Canada, we need to have a serious talk about the future of our oil industry. We’re all aware that Alberta and, it seems, Ottawa believe the industry will just go on. That all we need to do is spend billions to stuff the carbon emitted when we produce bitumen back into the ground and we can export all that high-carbon oil with impunity, forever. At the same time, as a nation, we’ve signed on to an international obligation with most of the rest of the world to be net zero by 2050.
The Trudeau government has a Schrödinger's cat experiment going with net zero, the oilsands is both alive and dead so long as they don’t open the box and look. But an international organization recently opened the net-zero box and showed the oilsands is almost certainly on its deathbed. By 2050, there will simply not be enough worldwide demand left for our poor-quality crude oil.
The International Energy Agency (IEA), which has been accused of being too fossil fuel-friendly an organization, produces the World Energy Outlook (WEO) every year. In its latest October report, it included a scenario for the net-zero world. By 2050, the demand for crude oil will drop from 95 million barrels per day in 2021 to only 23 million barrels per day. Of that 23 million barrels per day of crude, 75 per cent is for petrochemical production and other non-fuel production, meaning virtually no gasoline or diesel.
Bitumen is far from ideal in such a market; it is made up of heavy material (high carbon) that requires a lot of processing to make it into useful products. In a net-zero environment, there will be little demand for those products and bitumen will have a hard time competing with the world’s better-quality, lower-carbon crudes.
In the IEA’s net-zero scenario, crude demand will fall to 75 million barrels per day by 2030 (a 20 per cent drop from 2021) and will keep dropping by six per cent a year until 2050. Electric cars, trucks, railways, and even industries along with ships converting to green ammonia, are sounding the death knell for crude oil used to produce fuels for burning. The argument that oil will always be in demand because of chemicals is true in this forecast. But when they say crude, they aren’t talking about bitumen, which is difficult and costly to refine.
So why would Ottawa be spending billions subsidizing the implementation of carbon sequestration, a technology that has been long talked about but has limited implementation and results? Be nice if they told us.
The oilsands will be around for a while yet. All that capital is on the ground and U.S. Midwest refiners, who are our major customers, are tooled up to make fuels from that material. But over time, the market for those fuels will shrink worldwide. The U.S. will lead by reducing its own demand and exporting more fuels made from crude oil. But based on the IEA’s forecast, those export markets will also evaporate, with 98 per cent of the world’s passenger-car demand for oil disappearing by 2050. There will be no market for the main products of refining, little demand for hard-to-refine bitumen.
Meanwhile, Canada is spending billions on a sunset industry. Is that the best use of our limited dollars to fund the green transition? Nope. If a company wants to invest in carbon sequestering because they take a contrarian view of the future, that’s up to them. But when a government commits to shift the country to net zero by 2050 and then ignores what that means and borrows billions to prop up an industry they have essentially committed to eliminating, that is a problem.
Canada is now throwing public money at industry at previously unheard of levels. It seems we are competing with the U.S. to give energy producers as much money as we can, while we can.
And the U.S. is the customer we need to worry about because even with the Trans Mountain pipeline expansion project, virtually all our crude will go there. They know it and will take advantage of us for as long as they are able. A U.S. Senate initiative to impose a carbon border adjustment fee on products imported into the U.S. could hammer our short-term, bitumen-producing economics if it passes.
Interestingly, this push is coming from the centre-right think tank Climate Leadership Council, which appears to be heavily involved in developing the proposal. The council produced a report back in 2020 called “America’s Carbon Advantage” where they proposed such a levy and showed how disadvantaged specific trading partners are.
Currently, the press is all about China and their “dirty” products, but Table A of that report shows Canada has many industries emitting more carbon in producing their products than the U.S. does. This is, especially true of our oil production, making our oilsands a clear target.
If this moves forward, to stay competitive in the U.S. with other less carbon-intensive heavy crudes the U.S. imports, like Mexican Maya, the price of our bitumen will drop in Edmonton due to the new levy. Then the choice is to accept lower profits (or even losses) or invest in carbon sequestering to avoid the levy. But given the future described in the IEA report, that is a gamble companies should make, not the government.
Perhaps our environment and climate change minister or prime minister can finally tell us why they think there is a future for Canadian oilsands in the face of the IEA’s predictions resulting in its demise. And maybe they could explain why the federal government is planning to ignore that fact and spend billions on a dying industry. Then they could explain to us why the government wouldn’t just let the industry gamble the money on carbon sequestration themselves.
Justin Trudeau should know there is no place for the state in subsidizing the sunset industries of the nation. It’s a lesson we seem to have to learn over and over in Canada.
Comments
Yes, they know and they don't know. They're almost completely capture by industry. The public doesn't hold them to account. We could though.
Belot: "little demand for hard-to-refine bitumen"
Bitumen is not the only product out of the oilsands. Some 35% of production is sent to Alberta upgraders, which turns bitumen into high quality synthetic light sweet crude oil, which can be sold to simple refineries:
"Upgrading is a process by which bitumen is transformed into light/sweet synthetic crude oil (SCO) by fractionation and chemical treatment, removing virtually all traces of sulphur and heavy metals.
"SCO is much better in quality than diluted bitumen and even slightly better than conventional light/sweet crude due to its low sulphur and heavy metals content.
"SCO sells at a wide premium to diluted bitumen, typically close to par with WTI."
"Bitumen Upgrading Explained" (Oilsands Magazine)
If the remaining oil demand favors light oil instead of heavy oil for automotive and jet fuel, might there not be a market for Alberta's upgraded barrels?
In the oilsands, carbon capture is most suited to upgrader facilities, which have a high CO2 concentration stream, as hydrogen is produced through steam reforming of natural gas (or methane).
Wed carbon capture to upgraders, and now you have a low-carbon (but expensive) light sweet crude oil that can be sold to any refinery in the world. Expense may not matter as long as government is willing to pay for carbon capture.
A compliant Liberal government is the third essential ingredient.
The comment on difficult and expensive also holds for upgrading which is as you suggest is just partial refining. The US carbon levy will incorporate both the production carbon and the upgrading carbon so synthetics will be disadvantaged versus conventional light crude. I wouldn't expect synthetics to be highly valued but maybe, they have a lot of poor quality FCC feed so possibly a specialized chemicals application. I doubt the demand for synthetics in that world would be enough to sustain the current size we have and the cost and location disadvantage remains a problem relative to global competition.
No matter how light and sweet they can make the synthetic product, it still originates from the oil sands where the basic mining and rendering process burns horrendous quantities of natural gas, which in turn contains increasing proportions of fracked gas with its own additional emission problems.
@Alex: I believe most of the natural gas combustion in the oilsands is to produce steam for in situ projects, which melt bitumen far below the surface. The liquid bitumen flows to a producing well, from which it is pumped to the surface.
SCO is "mostly sourced from mined oil sands".
"Bitumen Upgrading Explained" (Oilsands Magazine)
Still, Geoffrey, it's not exactly the up from the groud bubblin crude of Jed Clampett. Easy conventional oil peaked years ago. Now it's mainly expensive and carbon intensive unconventionals (oil sands, deep sea...)
Belot: "Meanwhile, Canada is spending billions on a sunset industry. Is that the best use of our limited dollars to fund the green transition?"
Doubling down on fossil fuels to fund the shift away from fossil fuels.
A typically contradictory Liberal talking point — not realistic or rational policy.
The Trudeau government will lose its shirt on the Trans Mtn pipeline and expansion. Current costs of TMX: $30.9 B and rising.
The Liberals, under Trudeau and his successors, will spend hundreds of billions of public dollars on carbon capture, SMRs, and blue hydrogen.
The Liberals are also willing to fund O&G cleanup and reclamation. AB's oil & gas industry has amassed unfunded cleanup and reclamation liabilities north of $260 billion.
The actual environmental and public health costs of turning the oilsands region into a sacrifice zone are astronomical. Most of these costs are externalized.
If the Trudeau Liberals were serious about climate change and funding a rapid green transition, they would stop spending scarce public dollars on fossil fuels. They would invest in the solution, not the problem.
"Climate-sincere", my foot.
When you add in the private banking loan guarantees where the low rate preferences are assigned only to governments are not attainable, any acountant may see the total cost potentially exceeding $37,000,000,000.
We not only have an emissions problem, but also a debt problem that will never be repaid.
You know you're being scammed when the Official Opposition Party doesn't say a word about a $5B pipeline whose cost has ballooned to $30B.
An excellent article. Kudos!
I'm not convinced hydrogen in the form of liquid ammonia will fuel EVs, but there may be some potential for ships and trucks going where electricity isn't available.
Electricity is already widely distributed in thousands of grids in advanced countries. In Canada its delivered to almost every household. Fueling at home is a powerful attraction to EV owners, especially those who enjoy very cheap nighttime power rates where time-of-day rates apply.
Solar has already crossed the cheapest form of energy ever invented Rubicon, with wind following close behind. The grid is already in place. And the advances in batteries both for land transportation and grid storage are entering the field quickly.
Carbon Brief, the IPCC, the IEA and other organizations that have done the math see EVs powered by renewables as the main antidote for fossil fuel dependency, and electricity generating renewables on their own as the most important path toward decarbonization.
On battery chemistry, troublesome cobalt and nickel are being displaced by safer and often cheaper manganese, iron, phosphate and sodium. In addition, lithium and battery reycling is fast becoming big business. Once an EV battery pack is replaced after a decade of use, it still has some life left for less demanding power requirements in small scale ammendments to solar and wind farm battery storage arrays. Lithium mining can be offset by increasing streams of recycled lithium.
The largest grid storage battery packs are currently being built for wind and solar in Scotland and Australia, and they use predominantly lithium iron phosphate (LFP) chemistry. Yes, the EV battery industry is now entering grid storage. In that light, Trudeau should hedge our subsidy bets by motivating VW, Stellantis and other carmakers to plan to expand their plants to also produce larger grid battery packs, which may actually evolve to be more profitable in the long run, especially if cities greatly improve their urbanism in favour of transit and walkable communities.
I should clarify that EVs, building energy sourced from zero emission renewables and conservation together would pose a distinct threat to fossil fuel hegemony. Public demand is getting stronger for that scenario.
To elaborate on grid battery storage, the three players linked below have entered the scene. There are more, but these companies are already out of the lab and on the ground in wind and solar farms in North America. None of these battery compositions use lithium, nickel, cobalt or manganese (standard lithium ion chemistry) in any dominant fashion, and were developed to use cheaper, more widely available materials and byproducts like vanadium, metallic calcium, iron and so forth. The chemistries do not suffer from dendrite issues and thermal runaway.
All these batteries can be fully cycled over and over thousands of times with negligible reduction in capacity over the years, and are warranted for up to 25 years with regular basic maintenance. Because they use cheaper and more common materials with some in liquid form (outcompetes solid state batteries on wear), and are already designed for district-scale storage (not for smaller-scale road transportation) they will outcompete Tesla and other players merely using ramped up numbers of lithium-based car batteries on price and longevity.
INVINITY, which uses the vanadium flow battery chemistry and design. Canadian firm based in Vancouver. Numerous projects around the world, including large solar farms in Alberta.
https://invinity.com
AMBRI, a liquid metal battery company developed by Canadian Dr. Donald Sadoway at MIT. Now used in data farms powered by solar and wind in Nevada and other commercial applications.
https://ambri.com
FORM ENERGY, uses an iron-air composition, also developed at MIT. Capable of storing tens of MW of power for up to four days.
https://formenergy.com
Some prognosticators hyperventilate about the green energy revolution. Given the sudden advancements in battery technology for both transportation and the grid and their growing record of success at affordable prices, the evidence is mounting that the revolution is already here and is just starting to climb up the S curve to erode demand for oil and gas. And that is accomplished without attacking and regulating oil companies out of existence (government action), but by appearing on Big Oil's own economic field of play in the marketplace and undermining them with very competitive prices on better quality products.
It's clear now that the 2020s will likely be a revolutionary decade that will help lower emissions with affordable renewable electricity.
Why does the federal gov't subsidize the O&G industry? Most likely they are responding to that fraction of the electorate that sees a benefit to O&G. Not much different than Germany responding to an electorate that wanted nuclear plants shutdown (because 'Chernobyl'), and accepts burning coal as a replacement. Like it or not, democracies are messy, whether FPTP or proportional.
Well, Germany recently passed the 50% mark in grid energy generated by renewables (primarily solar and wind), making renewables the majority energy. Thanks in a large way to a tyrant who resides in Moscow, the demand for coal, gas and eventually oil is eroding.
Listen to Energi Talks podcast to hear a variety of experts from the world give their views. And of the 100 I have listened to, not one says oil will expand or stay even or even be around in 30 years