National Post columnist John Ivison contends that when I said that “oil is dead,” it was “wishful thinking,” yet the very same thing could be said of oilsands true-believers.
The difficulty in approaching the current state of the global oil market, and particularly of the lack of a future for the oilsands, is that the conversation starts with a huge number of assumptions. It is a tribute to the communications, lobbying and propaganda power of the fossil-fuel sector that wild exaggerations are made so frequently that they are accepted as true.
For example, the contribution fossil fuels makes to Canada’s gross domestic product is nowhere near what is routinely claimed. Ivison writes that the oil and gas industry is “responsible for 10 per cent of GDP; employs more than half a million people; and, contributes around $8 billion in tax revenues.” According to Natural Resources Canada, however, the oil and gas sectors combined make up 5.6 per cent of GDP (the oilsands alone have never hit three per cent of GDP), employs 169,000 people and generate $2.13 billion in tax and other revenue (federal and provincial.)
None of these amounts are trivial. Fossil fuels have been an important part of our economy, but our dependence on them tends to be exaggerated. Tourism, for example, contributes roughly the same amount to GDP as the oilsands and sustains far more jobs (1.8 million), right across the country. Yet the tourism sector does not have as large a megaphone as the energy sector.
It is also true, as Ivison writes, that, “The price of Western Canadian Select has stabilized, trading at around $22 on Thursday, but that’s still below break-even for many producers.” But it is worth knowing what “break-even” is for new oilsands bitumen. According to the Alberta government, that price is in the US$75-$85 ($105-$119) range. For in situ production, the break-even point is even lower, but still at between US$55-$60 per barrel.
The problem with bitumen is that it is both very expensive to produce and of inherently low value. It must go through a further, very expensive, process of upgrading before it is able to be refined. In contrast, the break-even price for Alberta sweet crude (existing production) is in the order of US$25-$30 per barrel. And it is important to note that Hibernia is producing crude that is far more attractive to investors than bitumen, with a far more achievable break-even point.
In declaring that the oilsands lacks investors, I was relying on a great deal of evidence. The exodus of large multinational firms from Alberta’s oilpatch began long before COVID-19 or Saudi Arabia and Russia colluding to drive down prices to historic lows. Royal Dutch Shell, Total SA, Statoil (now Equinor), Conoco Philips, Imperial Oil, Marathon Oil, Exxon Mobil and even Koch Industries pulled out long ago.
Teck’s decision to shelve its huge proposed oilsands project, the Frontier mine, had a great deal to do with its lack of any realistic prospect of breaking even. As CEO Don Lindsay admitted when still pressing for approval, the company was uncertain it would make sense to proceed, even with government approval.
Back in January, the Globe and Mail’s Andrew Willis summarized Teck’s position: “Teck has yet to launch a full feasibility study on the Frontier mine that would help establish whether the project could be profitable. Even if the project was proven to be economically viable, there is great uncertainty as to whether Teck could raise capital for what would be one of the most expensive mines ever built.”
We absolutely must invest in Alberta. Public funds must assist in the diversification of the Alberta economy. We need to be prepared to support the workers and communities that are impacted. Yet the reports that have been released in the last week alone make a compelling case that no federal bailout funds should go to trying to keep the existing oilsands sector afloat. One from the International Energy Agency noted that all fossil fuels were facing unprecedented drops in demand.
That is no surprise given the pandemic. The chief financial officer of Royal Dutch Shell told shareholders that demand might never return. Smart investors will recognize this and move their money to renewable energy, which is expected to grow by five per cent in 2020.
Still, the most authoritative study, which involved interviews with hundreds of G20 central bankers and energy analysts, was authored by Nobel Prize winning economist Joseph Stiglitz and Sir Nicholas Stern, the former chancellor of the exchequer in the United Kingdom. It concluded that to support economic recovery, governments should invest in energy efficiency and renewables — not fossil fuels.
Oil’s not yet dead, but it’s on life support. It’s time to move it to palliative care. The federal government should invest in Alberta, for sure. But it should place its bet where it is more likely to pay off for workers, communities and investors.
Elizabeth May is the member of Parliament for Saanich-Gulf Islands and the parliamentary leader of the Green Party of Canada.