 1:03 pm 

    I am so glad that the Tar Sands are drying up. Why burn natural gas to make sub-standard oil anyway?

  15. rockman on Thu, 29th Oct 2015 2:54 pm 

    Drying up??? At last count Canadian oil exports to the US were up about 600,000 bbls per month from June to July…109,126.000 bbls. That is less then the peak of 123,203,000 last January but still more then anytime before November 2014 IN THE ENTIRE HISTORY OF OIL EXPORTS FROM CANADA TO THE US.

    The rumors of the death of the Canadian oil sands might be a bit premature IHMO. The last time WCS was at the current price ($28/bbl) in 2005 production was about 65,000,000 bbls per month. And those 2+ million bbls of oil per month were developed over a period when the price was less then it is today.

    IOW if Canadian oil exports doubled in the 10 years prior to 2005 at an average price less then we see today then perhaps we might want to back off from such comments as the oil sands “are drying up”. Just saying.

  16. rockman on Thu, 29th Oct 2015 3:06 pm 

    ” As a result (of pipeline insecurity)
    operators have backed out of oil sands projects — something that occurred well before the current oil price plunge, according to the report.” Really??? One year ago before the oil price began its plunge the Canadians are producing about 7 million bbls more per month today. That doesn’t sound very insecure.

  17. Energy Investor on Thu, 29th Oct 2015 3:19 pm 

    The AGW lobby and others who regard oil as superfluous to society obviously don’t drive cars or buy groceries from a thousand miles away, or fly in planes. What? they do?

    Perhaps they think that no oil is used in establishing wind farms or building solar energy systems?

    Perhaps they think printing money and having a ZIRP can replace the use of energy to support out industrial society?

    Well, I expect we will soon see how this stupidity will work out 🙂

  18. gdubya on Fri, 30th Oct 2015 9:31 pm 

    E.I. I know all anti-oil people are clueless, because all anti-anti-oil people like you tell me.

    Unlike most of the clueless enviros I am quite aware of the requirement of industrial haber Bosch nitrogen production to keep half of the planets humans alive, and that, indeed is the reason I am so concerned with our 100% reliance on depleting fossil fuel reserves.
    Unfortunately the earth has been infested with people that make comments like yours for the past 50 years which has just put us deeper in the shit. Believe it or not it is possible to continue using fossil fuels (due to the massive institutional investment in place) yet still hope for some recognition that maybe we should decrease our reliance on the same.
    Sadly the scum on the top of capitalism has managed to prevent any worthwhile change, and defeatist comments such as your have succeeded in getting us to the point we are today – congradulations.

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