Arguments about the environmental impact of oilsands growth are moot because the market has looked after the problem already. It ain’t coming back, pipelines or no pipelines.
Fracking in the U.S. started growing dramatically in the early 2010s and smart capital shifted from our oilsands to a lower-cost, less capital-intensive, closer to market, less risky, better quality source of crude. And there has been little development of new projects in the oilsands ever since.
So, the industry and government obsession with pipelines is immaterial to big oilsands growth. Sorry, Alberta, the market has declared the loser.
Now we have a focus in Canada on an emissions cap on the oil and gas sector, taxpayer support for carbon sequestering in the oilsands and guarantees from the government to industry that carbon prices will either be in place or the government will pay the oil industry the equivalent if it has invested to reduce greenhouse gas (GHG) emissions.
It’s all really complicated, but underneath is the assumption that Canadian oil will be pumping at today’s rates or higher right up to 2050 and beyond. It’s the same story we told ourselves about more pipelines — if we just close our eyes and wish really hard, we’ll be back in the golden days of Canadian oil in 2005.
Let’s talk fundamentals. The purpose of crude oil is to refine it and make products that people burn, like gasoline and diesel, and almost 75 per cent of a typical barrel of crude oil is used for just that. If demand for those products declines, demand for crude oil declines. And if demand declines, then the price declines and the least-efficient producers drop out.
But, of course, oil demand will just keep growing, won’t it? It always has, right? The global demand for crude oil hit an all-time high in 2023, so, of course, the sky’s the limit. Wrong. The dark decarbonization storm clouds are here already.
The International Energy Agency (IEA) last year said, “Global road fuel (gasoline and diesel used for driving) is set to decline from 2025.” More support for that forecast came from the CEO of Phillips 66, who recently said, "We absolutely believe that in the U.S., we've hit peak gasoline demand" and that diesel and jet fuel will follow in the "not too distant future.” China’s Sinopec said last year that China’s demand for gasoline had already peaked due to accelerating electric vehicle (EV) acceptance and its CEO believes Chinese total crude demand will peak in 2026.
The IEA also pointed out in that same report last year, “Despite marked growth in the world’s economy and population, global oil demand excluding petrochemical feedstocks remains lower than in 2019 and has grown little since 2017.” That means we’ve already hit peak oil for the uses that burn crude oil products like gasoline and diesel and the growth in oil demand is mainly coming from a surge in Chinese petrochemical development.
Peak oil for burning has already happened.
And we aren’t going to hold at these peaks, there is a substantial decline on the other side. Economies are still expected to grow but oil demand is in the process of being disconnected from that growth.
If we bother looking up from our oilsands plants, we will see an avalanche of declining demand on its way. We don’t have the cheapest to produce or best-quality crude oil. We have no advantage over the other major producers like the U.S., Saudi Arabia, Russia or China in a world with surplus crude oil.
Who will want Canadian oil once the demand drops? Our major customer is the U.S., with some volumes going to China and India. And those countries are our customers because they have the advanced refineries needed to run our terrible quality oil. All of those countries are working hard at electrification of their road transport sectors. The world price for crude is going to crater with falling demand for gasoline and diesel, but the price for poor quality crude like ours will crater further. And this is about to happen much sooner than 2050. We’re already post-peak oil for those uses.
The idea that we can keep exploiting the oilsands if we simply stuff the carbon we make back in the ground when producing bitumen is just plain wrong. The market will determine if we keep doing that. The declining demand avalanche is coming and we don’t want to be standing in front of it and trying to push it back. No amount of money we invest in our oil and gas industry is going to reverse this trend.
Wouldn’t it be better to accept the market dictates what happens to our oilsands producers and invest all the money we’re giving to the oil industry to prepare for the energy transition instead? Sink or swim, oilsands, while we electrify Canada, build out the grid with renewable electricity sources and prepare for the new economy.
To borrow a phrase from an old oil industry boss of mine: If we keep pretending what’s happening isn’t happening, we might as well just put all that taxpayer money in the parking lot and set it on fire.
Comments
I hope this scenario plays out and the oil sands go rapidly into decline. Missing from this article is the seemingly renewed interest by Equinor in developing the huge Bay du Nord oil field off Newfoundland & Labrador. If we have reached peak oil why is Equinor moving towards development when such a project would be years in the making?
CCS is more than just "stuffing the carbon we burn back in the ground" It is also stuffing the oxygen that burned that carbon into the ground never to be breathed by us again.
Thanks Rolf, It is a very good point. As I understand it, the storage part of CCS is much more difficult and less successful than the capture part. I don't know why we should pay for projects that are trying to develop the capture technology. We should pay for research on storage and the storage should only count if it carbon not carbon dioxide, or better yet a hydro carbon. It really is more economical to leave it the ground.
But wait! Don't we have the "best barrel" of oil? Isn't the last barrel of oil going to come from Alberta?
Alberta Premier Jason Kenney (2021): "The best, last barrel of oil will come from Alberta, Canada."
Kenney would not lie to us, would he? Don't we have the highest environmental standards? Aren't we a secure supplier in a troubled world? The most ethical oil producer?
Never mind that Canada's oilpatch is "the fourth most carbon-intensive on the planet behind Algeria, Venezuela and Cameroon." Never mind that we have turned the oilsands region into an ecological sacrifice zone. Never mind that we grossly under-report our emissions. Never mind that oilsands pollution imperils the health of indigenous communities. Never mind that much of the damage and loss to ecosystems and wildlife are "irreversible".
We have it from Alberta Premier Danielle Smith herself that the IEA and its "forecasts" are not credible. She would not lie to us, would she?
"Alberta Premier Smith says International Energy Agency 'no longer credible'" (CTV, Oct. 26, 2023)
What about my Suncor dividends?
If we stick our heads in the oilsands, won't the IEA, the IPCC, and Greta Thunberg just go away?
Belot: "And we aren’t going to hold at these peaks, there is a substantial decline on the other side."
In the IEA's Stated Policies Scenario (STEPS) scenario, global fossil-fuel production and demand plateau after 2030. No steep decline.
"… Although oil demand for petrochemicals, aviation and shipping continues to increase through to 2050 in the STEPS, this is not enough to offset reductions in demand from road transport, as well as in the power and buildings sectors. As a result, oil demand peaks before 2030. The decline from the peak however is a slow one in the STEPS all the way through to 2050."
"The peaks in demand we see based on today’s policies do not remove the need for investment in oil and gas supply, given how steep the natural declines from existing fields often are."
No cause for complacency. The world has far to go before it bends the curve on fossil-fuel demand and emissions.
The oilsands may not have much room to grow, but unless governments take dramatic action and consumer behavior changes, oilsands industry damages to Alberta's landscape, public health, economy (roller-coaster), and politics are likely to continue for decades.
Given the wide gap between the O&G industry's reported and actual emissions, even maintaining the oilsands status quo likely puts Canada's emissions targets out of reach for decades.
When discussing IEA projections I think it would be wise to look at their track record on solar. They're projections have always been very conservative.
The IEA bases its projections (not "forecasts") on different scenarios, just as the IPCC bases its global warming projections on different emissions trajectories.
I do not know which scenarios the IEA based its overly conservative solar projections on. From listening to the Energy vs Climate podcast (David Keith, Sara Hastings-Simon, Ed Whittingham), I seem to recall that the rapid decrease in solar costs and growth in solar power over the past decade took even solar advocates and industry insiders by surprise. Did anybody see it coming?
I think it fair to say we are nowhere near on track for net zero by 2050 or for limiting global warming to 1.5 C.
Who would disagree?
I agree we are no where near net zero, but my point was that the IEA has been too conservative in the past and this could happen with their guesses on oil consumption.
This reminds me of the love for nuclear power in Ontario. There's no case that it will ever be a cheap source of electricity. The billions we pour into this will just make Ontario uncompetitive. Jurisdictions with renewable power and backup are going to eat our lunch.
To remain competitive, industries in Ontario that require lots of energy, may build their own off grid renewable energy with storage to avoid high priced energy from nuclear.
We are already paying twice as much as Quebec for electricity, with new nuclear we will be paying even more. SOLAR WIND AND BATTERIES is the cheapest way to go.
Like stepping out of a hot, sticky day of endless warm winds of bull$#!t smell coming off a sewage lagoon, and into a cool shower of simple facts, simple arithmetic, simple common sense.
Thank-you so much for the refresher.
It seems the industry is ramping up production more, which means more pollution and greenhouse gases than reaching a peak. The industry greenwashing ads of late are nothing but stall tactic and pushing the carbon capture greenwashing solution. When it comes to the industry, it does not really change, but the greenwashing stories on what is being done by the group in Alberta.
I agree that peak oil demand has arrived. My question is how will the world manage the downturn and who will be left standing as demand declines? I've heard it said that US oil production is breakeven at $12/bbl, Saudi at $20/bbl and the oil sands at $40/bbl. It's a game of musical chairs and we'll be one of the first ones without a seat when the music stops. What does our oil industry really believe about the future? I've seen ads on TV from CAPP weakly suggesting that we should continue to buy oil sands oil because we're patriotically Canadian (don't think that will fly) and Pathways Alliance has advertised for quite a while that they plan to use CCS to reduce GHG emissions by 22Mt/year by 2030 and be net zero by 2050. As of yet they are very far from shovels in the ground on that initial project. I wonder what their spreadsheets estimate as the additional cost $/bbl for CCS. How much of that do they hope for that additional cost to come out of the pockets of Canadian taxpayers?